Under the rebound of software stocks, Salesforce, Inc. (CRM.US) still lags behind. Can the financial report ease concerns about AI?

As software stocks in the US rebounded from the AI panic selling earlier this year, Salesforce, Inc. (CRM.US) has still been unable to break out of the slump. Concerns in the market about its core CRM business facing AI competition pressure have caused the stock to severely lag behind its peers. However, the earnings report set to be released after Wednesday's market close may be the key catalyst to break the deadlock. Stock severely lagging: down 30% year-to-date, valuation hits bottom Since hitting a three-year low on April 10, Salesforce, Inc. has risen 8.6%, but still recorded a 32% decline year-to-date. Its performance is far inferior to the iShares Expanded Tech-Software Sector ETF - which has rebounded 26% since hitting a recent low on April 10, narrowing the year-to-date decline to 11%. Both are far behind the Nasdaq 100 index, which has risen by 19% in 2026 so far, primarily driven by the strong performance of chip stocks. "It has gone through a very painful period, but the stickiness and quasi-essential nature of the business have been underestimated, even though revenue is still growing at a considerable pace," said Brian Kersmanc, portfolio manager at GQG Partners, who holds Salesforce, Inc. shares. "After this wave of heavy selling, I think we will start to see its strengths show." Software stocks are regaining momentum as encouraging corporate earnings reports suggest that AI may not completely destroy growth as investors originally assumed, and in some cases, may even be a tailwind. Combined with valuations hitting bottom, Wall Street believes that the weakness across the industry earlier this year may have been somewhat overdone. However, Salesforce, Inc. has not caught up with most of this rebound in gains, and its prospects still face scrutiny. The main concerns on Wall Street come from competition from Anthropic and OpenAI, which could weaken its pricing power and demand for customer relationship management software - software that has been driving strong growth with high profit margins for years. AI competition: "real threat" or "excessive concern"? Bank of America Corp. resumed coverage of Salesforce, Inc. last week, giving it an "underperform the market" rating, citing its "structural growth slowdown" and greater competitive risk from AI. Tal Liani, an analyst at Bank of America, wrote in a report, "Salesforce, Inc. remains a deeply embedded platform, but we expect an AI transformation to bring a structural reset, raising three core concerns: weak net customer additions, limited upselling potential, and disappointing AI monetization pathways. The company is transitioning from a historically high-growth platform to a mature cash generator." At least for now, the impact of AI expectations is more apparent in the market sentiment surrounding Salesforce, Inc. than in its actual fundamentals. According to compiled data, the company is expected to achieve an 11% revenue growth in the 2027 fiscal year (ending next January), higher than the 9.6% in the 2026 fiscal year. At the same time, its valuation is near historic lows, with a price-to-earnings ratio of only 13 times, far below its 10-year average of 45 times. Salesforce, Inc.'s price-to-earnings ratio hit a historic low two weeks ago and has been below 30 times for over a year. Brian Kersmanc, portfolio manager at GQG Partners, said, "Considering all legal, compliance, and operational issues, it is extremely difficult for companies to switch CRM suppliers, so I don't think the idea that Salesforce, Inc. will be replaced by 'ambient code' is very credible." ( " Ambient code " refers to users writing code with the help of AI, which is seen as a significant risk faced by software manufacturers). "As people gradually realize that it has not been disrupted, I think its valuation will be revised upwards. Double-digit growth combined with a P/E ratio in the teens looks very attractive." He is not the only one holding this view. Out of 62 analysts covering Salesforce, Inc., 47 have given it a "buy" rating, with an average target price of $253, implying a 41% upside over the next 12 months. According to compiled data, this is one of the highest implied return stocks in the S&P 500 technology sector. Software stock earnings season overall impressive, can Salesforce, Inc. keep up? Software companies have shown strong performance this earnings season, with about 87% of companies beating profit and revenue expectations, outperforming the S&P 500 overall. In the previous earnings season, only 71% of software companies exceeded revenue expectations. Meanwhile, the recent surge in storage chip stocks also indirectly confirms the continued high investment in AI infrastructure. Both SK Hynix and Micron Technology, Inc. have surpassed $1 trillion in market value, with investors betting that the AI boom will lead to a long-term revaluation of the semiconductor industry. Whether this structural dividend will spill over to enterprise software and become the key to companies like Salesforce, Inc. leveraging transformation remains to be seen. For Salesforce, Inc., the question remains whether its products will be replaced by AI. Stephen Bersey, Head of Technology Research at HSBC Bank, does not subscribe to this pessimistic view, mainly because a significant portion of the value the company sells comes from proprietary data and the deep embedding of these programs within its client enterprises. He believes that Oracle Corporation (ORCL.US), Microsoft Corporation (MSFT.US), and ServiceNow (NOW.US) are also in the same position, different from companies that sell more niche applications like development apps or photo editing - the latter are more easily disrupted by AI. "AI represents one of the most meaningful monetization opportunities I have seen in the software industry in the past few decades," he said. "Ironically, as we stand on the brink of an AI-driven golden age of software, market sentiment towards this industry has reached unprecedented levels of pessimism."