Salesforce modestly beat expectations in the second quarter, but acquisitions and investment gains obscured the lack of acceleration in the core business

Overview

The report reviews Salesforce's 2Q27 results and separately analyzes acquisitions, AI, and one-time investment gains versus core operating performance. Bernstein acknowledges that the quarter was relatively clean overall and that the near-term impact of AI was less severe than the bearish scenario, but it believes the core business has not materially accelerated, growth is increasingly dependent on acquisitions, and Agentforce is not yet sufficient to alter the near-term growth trajectory. It therefore maintains its Underperform rating.

Core views

Most of Salesforce's metrics were slightly better than expected this quarter, and the company raised its full-year guidance, sending the share price up 13% after hours. Quarterly revenue was $11.35 billion, slightly above the consensus estimate of $11.33 billion, at the upper end of the $11.27 billion to $11.35 billion guidance range, and up 11% year over year. Subscription and support revenue was $10.82 billion, above the consensus estimate of $10.79 billion, up 12% year over year and 11% in constant currency. However, the report believes the market reaction was driven more by the previous compression of software valuations amid concerns that “AI will replace SaaS” and by investors' renewed appreciation of a relatively clean quarter than by any clear change in core fundamentals. The report first separates organic growth from acquisition contributions. Informatica contributed $456 million to total revenue, or approximately 4.5 percentage points, and $440 million to subscription and support revenue, also approximately 4.5 percentage points. Excluding Informatica, subscription and support revenue grew by approximately 7%, similar to the previous quarter. The report describes the quarter as only a modest beat, with organic full-year revenue guidance raised by approximately 40 basis points. Of the constant-currency guidance increase, approximately $200 million came from the pending Contentful and Fin acquisitions, while approximately $100 million was characterized as a core increase. However, that amount may still include upside from Informatica, meaning the true core increase may have been only approximately $100 million or less. Core growth appears even weaker after further excluding AI contributions. Agentforce ARR reached $1.5 billion, up more than 240% year over year and $300 million sequentially. The report converts approximately $1 billion of incremental AI ARR into approximately $250 million of quarterly revenue, equivalent to roughly 2.4 percentage points of growth, and accordingly estimates that organic non-AI revenue growth may have been only approximately 5% and was still decelerating. It should be noted that beginning in 2Q27, the scope of Agentforce ARR included Slackbot and Headless 360 in addition to AI products, so the year-over-year growth rate is not entirely like-for-like. Combined ARR for Agentforce and Data 360 was $3.9 billion, up more than 210% year over year, including $1.1 billion of Informatica Cloud ARR. Based on this, the report estimates Data Cloud ARR at approximately $1.3 billion, up from $1.1 billion in 1Q27. Segment performance shows that growth was uneven. Sales Cloud grew by 9%, which the report considers strong at this scale and contrary to some bearish views that AI would immediately disrupt sales software. Service Cloud grew by 5%, or 7% including Agentforce, but still showed no clear acceleration. Marketing Cloud declined by 1%, while Tableau and MuleSoft combined declined by 6%. Platform, Slack and Other, which includes Informatica, Data Cloud, and the AI business, grew by 43%. The report therefore concludes that strong growth was concentrated in platform-related businesses supported by acquisitions and AI, while core areas such as Marketing, Commerce, Analytics, and Integration continued to decelerate or contract. Near-term guidance also did not confirm an organic acceleration. Q3 revenue growth guidance was 11% to 12%. Excluding Informatica's contribution of more than 4 percentage points, constant-currency growth was slightly below 7% to 8%. After additionally subtracting up to approximately $100 million, or slightly less than 1 percentage point of revenue, from Contentful and Fin, the report estimates organic growth at approximately 6% to 7%. Management discussed acceleration in the second half, but Q3 guidance effectively implies roughly stable organic growth. Q2 cRPO grew by 14%, estimated at approximately 10% excluding Informatica. Q3 cRPO growth was also guided to 14%, or still approximately 10% excluding Informatica. Revenue from Contentful and Fin was included in Q3 revenue guidance, but their cRPO contribution was excluded, so the report believes there is room for a cRPO beat next quarter. By Q4, the company will begin facing a higher comparison base following the consolidation of Informatica, potentially making comparisons significantly more difficult. The apparent profit beat was primarily driven by valuation gains on strategic investments. The detailed results list diluted pro forma EPS of $5.09, 80% above consensus. Elsewhere, the report's breakdown based on $4.55 billion of pretax income gives non-GAAP EPS of $5.9. Strategic investment gains were $2.6 billion, accounting for approximately 60% of pretax income. Excluding this item, the report estimates comparable EPS at approximately $2.5, broadly consistent with the previous trend. Therefore, the report does not interpret the substantial EPS beat this quarter as a meaningful improvement in core earnings power. Dependence on acquisitions is one of the report's principal concerns. Since