Brief Overview
Salesforce delivered mixed second quarter results with revenue meeting expectations but profit after tax and minority interest (PATMI) lagging due to higher research and development and sales & marketing spending. The company is positioning itself as the enterprise AI data layer through Headless and Claudeforce initiatives, extending CRM data into platforms like Claude, Slack and Teams. Management anticipates second half growth driven by premium AI products and usage-based monetisation, with significant growth potential as only 5% of users currently use higher-tier editions.
Investment Positives
The core Sales and Service Cloud divisions continue to demonstrate resilience as revenue anchors. Revenue increased 11% year-on-year to US$11.3 billion, maintaining consistent growth momentum from the previous quarter’s 10% increase. The sales division faces minimal AI disruption since monetisation primarily occurs through upselling existing Salesforce offerings.
Customer retention metrics remain exceptionally strong with attrition near record lows, whilst Sales, Service and Slack all delivered seat growth. Existing customers are actively upgrading through premium AI-enabled bundles, particularly Agentforce 1 Edition for premium Sales and Service Cloud. Agentforce application bookings have also more than doubled quarter-on-quarter, whilst premium Slack upgrades tripled following Slackbot’s March 2026 launch.
The agentic AI momentum continues to accelerate significantly. Agentforce annual recurring revenue exceeded US$1.5 billion, representing approximately 3.3% of FY27 revenue guidance midpoint and marking growth of more than 240% year-on-year. The consumption-based pricing model encourages rapid customer adoption, with Agentforce bookings doubling quarter-on-quarter. Notably, 50% of new bookings came from existing customers purchasing additional credits after initial deployment.
Growth products including Agentforce, Headless and Data 360 collectively reached nearly US$3.9 billion in annual recurring revenue. Salesforce benefits from owning crucial customer data, workflows, permissions and governance layers that support data quality, whilst customers increasingly prefer AI embedded within existing software rather than managing complex internal AI systems.
Investment Negatives
The report identifies higher research and development, marketing and sales expenses as factors contributing to lower-than-expected earnings performance. These increased operational costs resulted in PATMI lagging behind revenue performance during the quarter.
Outlook
Management expects second half growth to be driven by premium AI products including Agentforce, Slackbot and Claudeforce, alongside usage-based monetisation and customer upgrades. The growth runway remains substantial given that only 5% of users currently utilise higher-tier editions.
Recommendation & Target Price
Phillip Securities Research maintains a NEUTRAL recommendation whilst raising the DCF target price to US$243 from the previous US$166. The analysts increased their terminal growth rate from 3% to 5.5%, reflecting improved market confidence in Salesforce’s core CRM business, the Anthropic Claudeforce partnership, and stronger software sector sentiment as enterprise AI monetisation gains traction.
Frequently Asked Questions
Q: How did Salesforce's core business perform in the latest quarter?
A: Sales and Service Cloud revenue rose 11% year-on-year to US$11.3 billion, with attrition remaining near record lows and all divisions delivering seat growth.
Q: What is driving Salesforce's AI revenue growth?
A: Agentforce ARR exceeded US$1.5 billion with over 240% year-on-year growth, driven by a consumption-based model and customers purchasing incremental credits after initial deployment.
Q: Why did earnings lag behind revenue expectations?
A: Lower-than-expected PATMI was mainly driven by higher R&D and sales & marketing spending during the quarter.
Q: What is Salesforce's AI strategy?
A: The company is positioning itself as the enterprise AI data layer through Headless and Claudeforce, extending CRM data and agents into Claude, Slack and Teams.
Q: How significant is the growth opportunity?
A: Only 5% of users currently use higher-tier editions, indicating substantial runway for customer upgrades and premium product adoption.
Q: What drove the analyst target price increase?
A: The target price rose to US$243 due to the Anthropic Claudeforce partnership, improving confidence in core CRM business, and stronger software sector sentiment.
Q: How are existing customers responding to AI offerings?
A: Premium Slack upgrades tripled since Slackbot launched, whilst 50% of Agentforce bookings came from existing customers purchasing additional credits.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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