Salesforce: The AI Replacement Theory Is Overwhelming, Has the SaaS Leader Become a "Pawn"?

Recently, under the narrative of “AI killing SaaS,” CRM has been one of the most severely impacted sectors. On February 25th, Eastern Time, after the US stock market closed, Salesforce announced its fiscal year 2026 Q4 financial results (as of January 31). Overall, performance was average.

Revenue growth did accelerate slightly as expected, mainly due to acquisition accounting effects, with organic growth remaining weak. Gross margin continued to be under pressure and declined further, while expenses increased significantly across the board, leading to GAAP operating profit falling short of expectations. Another key indicator—cRPO (short-term unfulfilled revenue balance)—grew at a rate below market expectations, resulting in negative market feedback.

Specifically:

1. Growth appears to accelerate but is still slowing down: This quarter, core business—subscription revenue increased by 13% year-over-year, or 11% excluding favorable FX effects, a 2 percentage point acceleration from the previous quarter. However, 4 percentage points of this growth came from consolidating Informatica, so excluding this impact, the organic growth of existing business remains sluggish.

Looking at business lines, except for the platform cloud growth driven by Informatica, other segments’ growth (at constant FX) generally slowed down quarter-over-quarter, with the best being flat. This indicates that although the company’s guidance previously expected revenue to bottom out and rebound, there has been little evidence of that by this quarter.

2. AI business revenue has slightly accelerated but remains very early-stage: This quarter, Data & Agentforce business annualized revenue reached $2.9 billion, with about $1.1 billion from consolidation effects. Excluding this, AI-related revenue grew 29% quarter-over-quarter, the fastest growth since data disclosure began.

Among these, Agentforce’s annualized revenue hit $800 million, up nearly 170% year-over-year, indicating a modest acceleration in AI business growth. However, in absolute terms, AI-related revenue accounts for less than 7% of total revenue, and Agentforce alone accounts for less than 2%. This shows customer adoption is still in very early and trial stages, and the “acceleration” is only on this small base.

3. Leading indicator growth remains modest: The core metric, cRPO (short-term unfulfilled revenue), nominally surged to 16%, which looks promising. But after removing FX effects, the actual YoY growth is 13%, with 4 percentage points coming from consolidation effects. So, excluding this, the growth of existing business cRPO has actually slowed compared to last quarter.

Market expectations, based on prior optimistic guidance, were for growth of around 14-15%, but actual performance was somewhat disappointing, with no signs of acceleration.

4. Gross margin continues to decline amid AI investments: Gross margin for this quarter was 77.6%, slightly lower than both sequential and YoY, and below Bloomberg’s forecast of 78.4%.

Focusing on core subscription business, gross margin was 82.4%, down about 0.5 percentage points sequentially and nearly 1 percentage point YoY. I believe this is likely due to AI-related businesses like Agentforce requiring more backend computing power, which depresses margins.

5. Significant acceleration in expense growth: While revenue growth was modest, total operating expenses increased sharply—by nearly 15% YoY, a multi-year high, surpassing market expectations and revenue growth.

Specifically, R&D, sales & marketing, and general & administrative expenses all grew around 15%, indicating broad-based increased investment. Last quarter, the company was still cost-conscious, but this quarter, management shifted toward aggressive growth, suggesting a clear push for expansion.

6. Margins under pressure, expenses expanding, profits struggling: With modest growth, shrinking margins, and rising expenses, GAAP operating profit margin was 16.7%, down 1.5 percentage points YoY, marking the first YoY decline since FY2023 (the post-pandemic low in FY2022).

Profit totaled $1.87 billion, up less than 3%, and missed Bloomberg estimates by nearly 8%, giving a poor impression. Excluding non-cash expenses (mainly stock-based compensation and asset changes), free cash flow was $5.32 billion, exceeding expectations and previous guidance. The divergence mainly stems from recognizing more deferred revenue on the balance sheet.

7. Shareholder returns are quite generous: As previously promised at Dreamforce, after limited growth, returning value to shareholders has become a key way to maintain investor appeal. In FY2026, the company spent $14.3 billion on shareholder returns, mostly through buybacks. At current market cap, this implies an approximately 8% return rate, quite substantial.

Additionally, the company announced a new buyback authorization of up to $50 billion (replacing the previous limit). Overall, Salesforce is quite generous in shareholder returns.

