After the recent earnings announcement, Bernstein analyst Mark Moerdler reduced the price target of Salesforce stock by 255% to 221%, without changing his underperformed rating. This downgrade is indicative of Bernstein worrying about the soft guidance provided by Salesforce, as the company reported an in-line quarter. Although revenue performance was a bit better than forecasted and gross profit margins were high at 77.34%.
The 2nd quarter 2025 Salesforce earnings report indicated a total revenue of $10.25 billion, a little higher than projected, and earnings per share of $2.91, which was higher than estimated. The company also had high operating margins and current remaining performance obligation growth.
However, free cash flow margin was below expectations. To add to the investor caution, management narrowed the bottom of the fiscal year guidance without increasing the top end of the guidance.
There is still a split amongst analysts. As Bernstein reduced its target due to the growth constraints and market maturity, other companies such as Goldman Sachs retained their Buy ratings and high price targets of approximately $385, showing hope in Salesforce AI initiatives.
KeyBanc reduced its target to $400 yet maintained its overweight rating which is an indication of a positive and cautious outlook.
Thus, the professional perspective shows a tinge of optimism with a touch of caution amidst the fact that Salesforce, though a company with strong fundamentals and AI potential, is experiencing issues such as decelerated growth and margin pressures in a mature market.
The most critical impact of the downgrade made by Bernstein is that it puts more pressure on the stock price of Salesforce as it indicates the concerns of the investors on the further development of the company and its valuation. Salesforce has a future that is probably characterized by further subscription revenue growth, albeit at a slower rate.
Increasing the margin is going to be more difficult, as the investors will be interested in how Salesforce is utilizing AI features and addressing strategic acquisitions to propel new growth to balance the challenges in the mature core business.
Overall, the move by Bernstein can be seen as a conservative approach to Salesforce in the short term in a consolidated market, against the background of good Salesforce earnings and AI opportunity. When looking at Salesforce stock in the future, investors should consider both strong fundamentals and growth issues.
