Does Salesforce shatter the doomsday theory? Bank of America pours cold water: Traditional "per-seat fee" model is still being eroded by AI, and new businesses cannot yet support high valuations.

Salesforce's latest quarterly report has dispelled the market's extreme concerns that "AI will disrupt CRM platforms," but Bank of America believes that AI's structural erosion of the traditional "per-seat" model continues, and the size of emerging AI businesses is not yet sufficient to support its current high valuation.

According to TrendFocus, Bank of America analyst Tal Liani pointed out in a research report on August 27 that the significance of Salesforce's performance this quarter lies not in the extent of exceeding expectations, but in its challenge to the pessimistic narrative that "AI will replace Salesforce"—the focus of market debate is shifting from "whether CRM platforms will be replaced by AI" to "whether Salesforce can effectively monetize AI" .

However, Bank of America also emphasized that AI's substantial contribution to revenue is still in its early stages, and the core "per-seat fee" business model is still facing structural erosion from agentic AI . Furthermore, the company's current valuation is already high compared to its peers, and the risk-reward ratio is not symmetrical.

An article on Wall Street Insights states that the latest financial report shows Salesforce's total revenue for the second fiscal quarter increased by 10.8% year-over-year to $11.345 billion, slightly exceeding market expectations. Organic revenue growth was 6.4%, and management guided for approximately 7.4% organic growth in the third fiscal quarter. Full-year revenue guidance was raised by $300 million, but only $100 million of that came from organic improvement. Bank of America believes that Agentforce's annual recurring revenue (ARR) increased by over 240% year-over-year, but the absolute size was only $1.5 billion, still small relative to its $46 billion revenue base .

In terms of valuation, Bank of America maintains its underperform rating , noting that Salesforce's current valuation is at the high end of its peer group, with an enterprise value multiple (EV/FCF) of approximately 13x. Bank of America's $160 price target is based on a 9x EV/FCF multiple for the company's 2027 calendar year forecasts, which is at the lower end of the software peer average of 8 to 14x, primarily due to the company's relatively weak growth prospects.

Quarterly report performance: stable but not surprising, details are mixed.

Bank of America believes that the quarterly financial data slightly exceeded expectations overall, but the structure was not balanced. Total revenue was $11.345 billion, up 10.8% year-over-year, exceeding market expectations of 10.6%; subscription and support revenue grew 11.7% year-over-year, also higher than the expected 11.3%. Current remaining performance obligations (cRPO) grew 13.9% year-over-year, roughly in line with market expectations of 13.7%, and 14% on a constant currency basis, exceeding market expectations of 13%.

The bank noted that profits were slightly weaker. Gross margin was 80.0%, lower than the market expectation of 80.6%; operating profit margin was 34.1%, slightly lower than the expected 34.2%. Notably, earnings per share (EPS) reached $5.90 this quarter, significantly exceeding the market expectation of $3.26. However, this difference was mainly due to significant fluctuations in strategic investment gains (net strategic investment gains reached $2.613 billion in the quarter), rather than from core operational improvements, and therefore has limited significance for assessing the company's fundamentals.

The report stated that residual performance obligations (RPO) increased by 10.7% year-on-year, lower than the market expectation of 12.6%, making it a relatively weak indicator this quarter . Professional services revenue declined by 3.8% year-on-year, continuing its weak trend.

AI monetization: The direction is right, but the scale is still small.

Agentforce was the core of the most watched AI narrative this quarter. Bank of America data shows that Agentforce's ARR increased by over 240% year-over-year, platform usage continued to expand, and its partnership with Anthropic expanded contextual capabilities across multiple application layers. Management noted that approximately half of Agentforce bookings came from credit refills, indicating strong customer engagement and repeat usage.

However, Bank of America remains cautious. Agentforce's ARR is currently only $1.5 billion, a very small percentage compared to Salesforce's revenue base of approximately $46 billion. Bank of America explicitly stated that the substantial impact of AI on the revenue curve is "too nascent" and unlikely to become a core catalyst driving valuation reassessment in the short term.

From a customer behavior perspective, signals such as large transactions, upgrades to high-end seats, Flex Credit purchases, and seat expansion all point to a stable purchasing pattern. Strong performance in mature markets like the US, UK, and Japan also indicates that AI is currently enhancing rather than replacing Salesforce's core products. However, Bank of America emphasizes that this pattern also means that the growth ceiling for the traditional seat-based model still exists.

Structural concerns: The seat-based model is under pressure; the competitive advantage relies on "barriers" rather than "growth."

In its report, Bank of America clearly pointed out the core structural contradiction facing Salesforce: Agentic AI is fundamentally eroding the monetization model based on the number of seats. AI-driven automation directly suppresses the economic logic of net new seat growth, renewal price increases, and upsells.

Bank of America believes that Salesforce's current competitive advantage increasingly relies on the "barrier-like defense" brought about by customer migration costs, rather than the growth momentum of the business itself. This characteristic is more in line with the valuation framework of mature companies, rather than the premium logic of high-growth technology companies.

Organic revenue growth of 6.4% is considered modest by Bank of America for an industry leader trading at approximately 13x EV/FCF in mature markets. Management anticipates improvement in the second half of the year, with both cRPO and subscription revenue growth exceeding expectations. Full-year revenue guidance has been revised upward, but organic improvement accounts for only one-third of the total upward revision, with the remainder coming from the Informatica acquisition.

Looking ahead , Bank of America believes that Salesforce, through its Agentforce, Slack, and acquisition strategy covering data, applications, agents, and interfaces, possesses a strategic advantage in the next phase of AI competition. Management is optimistic about the second half of the year, with third-quarter revenue growth guidance of 11.7% (including approximately 4 percentage points contributed by Informatica) and cRPO growth guidance of 14%, both slightly exceeding market expectations.

However, Bank of America's core assessment remains unchanged: with the monetization path for AI yet to be clearly realized, organic growth still in the single digits, and valuations already high, the current stock price's risk-reward ratio is not favorable for investors. The quarterly report demonstrates Salesforce's resilience, but it is insufficient to justify a higher valuation premium.

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