Salesforce’s Pivot: Why “Agentforce” Matters More Than the Earnings Beat
The AI trade has been dominated by chips and infrastructure. Software was viewed with skepticism due to fears that AI would reduce headcount (and thus software seats). Salesforce’s recent Q3 earnings report challenges that view, offering the first concrete evidence that legacy Software As A Service (SaaS) can monetize AI effectively.
While the market celebrates the earnings beat (EPS $3.25 vs $2.86) and the 9% revenue growth, the real story is deeper. Salesforce isn’t just selling software to humans anymore; with the acceleration of Agentforce, it is beginning to sell digital labor.
Let’s look at why this pivot changes the investment thesis for Salesforce.
The Pivot: From Seats to Work
The biggest risk to Salesforce was the “Seat Compression” thesis: If AI makes humans more efficient, companies will hire fewer salespeople, and Salesforce will sell fewer licenses.
The Q3 results suggest a different reality.
- The Shift: Salesforce is moving from a pure “Seat-Based” model to a “Consumption-Based” model with Agentforce.
- The Metric: Agentforce + Data Cloud revenue hit nearly $1.4 billion in annual recurring revenue, growing 114% year-over-year.
- The “Work” Economy: Instead of charging say $150/user, they are nudging toward models such as Flex Credits, a usage-based system. For example, the company charges about $500 per 100,000 credits. This allows them to capture revenue from the work being done, even if the human headcount stays flat or shrinks. It’s a hedge against their own disruption.
Relative Value: The “Reasonable” AI Play?
In a market where Palantir trades at almost 180x forward earnings, Salesforce looks like a utility company at 21x forward earnings.
- The Perspective: The market has priced Salesforce as a “Legacy Tech” stock (like Oracle), assuming low growth.
- The Opportunity: If Agentforce is successful, Salesforce re-rates from a “Utility” to a “Growth” stock. You are paying a reasonable multiple for a monopoly asset that has a free “call option” on the AI Agent revolution.
The “Black Box”: Why Not Just Use ChatGPT?
Why would a company pay Salesforce for AI when they can use ChatGPT for $20/month?
- The Answer: Context.
- The Asset: Salesforce owns the Data Cloud (Customer 360). An AI agent is useless if it doesn’t know who your customer is, what they bought last year, and why they are angry today.
- The Moat: Microsoft owns your documents (Word/Excel). Salesforce owns your transactions. For executing business workflows (like processing a refund or updating a deal stage), context is king. Agentforce sits on top of this proprietary data, making it actionable in a way a generic LLM cannot be.
Competitive Moat: The “Trust Layer”
Companies could build their own AI agents using open-source tools. Many tried in 2024.
- The Friction: Building a custom agent is hard. It requires security, hallucination guardrails, and integration.
- The Salesforce Advantage: They provide the “Trust Layer” out of the box. It’s the “Easy Button” for CIOs who want to deploy AI without risking a data leak.
- The Result: 9,500 paid Agentforce deals in just a few months. The distribution network of Salesforce is flexing its muscle.
The Risk: The “Death Valley” Curve
Despite the optimism, a structural risk remains.
- The Timing: There is a danger that human seats will be cancelled faster than AI consumption revenue ramps up. This is the “Death Valley” of the business model transition.
- The Execution: While Q3 showed acceleration, Salesforce must manage this transition perfectly. If they cannibalize their core seat business too quickly without replacing that revenue with Agent usage, growth could stall.
Our Take
Salesforce is no longer just a database for sales reps. It is positioning itself as the Operating System for the Agentic Enterprise.
- Bull Case: Agentforce consumption scales rapidly, proving that Salesforce can monetize AI “work” at higher margins than human seats.
- Bear Case: The transition is clunky, and “good enough” AI from Microsoft or open-source alternatives erodes their pricing power.
At 21x Earnings, Salesforce offers a favorable risk/reward profile. It is the steady “Blue Chip” way to bet on the practical application of AI in the enterprise.
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