By Adam Levine

Salesforce reports its first-quarter earnings on Wednesday afternoon amid a prolonged rout of software stocks. The stock was down 34% in the past year, even as the S&P 500 index was up 29%. Though April and May have seen some software stocks rebound, Salesforce didn't participate in the rally.

Wall Street analysts expect adjusted earnings per share of $3.13, up from $2.58 the year before, on sales of $11.1 billion, up 12%.

The stock is caught up in twin narratives that caused the price to peak in 2024. Revenue grew at greater than 24% a year from 2002 to 2022 when the company began to saturate the market for its customer relationship management software. Growth has slowed -- to 10% last year -- but that's been offset by better profitability, with operating margin rising from 2% in 2022 to 21% last year.

But the narrative that has been the biggest drag on Salesforce is that artificial-intelligence agents will disrupt its user-based pricing, which carries a 75% gross margin. Agents are software programs that can use an AI model to accomplish a complex series of tasks from simple conversational prompts.

Salesforce customers could use coding agents to make their own custom versions of the software. In fact, Palantir Technologies said in its earnings call earlier this month that it had replaced its customer relationship management software with a bespoke solution.

Moreover, if predictions are correct, soon agents will outnumber people on corporate networks, and could blow a huge hole in the user-based business model.

Salesforce is fighting back by selling its own agents under the Agentforce banner. Pricing remains the issue, and Salesforce has already gone through a few sales models for Agentforce. Currently, Agentforce charges according to service consumption, not by the user.

But the company is starting to see some traction here. At the end of the fourth quarter, Salesforce reported that it had $800 million in annual recurring revenue, up from $440 million nine months before. This is still small in the grand scheme of things; the company is expected to generate roughly $46 billion in revenue in 2027. But it's a start, and sales are growing quickly.

Write to Adam Levine at adam.levine@barrons.com

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May 27, 2026 02:30 ET (06:30 GMT)

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