Salesforce scoffs at SaaSpocalypse fears with a crushing earnings beat

Shares of Salesforce Inc. jumped more than 13% in late trading after the customer relationship management software provider delivered strong second-quarter earnings and revenue and issued guidance that exceeded Wall Street’s expectations.

The company reported adjusted earnings of $5.90 per share, crushing the Street’s target of just $3.27 per share. Revenue rose 11% from the same period one year earlier, to $11.35 billion, ahead of the $11.32 billion analyst forecast. All told, its net income jumped 87%, to $3.53 billion at the end of the quarter, up from just $1.89 billion one year earlier.

Salesforce also gained more than $2.6 billion thanks to its strategic investment in the artificial intelligence startup Anthropic PBC. In May, that company announced it has raised equity funding that lifted its valuation to a stunning $965 billion. Salesforce was one of the main investors in that round. The company’s free cash flow also spiked, jumping 81%, to $1.10 billion, well ahead of Wall Street’s projection of $643.2 million.

Looking at the current quarter, Salesforce said it sees earnings of between $3.42 to $3.44 per share, with revenue expected to be somewhere between $11.42 billion and $11.5 billion. Those numbers are both better than expected, with Wall Street modeling third-quarter earnings of just $3.38 per share on $11.41 billion in sales.

The strong numbers and optimistic outlook also prompted Salesforce to lift its full-year guidance. It’s now targeting fiscal 2027 revenue of between $46.1 billion and $46.4 billion, which would imply growth of around 11% at the midpoint of that range. That’s up from its prior guidance of $45.9 billion to $46.2 billion in sales. Wall Street is projecting total revenue of $46.1 billion for the full year.

In a conference call with analysts, Salesforce Chair and Chief Executive Marc Benioff (pictured) said the results show that the entire narrative around the so-called “SaaSpocalypse” has been “nonsense” from the very beginning. He said the company’s results prove that AI is actually strengthening its business rather than cannibalizing it, noting that many of them have become major customers. According to him, nine of the top 10 leading AI companies now use Salesforce and its Slack collaboration platform, with their combined spending on those platforms growing 435% from a year earlier.

“This is not the SaaSpocalypse,” Benioff insisted. “We’ve been hearing about this for the last two quarters, these dire predictions about the end of software and how the models eat everything, but none of them have come true for us.”

Software companies such as Salesforce have come under pressure this year amid investor’s fears that as AI models become more powerful, businesses might be able to get their work done without paying for traditional software subscriptions. The concern is that companies could simply use AI to build the software tools they’re currently paying big money for. That’s why Salesforce’s stock is still down 22% in the year to date.

But Benioff said AI models such as Anthropic’s Claude desperately need the customer data, business context and workflows that live inside Salesforce. He said its platform has become the foundation for many AI agents that work autonomously on behalf of their users to get work done. “Salesforce is first and foremost in the data business,” he said. “These AI models need this level of intelligence, security and controls for users.”

The CEO argued that Salesforce’s expanded partnership with Anthropic underscores this point. Today, the company announced a new plugin for Claude called “Claudeforce,” which allows the model to create emails on behalf of salespeople, drawing on the information held in Salesforce and Slack.

Valoir analyst Rebecca Wettemann told SiliconANGLE that Slack is emerging as a key interface for AI agents. “These agents need somewhere to live, and for Slack-native companies, Slack is the ideal place,” she said. “We’re seeing a lot of partner momentum around Slack as a platform for agentic AI development as well. But Salesforce now has a bit of an Agentforce vs. Slack identity problem, and customer confusion could result if it doesn’t resolve this.”

Wettemann was referring to Salesforce’s native AI agent development platform, which provides business with the tools to build their own autonomous agents and use prepackaged ones customized for different industry verticals. Despite the apparent confusion around Agentforce, it’s doing very well. Salesforce said annualized revenue from its Agentforce AI products grew 240% from a year earlier, to $1.5 billion.

Meanwhile, Salesforce continues to grow in other areas. During the quarter, it revealed it had signed a $1.6 billion contract with the U.S. Department of Veterans Affairs. It also announced plans to acquire a customer service startup called Fin for $3.6 billion. That deal should close in the current quarter, ahead of schedule, Benioff said today.

However, Chief Financial Officer Robin Washington admitted that it saw some “headwinds and volatility,” in selling licenses for its integration and analytics software.

Nonetheless, Salesforce said it ended the quarter with $33.5 billion in current remaining performance obligations, which is a measure of revenue that should be recognized within the next 12 months. That’s higher than expected, with analysts forecasting RPO of just $33.2 billion.

Photo: Fortune Photo/Flickr