By Paul R. La Monica

Hopefully Matthew McConaughey isn't being paid for his series of Salesforce.com commercials with the cloud software company's struggling stock. But for new investors, it might be time to wade in ahead of the company's earnings report on Sept. 3.

Salesforce, to be blunt, has been a stinker. Shares have dropped more than 25% this year, making it the second-biggest laggard in the Dow Jones Industrial Average, and Salesforce is down 10% since we wrote about it in early May. Still, some fund managers and Wall Street analysts are betting that the worst may finally be over for the customer relationship management services leader.

It doesn't take a magnifying glass to spot what's worrying investors. Concerns about artificial intelligence eating into the lucrative revenue streams and lofty profit margins for corporate software companies have hit the entire software sector -- the SPDR S&P Software & Services exchange-traded fund is down nearly 2% this year -- and those worries are particularly acute for Salesforce, which faces an undeniable threat from AI. "There are some fears about AI spending crowding out software," says Alex Fitch, partner and portfolio manager with Harris Associates, which owns Salesforce in its Oakmark Select Fund,

But these worries now seem to be more than priced into the shares at this point. Salesforce is trading at 22 times earnings estimates for this year, a 10-year low and well under its average forward price-to-earnings ratio of 54. We're not arguing that Salesforce deserves that type of premium anymore -- this quarter could be a challenging one, with forecasts for just 8.6% earnings growth from a year ago -- but a low 20s P/E may be too low for what's still to come. Analysts are predicting average annual earnings gains to pick up to more than 15% over the next few years. That means Salesforce has a price-to-earnings-growth ratio of just 1.4, compared with a PEG of 2.1 for German competitor SAP, 2.4 for Oracle, which has gained 41% this year, and 3.9 Microsoft, which has risen 19%.

That implies the market is far more worried about AI's impact on Salesforce than its peers -- and underestimating Salesforce's own AI initiatives with its Agentforce business. "Salesforce is particularly interesting," says Justin Menne, a portfolio manager with the multi-asset solutions team at Harbor Capital. "Its valuation is compressed. But it will do well once its AI software offerings scale."

Wall Street certainly thinks so. Some 47 out of 58 analysts rate the stock a buy, and the consensus price target of $343.58 is more than 40% above its current price. Salesforce also is looking to grow its AI business through the purchase of data management software company Informatica for $8 billion, complementing previous acquisitions such as MuleSoft, Tableau and Slack.

And if all else fails, the fact that Starboard Value boosted its stake in Salesforce by 400,000 shares in the second quarter could be another catalyst. The activist investor, which first took a stake in Salesforce in 2022, could prompt CEO Marc Benioff to move more aggressively in rolling out new AI features. The nudge from Starboard has worked before. Salesforce stock nearly doubled in 2023. An activist push combined with the stock's historically low valuation could lead to another big gain.

So maybe now is the time for McConaughey to ask for CRM stock. That could turn out to be alright, alright, alright.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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August 27, 2025 11:19 ET (15:19 GMT)

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