Salesforce (CRM +5.30%) highlighted its ambitious AI strategy in its record third-quarter fiscal 2026 results released earlier this week. The cloud-based CRM specialist reported revenues of $10.3 billion, marking a 9% increase year over year, while its earnings per share surged. The company has raised its full-year guidance due to increasing demand for AI products integrated into its robust software-as-a-service platform.
Despite these positive business results, Salesforce’s stock remains lower for the year. This juxtaposition of strong business performance and a declining stock price presents Salesforce as a compelling opportunity for investors seeking exposure to AI. It stands as an alternative to more hyped names like Palantir Technologies (PLTR +2.19%), which has gained significant attention as an AI-focused entity.
Salesforce’s third-quarter performance included a notable increase in its non-GAAP operating margin, which rose to 35.5%, up from 33.1% in the previous year. Crucial metrics such as remaining performance obligations (RPOs) also saw a rise, with current RPOs increasing 11% to $29.4 billion and total RPOs climbing 12% to $59.5 billion. These figures offer insights into the expected trajectory of demand for Salesforce’s services moving forward.
Additionally, the company reported a 22% year-over-year increase in free cash flow, reaching $2.2 billion. With substantial excess cash flow and a healthy balance sheet, Salesforce returned $4.2 billion to shareholders through stock repurchases and dividends during this quarter. Given these results, Salesforce raised its full-year revenue guidance to a range of $41.45 billion to $41.55 billion, reflecting anticipated growth of 9% to 10% for the fiscal year.
The company’s AI-specific products are significantly outpacing its overall growth. In the third quarter, Salesforce’s AI offerings, notably Agentforce and Data 360, generated nearly $1.4 billion in annual recurring revenue (ARR), representing an impressive year-over-year growth of 114%. Revenue from Agentforce alone surpassed $500 million in ARR, having more than quadrupled from the previous year. While these figures are modest compared to Salesforce’s total revenue outlook exceeding $40 billion, they underscore the growing momentum of AI as a vital component of the company’s strategy.
Salesforce CEO Marc Benioff emphasized that the demand for Agentforce and related AI tools was a significant factor driving the company’s 11% growth in current RPOs. This indicates that AI is not merely an auxiliary service but is becoming increasingly central to the firm’s growth trajectory.
When comparing Salesforce to Palantir, Salesforce stands out due to its more diversified business model and significantly lower valuation metrics. Palantir has gained a reputation as a pure-play AI investment, with third-quarter revenue rising 63% year over year to $1.18 billion. However, its valuation is concerning, with a price-to-sales ratio exceeding 110 and a price-to-earnings ratio near 400, indicating that the stock price reflects very optimistic long-term projections. In contrast, Salesforce’s price-to-sales ratio is below 6, and its price-to-earnings ratio is 32.
Another advantage for Salesforce is its broad, established software suite that many enterprises rely on for various business processes. This foundation means that the company can generate revenue without entirely depending on its AI initiatives. The AI offerings serve to enhance an already successful business model, unlike Palantir, which is focused solely on its AI data platform. While Palantir may experience faster growth under ideal conditions, its concentrated business model poses risks, particularly in volatile markets.
Despite the strengths of Salesforce, it is important to note that its overall revenue growth has slowed from the high double digits to high-single digits. Furthermore, AI-related ARR of approximately $1.4 billion still constitutes only a small portion of the projected full-year revenue. Nonetheless, Salesforce’s diversified and established business, combined with its attractive valuation, positions it as a strong investment opportunity in the evolving AI landscape.
Given these factors, Salesforce appears to be one of the market’s most underrated investment ideas for those looking to capitalize on the accelerating growth opportunities within AI, especially as the company continues to leverage its strong financial foundation for future growth.
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