Salesforce (CRM) faces stock volatility and valuation debates as it implements AI-driven job cuts and makes a significant investment in AI-powered experience orchestration firm Genesys. Despite strong underlying financials and strategic shifts towards profitability and AI, the market remains uncertain, questioning long-term growth and competitive positioning.

Market Performance and Recent Declines

Shares of Salesforce (CRM) closed at $242.76, reflecting a 3.2% decline in the past week and a substantial 26.6% reduction year-to-date. Over the last five years, the stock has shown underperformance, declining by 2% while the broader S&P 500 index fund returned 127% over the same period. This trend is attributed to investor concerns surrounding the company’s competitive position and potential disruption risks. Despite beating Wall Street expectations in its Q2 FY2025 earnings for both revenue and non-GAAP profitability, the market reacted negatively, raising questions about future growth rates.

Strategic Shift Towards AI and Workforce Optimization

Salesforce has been actively integrating AI into its operations, a strategy that has led to significant workforce adjustments. The company implemented AI-driven job cuts, particularly within its customer support functions, as part of a broader restructuring initiative. Salesforce CEO Marc Benioff noted a reduction in customer service headcount from approximately 9,000 to 5,000 after the successful deployment of AI agents. The company's "Agentforce" platform has handled over 1.4 million requests, demonstrating the efficiency gains.

A Salesforce spokesperson commented on the strategic rationale:

"Because of the benefits and efficiencies of Agentforce, we've seen the number of support cases we handle decline and we no longer need to actively backfill support engineer roles."

The company further indicated that hundreds of employees affected by these changes were redeployed into other areas such as professional services, sales, and customer success, underscoring a strategic reallocation of human capital to align with AI-driven efficiencies. This aligns with broader industry trends, where researchers at the Federal Reserve Bank of St. Louis have observed a correlation between AI adoption and increased unemployment in technology sectors since 2022.

Major Investment in Genesys Signals CX Expansion

Further solidifying its commitment to AI-driven customer experiences, Salesforce has announced a substantial $1.5 billion investment in Genesys, a global leader in AI-powered experience orchestration. ServiceNow contributed an equal amount, totaling a $1.5 billion investment for Genesys. This move deepens Salesforce's existing partnership with Genesys, particularly through their "CX Cloud from Genesys and Salesforce," a unified AI-powered solution integrating Genesys Cloud and Salesforce Service Cloud. This collaboration aims to centralize data, agents, and communication channels for enhanced customer and employee experiences.

Genesys CEO Tony Bates highlighted the strategic importance of this investment:

"Genesys is delivering long-term value to enterprises through end-to-end customer experience orchestration that can drive loyalty, grow revenue and reduce operating costs. We're proud to have the support of industry leaders like Salesforce and ServiceNow, and we believe this reflects growing momentum around agentic AI and the importance of connected, autonomous customer experiences."

The Genesys Cloud platform itself has demonstrated robust growth, reaching nearly $2.1 billion in annual recurring revenue (ARR) during the first quarter of fiscal year 2026, representing over 35% year-over-year growth.

Financial Performance and Valuation Debates

Despite the market's recent skepticism, Salesforce's underlying financial performance shows strength. The company’s revenue has grown by 85.87% over the past five years, while its net income via Free Cash Flow (FCF) has increased by 205.48% to $12.5 billion. In the trailing twelve months (TTM), Salesforce generated $12.5 billion in FCF, achieving a 31.64% margin. Operating income stood at $8.38 billion (21.22% margin), and net income reached $6.66 billion (16.87% margin), with a strong gross profit margin of 77.65%.

Valuation analyses present a nuanced picture. According to Simply Wall St, Salesforce (CRM) appears undervalued. A Discounted Cash Flow (DCF) model estimates its fair value at $282.51, implying a 14.2% undervaluation compared to its recent trading price of $242.52. The company's Price-to-Earnings (P/E) ratio of 34.7x is also considered favorable, being lower than its estimated fair P/E of 44.4x and slightly below the US Software industry average of 34.9x, and significantly below its peer average of 60.6x.

Salesforce anticipates earnings per share (EPS) of $11.34 in 2025 and $14.50 in 2027, placing its forward valuation multiples at 21.41 times 2025 earnings and 16.74 times 2027 earnings. This contrasts with some "Magnificent Seven" peers which trade at higher multiples despite lower growth rates. The market, however, continues to prioritize top-line growth, often overlooking the challenges of sustaining high growth for a company with $40 billion in revenue that is now prioritizing profitability expansion.

Looking Ahead: Profitability, AI, and Market Perception

The future trajectory of Salesforce stock hinges on several key factors. The successful adoption and revenue contribution from its new agentic AI products, sustained expansion in small and mid-sized customer segments, and the effective integration of acquired technologies like Regrello and Informatica will be critical. The company's strategic pivot towards enhancing profitability through AI-driven efficiencies and targeted investments, such as with Genesys, represents a significant shift that investors are still evaluating.

While the market currently expresses uncertainty, the long-term success of Salesforce’s AI integration and strategic investments, such as with Genesys, could solidify its position in the competitive software industry. The company's ability to demonstrate consistent profitability and leverage AI to deliver scalable customer experience solutions will likely determine its rebound potential and address ongoing valuation debates.