Salesforce, Inc. (NYSE: CRM) experienced a significant rally last week, with shares climbing 12.4% to close Friday at $184.02. This performance outpaced the S&P 500, which gained 1.05% during the same period. The surge was driven by a broad rebound in software stocks, fueled by strong cloud earnings from major tech companies.
Organic Growth Concerns Persist
Despite the impressive stock performance, underlying organic growth remains a key concern. Early guidance suggests that second-quarter organic revenue will grow at a slower pace of approximately 6% to 7%, following an 8.8% organic growth rate in the first quarter. The company's Q2 guidance includes a boost of just over four percentage points from its recent acquisition of Informatica, meaning the core business is expected to contribute only around 6% to 7% growth.
Salesforce's valuation now stands at 13.1 times the midpoint of its FY27 adjusted earnings per share guidance. The stock remains 31.6% below its 52-week high, though it has gained 25.8% since hitting its June low.
Weekly Performance Breakdown
The majority of the weekly gain occurred early in the week. Shares surged 15.1% by Wednesday, before giving back some gains with a 2.3% decline over Thursday and Friday. Trading volume was notably higher than average at the start of the week but dropped significantly by Friday, suggesting a cooling of buying momentum.
From Monday to Wednesday, volume ran 18.8% above Salesforce's 65-day average, but Friday's volume ended 34.4% below that benchmark. This lighter trading activity provided fewer signs of sustained buying interest as the week closed.
Broader Software Rally
The rally was part of a broader surge in software stocks. Microsoft Corporation (NASDAQ: MSFT) recorded the largest weekly gain among peers, jumping 21.8% after robust cloud earnings. Oracle Corporation (NYSE: ORCL), ServiceNow, Inc. (NYSE: NOW), and Adobe Inc. (NASDAQ: ADBE) also saw significant gains, with increases of 12.9%, 12.6%, and 11.2%, respectively. The iShares software ETF (BATS: IGV) rose 7.5%.
Gains in broader markets on Friday provided additional support, as robust cloud earnings eased concerns about AI investment returns. The Nasdaq climbed 1%, and Salesforce added 1.83% on the day.
Growth Trajectory and AI Initiatives
Salesforce's growth trajectory remains uncertain. First-quarter revenue increased 13% to $11.13 billion, boosted by a $444 million contribution from Informatica. Without that acquisition, organic growth is estimated at roughly 8.8%. The company's backlog, measured by current remaining performance obligations, grew 14% in Q1, and the company expects similar growth in Q2.
The company's AI initiatives are showing promise. Annual recurring revenue from Agentforce and Data 360 surpassed $3.4 billion, up over 200% year-over-year, with Agentforce alone contributing $1.2 billion. However, leadership has acknowledged the challenge of accelerating organic growth in the second half of the fiscal year. Robin Washington, president and CFO, stated, "We remain confident in delivering organic revenue acceleration in the second half of FY27."
Capital Returns and Balance Sheet
Salesforce's earnings per share growth is being bolstered by significant capital returns. First-quarter GAAP EPS climbed 52%, as net income rose 36.7%. The company's diluted share count declined 10.2% to 871 million, reflecting a $25 billion accelerated share buyback program. However, the debt-funded buyback adds balance sheet risk, particularly in a rising interest rate environment.
Government Contract and Upcoming Catalysts
On July 24, the Department of Veterans Affairs awarded Salesforce a $1.6 billion contract spanning three years. The company did not specify when revenue from the deal would be recognized.
Investors will be watching several key economic data releases this week, including ISM manufacturing data on Monday, ISM services data on Wednesday, and July payrolls on Friday. Salesforce has no investor events scheduled.
Risks and Outlook
Key risks include the possibility that organic expansion may not achieve the anticipated improvement in the second half. AI-native competitors could challenge Salesforce's pricing power and customer base. Elevated interest rates could compress software valuations, and the debt-funded buyback increases balance sheet risk.
While the rebound has restored price momentum, signs of genuine acceleration have not yet surfaced. Proof will need to come from upcoming quarterly results, as investors remain cautious about the company's ability to sustain growth in its core business.
