CRM Upgraded Its Profit Engine. Quietly

Salesforce has quietly become a much more profitable company, but investors don’t seem to have noticed the transformation.

If you’ve held Salesforce (CRM) stock over the past year, you might be asking what went wrong. The shares returned -30% while the S&P 500 returned +15.5%. Yet a look inside the business reveals a startling disconnect. For every dollar of sales, Salesforce now keeps far more in operating profit than it has historically. The market is pricing the Salesforce of the past, not the far more profitable company it is today.

This isn’t a fluke; it’s a new business model.

Salesforce’s operating margin over the last twelve months was 22%. That figure is a world away from its 5-year average of 14.2%. This isn’t a one-year spike, either; the company’s 3-year average margin is 20%, showing a steady, structural improvement in profitability. And no, this isn’t a case of a company shrinking to make its numbers look better. Trailing twelve-month revenue grew 11.0%.

This shift reflects a deliberate strategy. Management has focused on building what it calls a “lean agentic enterprise,” using its own AI tools to drive efficiency. The result is a business that generates a tremendous amount of cash, with operating cash flow running at 190% of net income.

So why is the stock trading 29% below its high?

The market appears to be stuck on an old story. For years, Salesforce was synonymous with growth at any cost, a narrative that de-emphasized profits. Now that the company has transformed into a cash-generating business, its price-to-sales multiple has fallen by 33% over the past year. The market has not rewarded the change.

The strongest reason for this skepticism is not that the new profitability is fake, but that it might be fragile. For the current price to be right, you have to believe the growth engine is sputtering. This fear is grounded in real business trends. Management has noted ongoing “softness in commerce and in Tableau,” two of its key cloud segments. Some analysts worry that overall “bookings trends are lagging a little bit,” suggesting the new AI-driven products may not be enough to offset weakness elsewhere.

This is the core of the debate. Investors see the large adoption of new products like Agentforce, which now has annual recurring revenue greater than $1 billion, but question if it can carry the whole company. For investors who prefer a broader software ETF, IGV offers exposure to the sector without concentrating risk in a single name.

The test is whether AI can re-accelerate the whole company.

The entire investment case hinges on whether the new, highly profitable AI business can reignite growth across the board. Management has put a clear stake in the ground, telling investors to expect an “organic revenue reacceleration in the second half of FY 27.”

That forecast is the number to watch. It is a direct test of whether the company’s transformation is complete. The next update on this progress will come with its Q2 earnings report. Whether that report validates the new, more profitable Salesforce or confirms the market’s fears will likely settle the argument.

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