Salesforce falls after weak annual forecast puts spotlight on AI monetization

By Zaheer Kachwala

(Reuters) -Shares of Salesforce fell more than 4% on Thursday after a downbeat annual revenue and profit forecast raised questions about when the enterprise cloud firm would start to show meaningful returns on its hefty artificial intelligence bets.

Salesforce's top boss, Marc Benioff, has made a big effort in recent years to transition the firm beyond traditional cloud computing and toward data-driven machine learning and generative AI to take advantage of the rapidly evolving tech landscape.

But the company's weak annual revenue outlook sows doubt over the pace of monetization for Agentforce — its AI agent builder platform — as its business clouds and subscription revenue lag owing to slower spending from enterprise clients.

"Unfortunately for Salesforce, the focus (on Agentforce) is coming at the expense of the rest of the business, which continues to decelerate," said Gil Luria, managing director at D.A. Davidson.

"Since Agentforce may not become a significant contributor for at least a year or two, that means Salesforce will experience even slower growth this year."

Outgoing CFO Amy Weaver said on Wednesday the adoption cycle for Agentforce is early and the company is focused on deploying the software to customers, but sees "meaningful contribution in fiscal 2027".

"For Salesforce, the rather gloomy outlook could quickly turn around but with investors wary of the huge sums of cash that have been spent on chasing the AI dream, it will have to deliver quickly because the competition is fierce," said Danni Hewson, head of financial analysis at AJ Bell.

Investors have been at the heels of big tech firms, including Microsoft and Meta, to show returns on the billions poured into AI.

Salesforce's fast-growing data cloud remains a bright spot as it is the driving force behind its agents.

Data cloud and AI annual recurring revenue rose 120% last year, which analysts said could lay a foundation for growth acceleration.

Salesforce's 12-month forward price-to-earnings ratio is 27.07, compared with Snowflake's 162.52 and ServiceNow's 55.23.

If current losses hold, the company is set to wipe off more than $12 billion from its market value.

(Reporting by Zaheer Kachwala in Bengaluru; Editing by Shailesh Kuber and Shilpi Majumdar)