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Salesforce Q3 FY26 Earnings

Salesforce (NYSE: CRM), the global leader in Customer Relationship Management (CRM), reported its Q3 26(fiscal year) earnings yesterday. In a year defined by volatility and skepticism regarding the durability of Software-as-a-Service (SaaS) in an AI-first world, the company delivered a relatively clean quarter that may signal a turning point. With the stock down around 28% year-to-date in 2025, investors have been waiting for definitive proof that the company’s massive pivot to autonomous AI agents—branded as Agentforce—is more than just marketing hype.

The Q3 report wasn’t a resounding success but it did show that the company isn’t going away anytime soon. While the company did beat adjusted EPS soundly, they did have a small miss on the revenue and free cash flow side which may explain why the market’s reaction to the earnings was muted. The company’s Q4 guidance was also above expectations on both revenue and EPS. The guidance implies growth of 11 to 12% which is an acceleration from the 8.6% this quarter but the next one does include the recent acquisition of Informatica which is a 3% boost to that number so the baseline business isn’t really accelerating.

Speaking of acquisitions, Salesforce made a few more this quarter adding two AI based companies in Regrello and Waii. AI, he’s so hot right now.

Company Overview: Architecting the Agentic Enterprise

Salesforce is the dominant force in the enterprise software market, best known for its Customer 360 platform which unites sales, service, marketing, commerce, and IT. While the company’s roots are in cloud-based CRM (keeping track of customer records), its strategy under CEO Marc Benioff has aggressively shifted toward enabling the Agentic Enterprise.

This new vision moves beyond simple chatbots or co-pilots that assist humans. Instead, Salesforce is building autonomous AI agents that can reason, plan, and execute tasks across business systems without human intervention. The core of this strategy involves three pillars:

Apps: The trusted interfaces users work in every day (Sales Cloud, Service Cloud, Slack).
Data 360: A unified data foundation (formerly Data Cloud) that grounds AI in company-specific context.
Agentforce: The reasoning engine that allows AI to take action.

Buzzword central over here. It seems like everyone is doing Agentic this, AI that these days so we’ll see what that means for these large corporations in the years ahead. Personally, as someone who has used Salesforce an OK amount in my career, it’s not a product I enjoy using but it is something that is very sticky and difficult to move away from and I’m not sure there’s many products out there that do things better since CRM software can be very complex and hard to use properly.

Stock Performance: A Year to Forget

Heading into the Q3 FY26 print, Salesforce shareholders have endured a pretty bad year giving up most of their gains from 2024.

Salesforce stock is down 28% over the last year. This stands in stark contrast to the broader tech sector and semiconductor indices, which hit record highs driven by the AI hardware boom. The market has penalized Salesforce due to fears that Generative AI will disrupt its core seat-based licensing model (i.e., if AI makes agents 30% more efficient, do companies need 30% fewer seats?). I think it’s a fair fear that might take a while to play and potentially give Salesforce plenty of time to move into their next phase of growth.
The longer-term view reflects a maturing giant. Over the last five years, the stock is up only 5.7%, significantly underperforming the NASDAQ and key peers like Microsoft. This stagnation marks a painful transition period where Salesforce shifted from a growth at all costs company to a profitable growth company, alienating some growth investors while not yet fully winning over value investors. The stock has also been quite volatile as evidenced by the chart below.

Earnings Analysis: Q3 FY26 by the Numbers

Salesforce delivered a robust quarter that silenced many critics regarding its execution capabilities.

Key Metrics vs. Expectations

Revenue: $10.26 billion (Actual) vs. $10.27 billion (Consensus). This represents 9% year-over-year growth (8% in constant currency). While single-digit growth is the new normal for this mature giant, it’s certainly not the worst result given some of the other favorable numbers.
Non-GAAP EPS: $3.25 (Actual) vs. ~$2.86 (Consensus). A solid beat on profitability, showcasing the company’s continued discipline on margins. Non-GAAP operating margin hit a record 35.5%, up 240 basis points year-over-year. Do note that CRM has a sizable difference between GAAP and Non-GAAP EPS due to their $3B+ in stock-based compensation.
cRPO (Current Remaining Performance Obligation): The most critical forward-looking metric, cRPO grew 11% Y/Y to $29.4 billion, handily beating Street expectations of ~9%. This indicates that booking momentum is accelerating heading into the key Q4 renewal season. However, note that Q4 does include 4pts of boost from the Informatica acquisition which means that the beat is likely most driven by that.

Guidance Update

Management raised its full-year FY26 revenue guidance to $41.45–$41.55 billion, up from the previous range of $41.1–$41.3 billion. They also raised operating cash flow growth guidance to 13-14%, signaling confidence in their ability to generate massive liquidity despite heavy investments in AI infrastructure.

State of the Business: Wins and Challenges

The Positives: Agentforce is Real

The defining narrative of the quarter was the rapid adoption of Agentforce.

Adoption Velocity: Combined ARR (Annual Recurring Revenue) for Agentforce and Data 360 hit $1.4 billion, up 114% year-over-year. Agentforce alone accounts for over $540 million of this, growing at a staggering 330%. However, this is still a very tiny portion of the business and will need to grow multiples of that to have any major impact.
Usage at Scale: The platform processed 3.2 trillion AI tokens in the quarter. This is a critical metric because it proves enterprises are moving beyond kicking the tires on AI and are actually running production workloads.
Informatica Integration: The company successfully completed its acquisition of Informatica on November 18, 2025, three months ahead of schedule. This acquisition is vital as it allows Salesforce to ingest and process data from legacy on-premise systems (like mainframes) to fuel AI context, solving the data trap that holds many AI projects back.
Cash Generation: Operating cash flow was a robust $2.3 billion (+17% Y/Y), fueling a massive capital return program. Salesforce repurchased $3.8 billion of its own shares in Q3 alone, reducing the share count by 13 million shares. Salesforce has begun shrinking their share count after 2023 but they still have to contend with significant stock-based compensation that dilutes some of the impact of these big buybacks.

