Salesforce tries to prove AI won’t kill software after brutal sector sell-off
Salesforce beat Wall Street expectations on Wednesday evening, but the results did little to soothe investor fears that AI could reshape, and potentially undermine, the software industry.
The Slack owner reported quarterly revenue of $11.1bn (£8.2bn) during the quarter, up 13 per cent from last year and ahead of analyst expectations, while earnings per share came in at $3.88, comfortably above forecasts.
But despite the headline beat, shares were left largely unchanged in after-hours trading as investors focused on softer forward guidance and weaker backlog growth – signs that uncertainty around AI’s effects remains firmly in place.
The results land on a software sector that has felt the burden of a sharp sell-off since February, amid growing concerns that increasingly powerful AI models could reduce the need for traditional software subscriptions.
Salesforce shares have fallen roughly 33 per cent this year, significantly underperforming both the Nasdaq and broader tech market.
The pressure intensified last month after rival ServiceNow suffered a steep post-earnings decline that triggered fresh concerns over pricing power across enterprise software.
Wall Street has increasingly begun referring to the downturn as a so-called ‘SaaSpocalypse’ – what became shorthand for fears that AI agents or tools could eventually replace parts of the software stack many businesses currently pay for.
But Salesforce is still attempting to pose as one of the biggest beneficiaries of this shift.
The company said annualised revenue from Agentforce, its flagship AI agent platform, has now surpassed $1.2bn, up 205 per cent year-on-year and above the symbolic $1bn threshold for the first time.
Agentforce is designed to allow businesses to automate workflow tasks using AI-powered agents, forming a key part of chief executive Marc Benioff’s effort to reinvent Salesforce around generative AI.
Combined subscription and support revenue tied to Agentforce applications, including Slack and marketing tools, reached $6.91bn during the quarter.
AI optimism, but slowing core growth
Despite the rapid growth in AI-related products, investors are still assessing whether Salesforce can offset slowing momentum in parts of its legacy business.
The company’s remaining performance obligation, a key measure of contracted future revenue, came in at $67.9bn, below analyst expectations of roughly $68.6bn.
Salesforce also issued second-quarter revenue guidance slightly below Wall Street estimates, while executives acknowledged ongoing weakness in areas including Tableau bookings and parts of its commerce division.
Still, Benioffargued Salesforce remains well positioned as businesses increasingly adopt AI tools.
He pointed in particular to Slack, which Salesforce acquired in 2020 for more than $27bn. Once viewed sceptically by investors, the platform is now deeply integrated into Salesforce’s AI strategy.
“It was doing less than a billion in ARR, and it was struggling,” Benioff said. “The management team was really not clear how they were competing against Microsoft.”
Slack was involved in almost half of Salesforce’s deals worth more than $1m during the quarter, the company said.
Elsewhere, Salesforce continued to lean heavily on shareholder returns, having already returned $14.3bn through buybacks and dividends over the past year while authorising a further $50bn repurchase programme.
Analysts at Bank of America recently warned of a potential “structural reset” across enterprise software, while others have argued markets may be underestimating the industry’s ability to evolve.
“The next few quarters will be critical to Salesforce,” Rebecca Wettemann, chief executive of analyst firm Valoir, said after the results. “Both to show the value its core customers are getting from per-seat licences and its Agentforce customers are getting from AI.”
