By Adam Levine

Expectations for Salesforce's earnings are more modest than they were just a few years ago, but that could change in coming years.

Salesforce's sales grew annually by more than 20% for 20 straight years through 2022. More recently, growth rates have slowed to high single digits, and analysts are projecting the same through fiscal 2027. Wall Street analysts expect 8% annual growth in sales to $10.04 billion, and 14% growth in adjusted earnings per share to $2.61. The results are due after the market closes on Wednesday.

Salesforce is a maturing software company, which means decelerating growth rates, but also increasing cash flow and return to shareholders. Salesforce kept 32% of revenue as free cash flow in the year through October, up from 24% the year before. It began share buybacks in the October 2022 quarter, and paid its first dividend during the April 2024 quarter.

"I believe the new profile better supports the company's current valuation and the argument for a higher one," Needham analyst Scott Berg told Barron's. "As margins improve further, we tend to see that valuation floor rise."

But Salesforce is trying to change these dynamics. It is taking the current artificial-intelligence moment and trying to use it to expand its customer base.

A potential shift in AI was heralded by the release of the DeepSeek R1 model from a previously unknown lab in China, which promised to dramatically lower the cost of running AI models.

DeepSeek has released its work to the world via open source, and AI labs around the world are feverishly trying to replicate that lower cost structure. There are plenty of reasons to remain skeptical, but if they can, one of the main beneficiaries will be software companies like Salesforce, who are adding AI features to their current business software offerings.

Salesforce makes customer relationship management software, which gives a sales team a single place to find everything about a customer. Salesforce has been adding AI features since 2016, but its efforts accelerated with the current AI boom that began with the release of Chat GPT in November 2022.

The latest result of these efforts is Agentforce, automating software that sits atop language models like GPT, DeepSeek or Llama. Agents can automate a series of tasks from a simple natural language prompt. Many have predicted that 2025 will be the year of these autonomous AI agents, but not much has surfaced yet.

Agentforce is an important product for Salesforce, because it is the first one that expands past its core offering: CRM software. Salesforce imagines that customers might use the agents for a range of tasks in human resources, IT services, supply-chain management, and financial reporting, to name a few. Eventually, the company hopes, it will be a tool for almost every department in an organization, not just sales.

CRM is a fairly saturated market, but these automating agents may become a new high-growth business for Salesforce that offsets the slowing of growth in the core business. A challenge is that many companies are also plunging into agents this year, including well-heeled ones like Microsoft and Google. So far, the market is wide open, with many players.

It will take some time, likely years, for these agents to affect revenue growth. So for now, analysts continue to see moderate growth for Salesforce.

"While we see excitement in the marketplace for Agentforce, we do not expect this initiative to drive an acceleration in revenue growth this year or even 2026," D.A. Davidson analyst Gil Luria told Barron's. "We believe Salesforce is expending considerable efforts driving adoption of Agentforce, but they may actually be at the expense of the existing business, which could create an offset to any Agentforce benefit."

With the stock trading at around $306, analysts' consensus price target is $401 with an Overweight rating, according to FactSet.

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

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 26, 2025 03:30 ET (08:30 GMT)

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