Impressed by Salesforce’s Blowout Quarter? Here’s Why You May Be Celebrating Too Soon.

Salesforce (CRM) just gave investors the quarter they had been waiting for. The software giant beat expectations, and the stock jumped about 13% after hours and is up over 20% this morning. Revenue rose 11% to $11.3 billion, and free cash flow jumped 81% to $1.1 billion. Adjusted earnings came in at $5.90 a share, far above the $3.27 analyst consensus. Management also lifted its full-year profit outlook well beyond Wall Street’s expectations. Apart from the numbers, the company unveiled Claudeforce, a new partnership with Anthropic that brings Claude’s AI into its software. Salesforce has spent much of the year fighting off doubts. So this was a statement. Investors had feared AI would make traditional software like Salesforce less necessary. The fear even picked up a nickname, the “SaaSpocalypse.” During the earnings call, CEO Marc Benioff called it a “nonsense” narrative and said that it was time for it to stop.

The quarter itself, though, may not have been as strong as it seems on paper. Revenue barely beat forecasts. The profit number blew past expectations, but a large part of that came from a $2.6 billion gain on its strategic investments, tied in part to its Anthropic stake. Strip that out, and adjusted earnings would have been closer to $3.37, only marginally ahead of the $3.27 analysts expected. The roughly 80% profit beat effectively shrinks to about 3%. So the biggest lift to profit came from Salesforce owning a piece of an AI company rather than selling AI to its own customers. The core business looks steady rather than spectacular. There was one encouraging sign worth noting. Current remaining performance obligations, a measure of booked future business, grew 14%. That points to solid demand ahead. But the AI product that has investors excited is barely off the ground. Claudeforce is live only for pilot customers, with a wider beta due in September. For now, Salesforce has quieted its doubters. The bigger challenge is showing its AI products, not its stake in one, can carry the growth from here.