the pace of acquisitions accelerated significantly in May of last year, the company has acquired 11 companies and is pursuing 3 additional transactions. These involve Informatica, Doti, Momentum, Cimulate, Qualified, Spindle AI, Apromore, Regrello, Waii, Bluebird, Convergent AI, as well as Contentful, Fin, and M3ter. Acquisitions currently contribute approximately 4 percentage points to year-over-year growth, and the contribution may be even higher next quarter. The report is concerned that the company may need more and larger acquisitions to sustain double-digit growth, while frequent integrations would increase costs, management complexity, and organizational disruption and could weaken margin improvement and cash-return capacity. On AI, the report does not believe Salesforce will be rapidly displaced. It argues that enterprises generally deploy agents within the software environments where their data resides: sales agents related to CRM data are more likely to operate within CRM systems, ERP agents are more likely to remain within ERP systems, while automation involving emails, documents, and presentations may occur more often in productivity products such as Microsoft Office Copilot. This limits the upside potential for Agentforce to become a general-purpose agent platform spanning multiple software systems, but it also creates incremental revenue opportunities for Salesforce to sell prebuilt agents, Data Cloud, and AI add-on capabilities to its existing customer base. The report believes generative AI poses limited near-term risk to Salesforce, while agentic AI could even offset losses from seat reductions over the long term. However, complex agent applications may still require 2 to 3 years, and the current development process requires substantial consulting and forward-deployed engineering support. The key issue for Agentforce is that high ARR has not yet translated into an acceleration in total revenue. Even including Agentforce, Service Cloud grew by only 7%, potentially because AI revenue recognition lags, free offerings are included in negotiations, or the mature underlying Service Cloud business continues to decelerate. Salesforce also faces competition from Microsoft, SAP, hyperscale cloud providers, AI labs, ServiceNow, and other SaaS vendors. The report believes the company should prioritize adding AI to its core Salesforce products, improving margins, and continuously returning cash rather than relying on acquisitions to compete for the position of a general-purpose agent platform across the entire software industry, because the latter is highly competitive and expensive to pursue. The Anthropic partnership provides a relatively concrete monetization path. Salesforce launched Claudeforce plugins, with the initial offering containing 37 prebuilt sales skills for tasks such as drafting emails and updating records. Customers must have Salesforce seats and use premium versions, potentially protecting seat counts, increasing revenue per seat, and driving usage. The report compares this with Microsoft's integration of Anthropic products into Office and Copilot, arguing that the partnership could both expand product reach and reduce Anthropic's incentive to enter the CRM market directly. However, actual adoption and monetization still need to be observed. Regarding capital returns, the company expects repurchases completed by October 2026 to reduce its share count by approximately 14%. The report views this positively but emphasizes that accelerating acquisitions should not erode cash returns or margins. Meanwhile, the company began adjusting its revenue segments in Q1 and plans to gradually discontinue disclosure of the former individual Cloud figures in FY28, replacing them with two broad categories: Agentforce Apps and Data 360, Platform & Other. Bernstein believes the new classification may better reflect changes in the sales model, but historical data are difficult to map, and reduced disclosure will make it harder for investors to identify underlying growth rates. It may also intensify concerns that the original Cloud businesses continue to decelerate. At the industry level, the report believes the extreme thesis that “AI will destroy SaaS” is overstated. Enterprise software AI adoption takes time. AI may pressure some seat-based businesses, but it may also generate additional revenue through automated product upgrades. Because software valuations had previously fallen sharply, a relatively clean quarterly report showing that AI is not a major near-term headwind can produce a significant rebound. The report cites SAP, Microsoft, and Salesforce as examples, while noting that noisy quarters showing clear signs of AI disruption can also trigger severe negative reactions, as demonstrated by HubSpot's performance. Despite raising its target price from $173 to $195, the report maintains its Underperform rating. The increase primarily reflects model roll-forward and a recovery in peer valuations, with the applied forward P/E multiple raised from 11.5 times to 12 times, rather than a stronger assessment of core growth. Adjusted EPS forecasts are $12.52 for FY26, $17.13 for FY27, and $15.49 for FY28; the previous FY27 and FY28 forecasts were $14.53 and $15.60, respectively. Based on the $205.62 closing price, the $195 target price implies approximately 5% downside. The report's long-term conclusion remains that Salesforce operates in a mature and highly competitive CRM market, cloud penetration is approaching saturation, and the industry's natural growth rate may return to the mid- to high-single digits. Agentforce remains in the early stages of adoption and is unlikely to drive a near-term reacceleration, while continued dependence on large acquisitions creates meaningful downside risk.