Dolphin Research Viewpoint:

1. From the above, Salesforce’s performance this quarter is clearly not strong. After excluding the benefits from consolidation and FX, organic growth of existing business has not accelerated—in fact, it continues to slow. The guidance from management earlier this year, expecting a revenue rebound, has not materialized by this quarter. (While total revenue growth, including FX and acquisition effects, has recovered to over 10%, this is of limited significance.)

Although AI-related businesses like Agentforce have seen accelerated revenue growth after over a year of development and iteration, they are still small-scale “playthings” and do not substantially drive overall revenue.

Meanwhile, AI-related costs are higher, and with increased investments—whether to accelerate revenue or defend against AI substitution threats—profitability has suffered.

Overall, the impression is moderate growth and weak profits.

Regarding future guidance and outlook:

In the short term, at constant FX, next quarter’s total revenue is expected to grow 10-11%, similar to this quarter with slight improvement, and the contribution from consolidation remains around 4 percentage points, roughly in line with Bloomberg expectations. Slightly better than this quarter, but still indicates no significant organic acceleration.

Guidance for cRPO YoY growth remains at 13% (constant FX), consistent with this quarter, with no indication of acceleration. The contribution from consolidation is not specified but presumed similar.

Profit-wise, EPS guidance is about 5% below Bloomberg estimates after dilution, though slightly above non-GAAP expectations. However, Dolphin generally does not consider stock-based compensation as an expense, so from GAAP perspective, the outlook is not very positive.

Overall, next quarter’s growth remains steady without clear acceleration, and profits remain under pressure.

2. However, with Openclaw revealing that AI agents are evolving and maturing faster than expected, and top models like Claude and Gemini accelerating their iterations, the narrative of “how AI will change/revolutionize software and all industries” is likely to have a bigger impact on stock prices than actual performance.

Frankly, Dolphin believes that: a. existing software giants possess enough industry “know-how” and proprietary data to maintain a leading position in the AI era—making AI an enabler rather than a competitor; b. AI will significantly reduce internal R&D and automation costs, undermining the competitiveness of expensive SaaS services, or even replacing employees with agents, drastically reducing the number of billable seats. These scenarios could severely harm SaaS profitability.

Which of these two opposite possibilities is more likely remains an open question. The only certainty is high uncertainty, which translates into risk—likely amplified as AI continues to evolve.

Therefore, similar to Dolphin’s previous view on Uber, while the company’s current performance appears stable and shows no obvious signs of AI disruption, the risk of complete disruption (“zeroing out”) remains. Dolphin prefers to adopt a wait-and-see approach in the short to medium term, echoing the saying “a wise man does not stand under a dangerous wall.”

3. Overall, unlike other SaaS stocks, even if AI does not truly disrupt them, the high valuation of SaaS stocks leaves significant downside risk. Salesforce’s advantage is that its valuation is not high, so further valuation decline is limited, especially with strong buyback support.

Investors holding positions need not overly worry about further sharp declines, but upside potential is also unclear.

Core performance charts and business overview:

1. Salesforce Business & Revenue Overview

Salesforce is the pioneer in the US and global CRM industry, the first to propose the SaaS (Software-as-a-Service) concept. Its key features are cloud-based services rather than on-premise deployment, and subscription-based payment rather than outright purchase.

Thus, Salesforce’s revenue structure mainly consists of two parts: ① Over 95% of revenue is from SaaS subscription services; ② about 5% from professional services like consulting and training.

Further, the subscription revenue is divided into five major SaaS categories, each with roughly similar revenue scales:

① Sales Cloud: The core and earliest business, mainly tools for managing sales processes like contact management, quoting, and closing deals.

② Service Cloud: Another core business, mainly customer service functions such as customer info management and online support.

③ Marketing & Commerce Cloud: Marketing cloud handles marketing via search, social, email, etc.; Commerce cloud provides e-commerce platforms, order management, payments, etc.

④ Data & Analytics (Integration & Analytics): Salesforce’s internal database and analytics tools, mainly MuleSoft and Tableau.

⑤ Platform & Others: Infrastructure and services supporting other SaaS offerings, similar to PaaS; includes Slack, Salesforce’s team collaboration SaaS.

2. Revenue growth appears to accelerate but remains average

3. Leading indicator metrics are similar—seem strong but slightly below expectations

4. Gross margin under pressure

5. Expenses grow sharply

6. Profits nearly stagnant

Source: Dolphin Research

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