Salesforce CRM) stock came roaring back after the software giant posted a strong Q2 report after-market hours on Wednesday evening.
CRM shares spiked more than 20% on Thursday, marking their largest single-day jump since 2020, and are up another 3% in Friday's trading session.
The rally reflects renewed confidence that Salesforce can turn artificial intelligence into a growth catalyst rather than be disrupted by AI.
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Salesforce posted Q2 revenue of $11.34 billion, rising nearly 11% year over year and edging past the Zacks Consensus of $11.31 billion.
More eye-catching was Salesforce's Q2 adjusted net income of $3.53 billion. This translated into adjusted EPS of $5.90, which soared 103% from $2.91 per share a year ago and crushed expectations of $3.27 by more than 80%.
However, it's noteworthy that the enormous EPS beat was heavily boosted by gains on Salesforce's strategic investments, including in artificial intelligence firm Anthropic. Excluding that benefit, underlying adjusted EPS was reportedly around $3.37, which still topped expectations but paints a more realistic picture of operating profitability.
Meanwhile, operating cash flow surged 71% to $1.3 billion and free cash flow jumped 81% to $1.1 billion. Current remaining performance obligations (cRPO), an important indicator of future sales, climbed 14% to $33.5 billion.
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More importantly, management raised its current fiscal 2027 revenue guidance to $46.1-$46.4 billion (+11% growth), up from $45.9-$46.2 billion previously, and now forecasts adjusted EPS of $16.67-$16.71 (+33% growth), up from its prior $14.06-$14.12 outlook.
Q3 revenue is expected at $11.42-$11.5 billion, representing an 11%-12% increase.Of course, part of the dramatic full-year EPS increase reflects the strategic investment gains already realized. This makes the higher revenue outlook and sustained 14% cRPO growth arguably more important indicators of Salesforce's underlying momentum, with the current Zacks Consensus sales forecast pictured below.
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Salesforce's AI story is rapidly becoming measurable through its AI platform Agentforce and its supporting data foundation, Data 360.
Agentforce and Data 360 annual recurring revenue (ARR) reached nearly $3.9 billion, soaring more than 210% YoY, with Agentforce ARR surpassing $1.5 billion and increasing more than 240%.
Salesforce also delivered 3.2 billion Agentic Work Units (AWUs) during Q2, nearly doubling sequentially, with each AWU representing a discrete task completed by an AI agent and the conversion of intelligence into an actionable result.
Adding fuel to that momentum is Salesforce's expanded partnership with Anthropic and the launch of Claudeforce. The offering combines Claude's reasoning capabilities, which are Anthropic's flagship series of large language models (LLMs), with Salesforce's customer data, workflows and business logic, initially providing 37 prebuilt sales skills that can analyze pipelines, prepare for meetings and take governed actions directly from Claude. Salesforce in Claude is already being piloted and is expected to enter open beta in September.
Perhaps more encouraging is the caliber of companies adopting Salesforce's AI offerings. Management highlighted Cisco Systems CSCO) as expanding its AI investment with Salesforce, while Dell Technologies DELL) is using Agentforce for operations and supply-chain workflows.
Furthermore, Uber UBER) is deploying Agentforce to improve lead conversion, while Robinhood HOOD) is incorporating Salesforce's built-in AI agent, Slackbot, across its workforce. Salesforce also counts household names such as PepsiCo, Coca-Cola, Home Depot, Costco, Ford, and Disney among its broader customer base.
The valuation conversation has certainly changed after Salesforce's explosive two-day move, but CRM shares still don't appear excessively expensive compared with the broader market or its software peers.
Despite the sharp rally, Salesforce's 24X forward earnings multiple is just a slight premium to its Zacks Internet-Software Industry average of 21X and the benchmark S&P 500's 22X.
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Salesforce's Q2 report significantly strengthened the bullish case for CRM stock. Accelerating AI adoption, stronger cRPO growth, impressive cash generation, and raised revenue guidance suggest the company is beginning to prove that generative and agentic AI can increase the value of its software ecosystem rather than replace it.
Still, after a more than 25% surge in less than two trading sessions, investors may not want to aggressively chase the rally. Much of the headline earnings beat came from investment gains, and sustained organic revenue acceleration will be key to supporting another leg higher.
For now, CRM shares land a Zacks Rank #3 (Hold), making the stock compelling to keep on the radar while investors digest its dramatic post-earnings revaluation.
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This article originally published on Zacks Investment Research (zacks.com).