Stock price halved, valuation at new lows—tonight, Salesforce’s earnings report ushers in the "judgment hour for software stocks."

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Salesforce will release its earnings report after the U.S. stock market closes on Wednesday. The market regards it as a key touchstone to test whether the "SaaS doomsday theory" has ended. While software stocks have rebounded strongly by over 25% from April lows, Salesforce has lagged significantly behind its peers due to concerns over AI competition. This earnings report may determine whether this former CRM giant can win back investor confidence.

The options market has already made its statement. According to SpotGamma data, on Tuesday, Salesforce's single stock option contract trading volume exceeded the entire IGV software ETF, with total premium size about three times greater, and 61% of the premium concentrated in call options. The ratio of call to put contract trading volume is about 2.6 to 1. Implied volatility shows that the market expects a post-earnings price movement of about 7.8%, more than twice the actual post-earnings movement seen in the past four reports.

Salesforce has fallen 32% so far this year, down over 50% from its all-time high, while the Nasdaq 100 Index has risen 19% and IGV software ETF rebounded 26% from April lows. This significant divergence reflects deep market doubts about Salesforce's ability to maintain its competitive moat in the AI era, making this earnings report much more meaningful for the market than just for the company itself.

Software stocks rebound, Salesforce lags alone

Since April, the software sector has experienced a strong recovery. According to Bloomberg data, about 87% of software companies in this earnings season have exceeded both profit and revenue expectations, higher than the previous quarter's 71% for revenue surprises and also better than the S&P 500 overall. Encouraging corporate earnings data suggests that AI's impact on the software industry may not be as dramatic as previously feared by investors, and in some cases may even serve as a tailwind. Coupled with previous valuations falling to historic lows, Wall Street is re-examining whether the software stock selloff since the start of the year has been overdone.

However, Salesforce has scarcely benefited from this rebound. Since hitting a three-year low on April 10, the stock has only risen 8.6%, far less than the IGV ETF's 26% increase over the same period. The core concern is that AI-native competitors such as Anthropic and OpenAI are eroding demand and pricing power for Salesforce's customer relationship management (CRM) software, which has been the company’s high-growth, high-profit core engine for many years.

Valuation bottoms out, analyst bullish sentiment strong

Despite the pressure on the stock price, Salesforce’s fundamentals have not deteriorated to the extent implied by pessimism. According to Bloomberg compiled data, the company is expected to deliver 11% revenue growth in fiscal year 2027 ending next January, higher than fiscal 2026's 9.6%. Meanwhile, the stock's valuation has fallen to historic lows — the current P/E ratio is about 13 times expected earnings, far below the 10-year average of 45 times, setting a historic low two weeks ago and staying below 30 times for more than a year.

Out of 62 Salesforce analysts tracked by Bloomberg, 47 gave a buy rating with an average target price of $253, implying about 41% upside from the current price, making it one of the highest implied return stocks in the S&P 500 tech sector. GQG Partners portfolio manager Brian Kersmanc commented, "Double-digit growth combined with low-teen P/E seems very attractive." The institution holds Salesforce shares.

AI threat: gap between sentiment and reality

Around the AI disruption narrative for Salesforce, the market shows marked disagreement. Last week, Bank of America gave Salesforce an underperform rating, citing "structural growth slowdown" and intensified AI competition risks. Analyst Tal Liani wrote in a research report, "Salesforce remains a deeply rooted platform, but we expect AI transformation will bring a structural reset, raising three core concerns: weak net new customer growth, limited upsell room, and disappointing AI monetization paths. The company is shifting from historically high-growth platform to a mature cash generator."

Analysts with a differing view argue Salesforce’s core value comes from proprietary data assets and deep embedding of products within customer enterprises, making it difficult to easily replace. Stephen Bersey, Head of Technology Research at HSBC, points out Oracle, Microsoft, and ServiceNow are also in this favorable position, fundamentally different from software companies in application development or photo editing more prone to AI disruption. "AI represents one of the biggest monetization opportunities I've seen in software industry in decades," he said, "Ironically, as we stand at the gate of an AI-driven software golden age, market pessimism toward this sector is at an historic high."

Brian Kersmanc also shares this view, believing companies face extremely high legal, compliance, and operational barriers to switching CRM providers. "I don’t think Salesforce will be replaced by 'ambient programming.' As people become convinced it won’t be disrupted, I believe valuation will rebound."

Options market bets on major volatility

The active options market highlights the high uncertainty and attention around this earnings report. According to CNBC citing Cboe LiveVol data, implied volatility is pricing in a post-earnings move of about 7.8%, more than double the actual moves after the past four reports. In the largest-volume trade, at least one trader spent $650,000 buying 2,000 call options expiring this Friday, strike price $195, betting the stock will rise about 10% by the end of the week.

The options market for the IGV software ETF also shows a strong bullish bias. On Tuesday, call to put option trading ratio exceeded 2 to 1, dominated by call buyers. In contrast, the semiconductor ETF SMH saw put option trading volume five times that of calls, underscoring the stark contrast in options sentiment between the two sectors and reflecting relative optimism about software stocks’ outlook.

Whether software stocks can launch a new bull market, Salesforce's earnings report may provide the key answer.

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