Salesforce stock was down almost 8% this morning after a disappointing earnings report last night.
The company shared third quarter revenue forecast that came in below expectations and investors worry that has to do with AI monetization problems.
The company is all-in on AI, but Wall Street’s patience for the ROI countdown is running thin it seems. At least it’s running thin enough that even though second-quarter revenue came in pretty good and the company shared a $20 billion increase to its existing share buyback program, that was not enough to quell investor worries.
Salesforce, which provides customer relationship management (CRM) software to companies, is betting its entire future on AI as office work gets automated.
That push is centered around its product Agentforce, a platform of AI agents that can completely automate some CRM processes. The platform is directly wired into company data and can generate personalized emails to clients, spit out sales pitches, and come up with marketing campaigns.
Since launching the product last October, the company has closed over 12,000 deals, of which more than 6,000 are paid customers, the company said in the press release.
The irony is that as Salesforce contends with the automation of its CRM software, the company is also undergoing a major automation of its own workforce. Earlier this week, CEO Marc Benioff said that Salesforce had cut more than 4,000 customer service roles to have AI agents do the work instead.
Salesforce is only one of the many symbols of investor anxiety about when the huge investments in AI will start paying off. Could AI hype slowly be facing reality? The reactions so far might show that investor mood is more “meh” than “wow.”
1. Salesforce’s struggles
The company’s stock is down more than 20% this year, marking one of the worst performances in large-cap tech stocks. The decline was the second-steepest in the Dow, CNBC reported, beating only the deeply troubled UnitedHealth.
Meanwhile, its competitors in the software space are doing fairly well. Oracle, a huge competitor that is providing agentic AI infused business software itself, is doing well in outperforming investor expectations.
2. Growing by acquisition
On the earnings call on Wednesday, company executives said they will be developing new strategies on pricing and services to compete, and reiterated confidence in their strategy to monetize AI.
CEO Benioff even hinted that the increase in the share buyback program —now totaling $50 billion— could be used for acquisitions.
“If we see great entrepreneurs or great technology or something that we’ve never seen before, that just blows our mind, we’re going to buy it,” Benioff told investors.
Salesforce is no stranger to an acquisition driven growth strategy. The company acquired AI-powered cloud data management company Informatica earlier this year in an $8 billion deal.
3. The automation of Salesforce
As Salesforce tries to keep up with the automation of work, company executives are restructuring in favor of AI automation themselves as well.
Earlier this year, the company made headlines for cutting 1,000 roles, and has since cut many more in layoffs, including as recent as this week. Major competitors like Oracle and Microsoft are also following suit.
Last week, Benioff joined an episode of the podcast The Logan Bartlett Show, where he shared that Salesforce reduced its customer support headcount from 9,000 to 5,000.
“If we were having this conversation a year ago and you were calling Salesforce, there would be 9,000 people that you would be interacting with globally on our service cloud, and they would be managing, creating, reading, updating, deleting data,” CEO Marc Benioff said, adding that now those jobs are 50/50 split between AI agents and humans.
“I don’t think it’s dystopian at all,” he added.
4. AI hype facing reality
Wall Street is itching for AI-driven profits.
Some companies have reportedly started cashing in on AI spend. Microsoft shares skyrocketed the company’s valuation to $4 trillion briefly earlier this summer after the tech giant said that sales were up 18% from last year, driven by a revenue surge in its cloud computing platform Azure.
Meta shares rose rose in response to the company’s latest earnings report in July on accounts that its deployment of AI in its ad system spiked ad revenue for the quarter.
But some investors are demanding quicker and bigger profit growth that is directly tied to AI. That’s not the reality yet, and might not be for some time. Experts believe that AI adoption will be certain but slow, and thus it just might take the time to show up in profits.
5. People don’t love AI yet
In a paper published earlier this summer, the Federal Reserve claimed the biggest challenge with generative AI was not the potential of the tech itself but rather getting people and businesses to actually use it. The technology isn’t necessarily adopted widely outside of large firms in a handful of industries.
Even though the Fed had belief in a bounce in AI demand, the magnitude of that is still a mystery. If it ends up being less than expected, then overspending is a real risk that could have “disastrous consequences,” Fed researchers warned.
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