While U.S. software stocks have broadly rebounded from the AI-driven panic selling earlier this year, Salesforce.com (CRM.US) has yet to truly recover. Concerns over competitive pressures from AI on its core CRM business have caused the stock to significantly underperform its peers. However, the earnings report scheduled for release after the market closes on Wednesday may serve as a key catalyst to break the deadlock.

The stock has severely underperformed, down 30% year-to-date, with its valuation hitting rock bottom. Since hitting a three-year low on April 10, Salesforce has gained 8.6%, but it remains down 32% for the year. This performance is far worse than that of the iShares Expanded Tech-Software Sector ETF, which has rebounded 26% from its recent low on April 10 and narrowed its year-to-date decline to 11%. Both have been left far behind by the tech-heavy Nasdaq 100 Index, which is up 19% so far in 2026, driven primarily by surging chip stocks.

"It has been through a very painful period, but the stickiness of its business and its quasi-essential nature are underappreciated, even as revenue continues to grow at a respectable rate," said Brian Kersmanc, a portfolio manager at GQG Partners, which holds Salesforce shares. "After this significant sell-off, I believe we will start to see its strengths come through."

Software stocks are regaining momentum as encouraging corporate earnings reports suggest that AI may not completely destroy growth as investors initially feared and could even become a tailwind in some cases. Coupled with valuations hitting bottom, this has led Wall Street to believe that the industry-wide weakness seen earlier this year may have been overdone.

However, Salesforce has missed out on most of this rebound, and its outlook remains in question. Wall Street's primary concern stems from competition from Anthropic and OpenAI, which could undermine the pricing power and demand for its customer relationship management software—a product that has driven strong growth with high margins for years.

Is AI competition a "real threat" or "excessive worry"? Last week, Bank of America resumed coverage of Salesforce with an "underperform" rating, citing "structurally slowing growth" and greater competitive risks from AI. Analyst Tal Liani wrote in a report, "Salesforce remains a deeply embedded platform, but we expect the AI transition to bring a structural reset, raising three core concerns: weak net new customer additions, limited upsell potential, and a disappointing AI monetization path. The company is transitioning from a historically high-growth platform to a mature cash generator."

For now, at least, the impact of AI expectations is more evident in market sentiment around Salesforce than in its actual fundamentals. According to compiled data, the company is projected to achieve 11% revenue growth in fiscal year 2027 (ending January next year), up from 9.6% in fiscal 2026. Meanwhile, the stock's valuation is near historic lows, with a price-to-earnings ratio of just 13, well below its 10-year average of 45. Salesforce's P/E ratio hit a record low two weeks ago and has remained below 30 for over a year.

"Given all the legal, compliance, and operational issues, it is extremely difficult for enterprises to switch CRM vendors, so I don't find the narrative of Salesforce being replaced by 'ambient programming' very credible," said Brian Kersmanc, portfolio manager at GQG Partners. ("Ambient programming" refers to users leveraging AI to write code, seen as a major risk for software makers.) "As people gradually realize it hasn't been disrupted, I believe its valuation will be re-rated. Double-digit growth paired with a P/E in the teens looks very attractive."

He is not alone in this view. Among the 62 analysts tracked covering Salesforce, 47 have a "buy" rating, with an average price target of $253, implying a potential 41% upside over the next 12 months. According to compiled data, this is one of the highest implied returns in the S&P 500 technology sector.

The software earnings season has been strong overall; can Salesforce keep up? Software companies have performed robustly this earnings season, with about 87% beating both profit and revenue expectations, a higher beat rate than the overall S&P 500. In the previous earnings season, only 71% of software companies exceeded revenue expectations.

Meanwhile, the recent surge in memory chip stocks indirectly confirms the continued high levels of investment in AI infrastructure. SK Hynix and Micron Technology have seen their market capitalizations surpass $1 trillion, as investors bet that the AI boom will trigger a long-term revaluation of the semiconductor industry. Whether this structural tailwind will spill over into the enterprise software layer is key to determining whether companies like Salesforce can successfully transform.

For Salesforce, the question remains whether its products will be replaced by AI. Stephen Bersey, head of technology research at HSBC, disagrees with this pessimistic view, largely because a significant portion of the value the company sells comes from proprietary data and the deep embedding of its programs within its customers' enterprises. He noted that Oracle (ORCL.US), Microsoft (MSFT.US), and ServiceNow (NOW.US) are in a similar position, unlike companies selling more niche applications like development tools or photo editing—which are more vulnerable to AI disruption.

"AI represents one of the most significant monetization opportunities I've seen in the software industry in decades," he said. "The irony, in my view, is that market pessimism toward this sector has reached unprecedented levels just as we stand on the brink of a golden age for software driven by AI."