Salesforce stock dropped 6.9% to $241.62, making it one of the Dow's worst performers on Tuesday, alongside other enterprise software companies like Adobe, ServiceNow, Microsoft, and Oracle. This sell-off was sparked by Oppenheimer's downgrade of Adobe, citing concerns that its AI tools were not generating revenue fast enough. The warning created ripples throughout the entire enterprise software sector, intensifying existing fears about AI-driven disruption.
Several factors contributed to the broad software weakness. Barclays downgraded Snowflake to "Hold" due to intense competition from Amazon and Oracle, who are aggressively bundling their AI data tools. DocuSign and Asana also struggled as investors worried about the commoditization of their core markets. IBM's preliminary quarterly results showing a shift in client spending towards AI servers rather than software further intensified concerns across the industry.
Despite the recent downturn, Salesforce had previously projected strong performance. In December, the company raised its fiscal 2026 revenue forecast to between $41.45 billion and $41.55 billion, and boosted adjusted earnings guidance, citing strong AI product demand. However, a recent KeyBanc Capital Markets report indicated that customers are not widely adopting or willing to pay for Salesforce's AI capabilities, with many CIOs expecting to deprioritize Salesforce in their IT budgets. Salesforce's Agentforce product, while claimed by the company as its fastest-growing, has received mixed feedback from customer surveys, with analysts noting that customers' data is often not ready for meaningful AI work yet, affecting the product's adoption.
Salesforce will report earnings on February 25, which will be a crucial test for investor confidence in its AI product demand and overall financial health. The company's shares are currently trading 33% below their 52-week high of $359.95 from January 2025 and are down 4.9% year-to-date. In May, Salesforce also gave a lukewarm outlook with second-quarter revenue forecasts slightly below analysts' estimates, further fueling investor concerns about AI's potential to disrupt the software business.