Analysis framework

Bernstein first compares actual results and company guidance with market consensus, then separately excludes contributions from acquisitions such as Informatica, foreign-exchange effects, AI revenue, and strategic investment gains to assess the underlying operating growth rate and earnings quality. It then examines the sources of growth by product segment, uses cRPO to evaluate future revenue trends, and converts Agentforce ARR into a quarterly revenue contribution to determine whether AI has already accelerated total revenue. Finally, the report combines the pace of acquisitions, competitive dynamics, capital returns, and changes in peer valuations to determine its rating and target price.

Methodology notes

• Company Fundamentals and Financial Framework

  Breakdown of organic growth, acquisition-driven growth, and core non-AI growth

  The report sequentially excludes Informatica and other acquisitions, foreign exchange, and AI contributions to avoid treating double-digit growth following acquisition consolidation as a direct acceleration in the core business.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Comparable EPS excluding valuation gains on strategic investments

  The report removes strategic investment gains from pretax income and EPS to distinguish one-time investment gains from earnings generated by the core business.

• Valuation MethodPE/PEG valuation

  Forward P/E and peer-valuation comparison

  Because software peer valuations recovered, the report raised Salesforce's forward P/E multiple from 11.5 times to 12 times and accordingly increased its target price from $173 to $195.

• Company Fundamentals and Financial Framework

  ARR-to-quarterly-revenue conversion and segment-through analysis

  The report converts incremental Agentforce ARR into a quarterly revenue contribution and combines it with growth rates for Service, Sales, Marketing, Analytics, Platform, and other segments to determine whether AI growth is genuinely flowing through to the company as a whole.

• Company Fundamentals and Financial Framework

  cRPO leading-indicator analysis

  The report uses growth in current remaining performance obligations to assess future subscription-revenue momentum while excluding the measurement effects of Informatica and pending acquisitions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Salesforce.com Inc (CRM)

  2Q27 results slightly exceeded expectations, guidance was raised, and concerns about the near-term impact of AI eased. However, after excluding acquisitions and one-time gains, improvements in core growth and profitability were limited.

  Strengths

  Sales Cloud grew by 9%; Agentforce ARR reached $1.5 billion; cRPO grew by 14%; planned repurchases could reduce the share count by approximately 14%; enterprise-grade end-to-end implementation provides some protection against AI substitution.

  Weaknesses

  Organic growth is approximately 6% to 7%, while core non-AI growth may be approximately 5%; Marketing, Tableau, and MuleSoft contracted; Agentforce has not yet accelerated total revenue; dependence on acquisition contributions to growth is increasing.

  Comparison

  The report believes Salesforce, like software companies such as SAP and Microsoft, benefited from a sector rebound driven by low valuations and a clean quarter. However, in agentic AI platforms, it still faces intense competition from Microsoft, SAP, ServiceNow, hyperscale cloud providers, AI labs, and other SaaS vendors.

  Risks

  Rising acquisition-integration complexity and costs, the Q4 comparison against the post-consolidation Informatica base, excessive AI expectations, seat and pricing pressure, and reduced growth transparency resulting from less segment disclosure.

