Salesforce shares dropped nearly 7% before the bell Thursday, after the cloud software provider's weak third-quarter revenue forecast hinted at delayed returns from its AI investments.
Rising investor bets on AI-driven cloud companies are pressuring them to deliver hefty returns on their billion-dollar investments in the breakthrough technology, but economic uncertainty has forced customers to pull back on spending.
Salesforce has rapidly rolled out AI across its cloud services. In late 2024, it commercially launched Agentforce, an AI agent platform to automate tasks, streamline operations and help lift margins.
The company forecast third-quarter revenue between $10.24 billion and $10.29 billion, with the midpoint coming in below analysts' average estimate of $10.29 billion, according to data compiled by LSEG.
The cloud software provider also announced a $20 billion increase to its existing share buyback program, but that did little to cheer investors concerned about the dour forecast.
"Growth has not inflected yet and investors are thus not seeing an imminent need to revise their thought process," said J.P. Morgan analysts.
With shares down about 24% so far this year, Salesforce has steered toward acquisitions after years on the sidelines, aiming to boost its offerings and profitability.
In May, it acquired data management platform Informatica for about $8 billion.
The stock trades at over 20.98 times its 12-month forward earnings estimates, compared with rivals Microsoft and Oracle's 31.26 and 30.84, respectively.
The company beat second-quarter revenue estimates and given its cheap valuation, some analysts expect the company has room for growth.
"Second-quarter results and positive company commentary are sufficient at this juncture, considering CRM shares are trading near a historically low valuation level and deep discount to software peers," J.P. Morgan said.
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