The Challenges: The Growth Ceiling

Single-Digit Revenue Growth: Despite the AI hype, organic top-line revenue growth remains in the high single digits and the market expects it to stay there for the next few years. Investors used to seeing 20%+ growth are still adjusting to this mature phase. The company is just much bigger now and it takes massive new bookings to move the needle on a $41 billion revenue base.
The Seat Cliff Risk: A long-term existential risk remains: if AI agents make human workers significantly more efficient, will enterprises eventually reduce their Salesforce licenses? Management argues that AI will expand the volume of work and open new pricing tiers (like consumption-based Agentforce credits), but the market remains cautious about this transition.
Regional Weakness: While the Americas and EMEA performed well, the earnings deck highlighted that APAC (Asia Pacific) was more constrained, particularly in Australia and India, indicating uneven global recovery.

Analyst Q&A Highlights

The earnings call Q&A session was dominated by questions regarding the mechanics of the AI pivot.

On Monetization Models: Analysts pressed leadership on how Agentforce is being priced—is it consumption-based (per conversation) or seat-based? Management clarified that they offer a flexible model. Interestingly, they noted that many customers prefer predictable, seat-based add-ons for Agentforce rather than purely consumption-based models. This is a positive for revenue stability and visibility but also returns to the question as to what happens if overall seat #s are reduced.
On Do It Yourself AI: A key question was why customers wouldn’t just build their own AI agents using open LLMs (like Llama or OpenAI) directly. CEO Marc Benioff and team emphasized that context is king. They argued that standalone LLMs lack the deep business data and workflow context that Salesforce holds. Without the metadata layer provided by Data 360, DIY AI models are prone to hallucinations and integration failures. They cited an MIT study showing high failure rates for DIY enterprise AI. While that’s fair today, as AI gets better, I wonder if this is a true concern for this business.
On Sales Capacity: Management highlighted a significant investment in distribution, noting a 23% increase in ramped sales capacity over the last year. They credited this “back to basics” focus on putting more sellers on the street for the strong cRPO beat. Was it that or was it mostly the acquisition you just made?

Valuation and Verdict: Buy, Hold, or Sell?

Valuation

Salesforce is currently trading at a valuation that reflects its transition from a growth stock to a more mature compounder.

P/E Ratio (Current TTM): ~23.4x.
P/E Ratio (Forward): ~20.9x.
Price-to-Sales: ~5x.

Do note that the above P/E ratios are on a Non-GAAP basis and on a GAAP basis, the forward P/E ratio is 33.7x due to the large SBC. I think I’d lean towards that number more so than the lower one.

On a FCF basis, Salesforce trades at around a 6.2% FCF yield which is as low as it’s been in last 10 years. If you remove SBC from that, the free cash flow yield drops to 4.7% which is still pretty fair in this market for a company still growing in the high single digits.

Comparison to Competitors:

Microsoft: Trades at a significantly higher premium (2% free cash flow yield) due to its diversified growth engines (Azure, Gaming, Office).
ServiceNow: Commands a much higher multiple due to its 20%+ revenue growth rate and perceived immunity to seat compression risks trading at a 2.9% free cash flow yield.

Salesforce is effectively trading at a discount to its large-cap software peers, priced more like a mature consumer goods company rather than a high-flying tech stock because of the perceived risk of losing business to AI efficiencies.

Is it a Buy?

The Q3 earnings release shows that Salesforce is far from dead and making moves to position itself well for the next potential revolution in our economy.

AI is Monetizing: The $540M+ ARR for Agentforce proves this is not vaporware. The company is successfully selling the Agentic vision to the C-suite but for a $41B a year revenue company, that number is still a tiny fraction of their overall picture and if that’s growing at 330% then something else must be growing much slower.
Valuation is Getting Interesting: Trading at ~4.7% forward free cash flow yield after adjusting for SBC with a massive buyback program ($3.8B in one quarter) provides a decent valuation for the stock. The company is starting to reduce its share count at a solid pace, which will mechanically boost EPS. However, even at this valuation, you still have to expect that the company will grow in the high single digits for years to come to get a solid return and any missteps or signs that AI is eating into its business would be trouble. Investors who have held for 5 years haven’t been happy and I think the market is waiting to see growth accelerate a bit before giving this a premium valuation again.
Execution: Beating cRPO guidance by 200 basis points suggests that the sales execution issues that plagued the company in 2024 are being resolved. The Informatica acquisition adds a new revenue layer in data management. That standalone company had $1.7B in revenue and was free cash flow positive before being acquired and tying it into the SalesForce echo system should help that grow faster than it was as a standalone company(low single digits).

The Bottom Line: While the days of 25% annual revenue growth are likely gone, Salesforce offers a compelling blend of value, cash flow, and AI optionality. It’s a strong company with a solid moat and is trading at the cheapest level on various metrics in quite some time. The stock is basically where it was 5 years ago but free cash flow has doubled. For investors willing to hold through the volatility of the AI transition, the current valuation offers an attractive entry point compared to the inflated multiples of the broader hardware and semiconductor sector. I’m not quite sure I want to buy just yet but I may take a closer look if the stock price drops a bit further.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. The author is not a registered investment advisor. All investment strategies and investments involve risk of loss. Nothing contained in this article should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit. Please consult with a professional financial advisor before making any investment decisions.