Is Salesforce Stock a Buy Now?

Salesforce (CRM -0.15%) released its most recent earnings report on August 28. In the second quarter of fiscal 2025, which ended July 31, the cloud software giant’s revenue rose 8% year over year to $9.33 billion and beat analysts’ estimates by $100 million. Its adjusted earnings per share (EPS) rose 21% to $2.56 and beat the consensus forecast by $0.20.

Salesforce’s growth rates look healthy, but its stock remains down 2% for the year. Let’s see if it’s worth buying right now.

Image source: Getty Images.

Salesforce’s growth is still slowing

Salesforce is the world’s leading provider of cloud-based customer relationship management (CRM) services. It also provides other cloud-based marketing, e-commerce, analytics and business-to-business collaboration services. In the first half of fiscal 2025, it generated 23% of subscription and support revenue from Sales Cloud, 26% from Service Cloud, 20% from Platform and Other Cloud, 15% from Marketing and Commerce Cloud and 16% from its integration and analysis. Here’s how those five units have fared (in constant currency terms) over the past two and a half fiscal years.

Data source: Salesforce. Constant currency base.

For many years, Salesforce has expanded its ecosystem through large acquisitions. But after being besieged by activist investors in fiscal 2023 (which ended in January 2023), Salesforce halted its inorganic expansion and turned to cutting costs and buying back more shares to boost its EPS. It also initiated its first dividend.

As Salesforce has prioritized expanding its operating margins over revenue growth, rising interest rates and other macroeconomic headwinds have led many companies to cut back on cloud spending. It also faced stiff competition from faster-growing CRM platforms such as Microsofthis (MSFT -0.13%) Dynamics and other diverse cloud software platforms.

For fiscal 2025, Salesforce expects its revenue to grow only 8% to 9%, meaning it will only grow at a high single-digit rate in the second half of the year. Therefore, the recent expansion of its generative AI services (for analyzing its customers’ data and automating repetitive tasks) is not yet significantly boosting its sales.

But its margins are still expanding

Salesforce’s high-growth days may be over, but layoffs and cost-cutting measures are boosting its margins. Adjusted operating margin increased from 22.5% in fiscal 2023 to 30.5% in fiscal 2024 and is expected to widen to 32.8% in fiscal 2025.

Its operating cash flow grew 41% in fiscal 2023 and 44% in fiscal 2024, and it anticipates another 23% to 25% increase in fiscal 2025. It also increased its buybacks from 4 billion in fiscal 2023 to $7.6 billion in fiscal 2024. and repurchased another $6.5 billion in shares in the first half of fiscal 2025. It has $11.9 billion in current buyback authorization .

Salesforce expects these rising margins and buybacks to boost its adjusted EPS by 22% to 23% for the full year. At $258 a share, its stock still looks reasonably valued at 26 times the midpoint of that forecast. Microsoft, which is expected to grow earnings by just 11% in the current fiscal year (which started in July), trades at 31 times forward earnings.

Is the tech stock the right one to buy right now?

Salesforce’s recent improvements have reassured activist investors, but its long-term growth potential is unclear. Its organic growth is disappointing, and it can’t expand aggressively through investments and acquisitions as long as it’s so focused on cutting costs, increasing operating cash flow and buying more stock.

In other words, there is a risk that Salesforce will be next IBM (IBM 1.41%) — the blue chip tech giant that focused so much on EPS growth that revenue growth stalled for an entire decade. If that happens, Salesforce’s EPS growth will slow and it will be re-rated as a slow-growth stock. For now, it doesn’t make much sense to buy Salesforce stock when there are so many better growth, value, and dividend stocks to choose from.