Key data

• 2Q27 Revenue$11.35 billionUp 11% year over year, slightly above the consensus estimate of $11.33 billion, and at the upper end of the $11.27 billion to $11.35 billion guidance range.
• Informatica Revenue Contribution$456 million, approximately 4.5 percentage pointsAfter excluding this contribution, the report believes core growth was significantly lower than the headline growth rate.
• Subscription and Support Revenue$10.82 billionAbove the consensus estimate of $10.79 billion, up 12% year over year and 11% in constant currency; Informatica contributed $440 million, or approximately 4.5 percentage points.
• Professional Services and Other Revenue$525 millionBelow the consensus estimate of $532 million.
• Agentforce ARR$1.5 billionUp more than 240% year over year and $300 million sequentially from $1.2 billion in 1Q27; Slackbot and Headless 360 were included beginning in 2Q27.
• Combined Agentforce and Data 360 ARR$3.9 billionUp more than 210% year over year, including $1.1 billion of Informatica Cloud ARR.
• Data Cloud ARRApproximately $1.3 billionEstimated by the report, up from $1.1 billion in 1Q27, $1 billion in 4Q26, and $900 million in 3Q26.
• Growth Rates of Major SegmentsSales +9%; Service +5%; Marketing -1%; Tableau and MuleSoft -6%; Platform, Slack and Other +43%Service grew by 7% including Agentforce; platform-related businesses were supported by Informatica, Data Cloud, and AI.
• Q3 Revenue Growth Guidance11% to 12%The report estimates organic growth at approximately 6% to 7% after excluding Informatica, Contentful, and Fin, with no clear acceleration.
• cRPO Growth14% in Q2, with Q3 guidance of 14%The report estimates both periods at approximately 10% excluding Informatica; Q4 will face a higher acquisition-related comparison base.
• Diluted Pro Forma EPS$5.0980% above consensus, primarily driven by strategic investment gains; elsewhere, the report lists non-GAAP EPS of $5.9.
• Strategic Investment Gains$2.6 billionApproximately 60% of $4.55 billion in pretax income; the report estimates comparable EPS excluding these gains at approximately $2.5.
• FY27 Revenue Guidance IncreaseRaised by $200 million on the report's basis and by $300 million on a constant-currency basisApproximately $200 million was attributed to Contentful and Fin, while approximately $100 million was classified as a core increase; the actual core increase may have been smaller.
• Impact of Share RepurchasesShare count expected to decline by approximately 14%The repurchases are expected to be completed by October 2026.
• Adjusted EPS ForecastsFY26 $12.52; FY27 $17.13; FY28 $15.49The previous FY27 and FY28 forecasts were $14.53 and $15.60, respectively.
• Target Price and Valuation Multiple$195; 12 times forward P/EThe previous target price was $173 and the previous valuation multiple was 11.5 times; the increase reflects model roll-forward and a recovery in peer valuations.

Impact & implications

The report believes this quarter demonstrated that AI is not destroying near-term demand for Salesforce's core enterprise software and showed that low-valuation software companies may rebound significantly simply by delivering relatively clean results. However, Salesforce's headline double-digit growth remains highly dependent on acquisitions, while the core non-AI business may continue to decelerate. Whether Agentforce can convert rapidly growing ARR into an acceleration in total revenue will determine whether the company can move beyond the mid- to high-single-digit growth trajectory of a mature market. Frequent acquisitions may also create pressure across integration costs, margins, and cash returns.

Risks

• The core CRM market is maturing and competition is intensifying, so organic growth may remain at 6% to 8% or decelerate further.
• Agentforce remains in the early stages of adoption, complex agent applications may require 2 to 3 years, and AI ARR may not translate into an acceleration in total revenue quickly enough.
• Management's strong statements regarding AI prospects and ease of implementation may raise investor expectations and create the risk of future performance shortfalls.
• The company may depend on more and larger acquisitions to sustain double-digit growth, creating integration costs, management disruption, and margin pressure.
• Accelerating acquisitions may affect share repurchases, cash returns, and margin improvement.
• Comparisons will become more difficult in Q4 after Salesforce laps the Informatica consolidation, while Tableau and MuleSoft continue to face competitive and AI pressures.
• The gradual reduction of legacy Cloud segment disclosure beginning in FY28 may reduce transparency into underlying growth trends.
• If Salesforce attempts to become a general-purpose cross-software agent platform through acquisitions, it will face intense competition and substantial investment requirements from cloud providers, AI labs, and numerous application-software vendors.

What to watch

• Monitor whether Q3 organic growth of approximately 6% to 7% genuinely accelerates in the second half rather than continuing to rely on acquisitions.
• Track whether Agentforce ARR translates into a meaningful acceleration in Service Cloud and total company revenue.
• Watch whether Q3 cRPO exceeds expectations because contributions from Contentful and Fin were excluded from the guidance scope, as well as how it changes in Q4 after lapping the Informatica base.
• Monitor whether the company continues to disclose the specific contributions of each acquisition to revenue, cRPO, and profit.
• Track the number and scale of new acquisitions, their integration costs, and their effects on margins, repurchases, and cash returns.
• Monitor Claudeforce adoption and whether premium-version requirements can protect seat counts and increase revenue per seat.
• Watch whether the market can continue to identify the actual growth rate of the core Cloud business after the new FY28 segment structure is implemented.
• Track whether the company's revenue-growth guidance for the next fiscal year validates management's claims regarding AI and second-half acceleration.