Salesforce Inc (NYSE: CRM) shares slipped nearly 4.0% in post-earnings trading even though the company came in slightly ahead of consensus estimates for both earnings and revenue in Q2.
Investors bailed on CRM stock primarily because the management said margins were expected to remain flat this year. Its guidance for the current quarter wasn’t particularly encouraging either.
In a post-earnings interview with CNBC, Gil Luria – a senior D.A. Davidson analyst – maintained his dovish stance on Salesforce stock, noting that even with expectations set low, the cloud-based software firm failed to impress.
CRM’s second-quarter earnings underscores a broader concern: the company’s growth engine is sputtering as margin expansion remains elusive – despite CEO Marc Benioff’s bullish rhetoric on AI and operational efficiency.
What Salesforce stock needs to sustainably recover
According to Luria, Salesforce’s path to recovery lies not in chasing aggressive top-line growth, but in disciplined margin expansion.
“They’re not expanding margins fast enough,” he said, pointing out that CRM’s operating margins lag competitors like Adobe and Palantir by 10 to 15 percentage points. To close that gap, Salesforce must avoid dilutive acquisitions and instead focus on operational leverage.
“They should be able to get a lot more leverage out of those lines,” Luria said, referring to general and administrative (G&A), sales and marketing, and R&D expenses. CRM didn’t have to pay such a heavy premium for its recent acquisition of Informatica either, the analyst added.
With scale on its side, Salesforce stock has the opportunity to drive earnings growth by tightening spending and doubling down on internal efficiencies, especially in areas like call centre automation
How focus on AI ended up hurting CRM shares
While Salesforce has dubbed 2025 its “year of AI,” Luria argues that the company’s emphasis on emerging tech may have come at the expense of its core business.
“They dropped the ball on the 98% of the business,” he said, suggesting the pivot to AI distracted leadership from stabilizing growth in its flagship products.
The silver lining, however, is that growth in Sales Cloud and Service Cloud – two of CRM’s largest segments – appears to be stabilizing.
Luria cautioned against expecting too much from artificial intelligence in the short term: “We shouldn’t have too high expectations for the AI business. They’re growing it well from a very small base.”
For investors, the message is clear: AI may be a long-term play, but near-term performance hinges on execution in the legacy cloud business.
How Salesforce can redirect its focus in 2025
To unlock its next phase of profitability, Salesforce Inc may need external pressure. Luria believes activist investors could play a pivotal role, just as they did two years ago.
“They really will need those activist investors to encourage the company to go out for that next level of margin expansion,” he said.
By pushing for cost discipline and strategic restraint, activists could help CRM shares resist the temptation of splashy acquisitions and instead focus on extracting more value from its existing operations.
With nearly $15 billion in projected operating cash flow for fiscal 2026 and an expanded buyback program, Salesforce stock has the financial firepower – it just needs sharper execution.
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