Salesforce slump shows why the AI software trade remains interesting

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Salesforce’s slump shows the market still thinks AI is coming for software. But what if it doesn’t?

There wasn’t much proof of disruption in Salesforce’s numbers. Meanwhile, it’s trading around its lowest price-to-earnings ratio ever.

Matt Phillips

12h

Yesterday we mentioned recent chatter suggesting that the next big phase of the moveable market feast that is AI could be centered on the software business.

Well if it is, nobody told Salesforce shareholders.

Shares of the maker of customer relationship management software tumbled Thursday despite the company posting better-than-expected fiscal Q2 earnings that beat on both the top and the bottom line.

A somewhat lackluster forecast for next quarter’s sales was universally blamed for the roughly 5% tumble.

But the broader picture is that the market remains skeptical that dominant players in the highly lucrative SaaS software business, such as Salesforce, can avoid being disrupted by cheaper, AI native companies. The threat is that such companies can develop software quicker, and sell it for less, eating the incumbents’ lunch.

That seems worth considering. But there was scant proof of disruption to be found in Salesforce’s numbers. Sales, order backlogs, and operating margins continue to grow at a solid clip. And while the guidance might have been light compared to Wall Street expectations, it still suggests acceleration out of Salesforce’s recent slow patch.

At the same time, Salesforce spotlighted progress on its own AI offerings, noting that the Q2 annual run rate for its Agentforce and Data Cloud products hit $1.2 billion, up 120% from the previous year.

The stock’s tumble Thursday suggests investors haven’t been won over by such numbers about Salesforce’s next chapter as an agentic AI giant.

Morgan Stanley analysts suggest the company’s detailed presentation at its October Agentforce conference — where it will demo the next generation of the software and offer testimonials from customers about its value — could bolster confidence in the stock.

But in the meantime, Salesforce — down about 27% this year — remains pretty cheap for a large cap tech name. It’s trading at roughly 20x expected earnings over the next year, near the lowest level in its 20-odd years as a publicly traded company.

“Bottom line, this strong positioning to benefit from the expanded capabilities of GenAI remains unappreciated in a marketplace thinking ‘SaaS is dead,” wrote Morgan Stanley analysts. “We see a positive risk/reward in [Salesforce] and remain firmly overweight.”

Nia Warfield, Luke Kawa

11h

S&P 500 posts fresh closing high as cyclicals shine

The first record close of the month for the benchmark US stock index.

Nia Warfield

11h

Lululemon sinks after slashing full-year guidance as tariffs, sales weigh on margins

Lululemon shares sank 13% in after-hours trading Thursday after the yoga-wear retailer massively slashed its full-year outlook.

Adjusted earnings per share came in at $3.10 for the second quarter, versus Wall Street’s forecast of $2.86. Revenue landed at $2.5 billion, compared with analyst estimates of $2.54 billion.

The real problem: Lululemon heavily cut its full-year guidance, and is now projecting earnings of $12.77 to $12.97 per share, a steep drop from its prior forecast of $14.58 to $14.78, and well shy of Wall Street’s $14.40 estimate.

The retailer faced more margin pressure during the quarter, citing higher markdowns, tariffs, and other costs, though some of that was partially offset by higher pricing and lower product costs.

Lulu shares were down 45% year-to-date before the report.

Luke Kawa

12h

Broadcom rallies after CEO says 2026 AI revenue outlook will “improve significantly” as the chip designer adds a new major customer

Broadcom is booming. The chip designer posted a small top and bottom line beat in its fiscal Q3, and the details and its guidance are even more encouraging.

Revenues: $15.95 billion (estimate $15.84 billion)

Adjusted diluted earnings per share: $1.69 (estimate $1.67)

Shares initially whipsawed in reaction to these numbers, but then rallied strongly after CEO Hock Tan said the outlook was for AI revenues to improve “significantly” in fiscal 2026 during the conference call with analysts thanks to the addition of a new big buyer.

“Last quarter, one of these prospects released production orders to Broadcom, and we have accordingly characterized them as a qualified customer for XPUs, and in fact, have secured over $10 billion of orders,” he said. “And reflecting this, we now expect the outlook for fiscal 2026 AI revenue to improve significantly from what we had indicated last quarter.”

Unlike Nvidia, whose data center business came in slightly shy of estimates in its most recent quarter, Broadcom’s AI sales managed to come in ahead of expectations, with $5.2 billion in revenues versus the anticipated $5.1 billion.

For the current quarter, management expects sales of $17.4 billion and adjusted EBITDA of approximately $11.67 billion. That compares to the Street’s view of $17.05 billion and adjusted EBITDA of $11.3 billion.

And again, its AI business is besting the sell side’s view, with an outlook for $6.2 billion in AI semiconductor revenues versus an expected $5.84 billion.

Shares were up more than 30% year to date heading into this report, slightly trailing Advanced Micro Devices but ahead of industry leader Nvidia.

Max Knoblauch

13h

Rivian lays off workers as it readies its cheaper SUV and braces for the end of the EV tax credit

With the $7,500 federal EV tax credit set to end on September 30 and a new, lower cost electric SUV due to launch next year, Rivian is on the hunt to cut costs.

That means layoffs.

The EV maker confirmed it’s laying off workers on its commercial team, with the cuts amounting to less than 1.5% of its workforce, according to Wall Street Journal reporting. The company had about 14,900 employees at the end of December.

Rivian lost $1.12 billion in its second quarter and downwardly revised its full-year loss forecast to between $2 billion and $2.25 billion. Its shares are up about 2% year to date.

It’s been a similarly bumpy trading day for Rivian rival Lucid, which continues to post fresh all-time lows on investor distaste for its 1-for-10 reverse stock split that took effect on Tuesday.

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Rivian lost $1.12 billion in its second quarter and downwardly revised its full-year loss forecast to between $2 billion and $2.25 billion. Its shares are up about 2% year to date.

It’s been a similarly bumpy trading day for Rivian rival Lucid, which continues to post fresh all-time lows on investor distaste for its 1-for-10 reverse stock split that took effect on Tuesday.

Nia Warfield

15h

HP Enterprise jumps after record Q3 revenue, even as caution creeps into outlook

HP Enterprise shares jumped nearly 4% Thursday afternoon as the market digested the company’s Q3 earnings beat late Wednesday.

The enterprise tech company posted adjusted earnings of $0.44 per share, ahead of the Street’s $0.42 estimate. Revenue came in at $9.1 billion, above analysts’ forecast of $8.8 billion. HPE highlighted strong demand for its AI systems and the company’s recent Juniper Networks acquisition.

For the current quarter, HPE forecast revenue of $9.7 billion to $10.1 billion, bracketing just below the $9.9 billion Street midpoint. The company also guided EPS of $0.56 to $0.60, effectively in line with analyst expectations of $0.58. Margin pressure added to the caution, but optimism is still strong.

“We have grown enterprise AI orders year over year every quarter since the beginning of fiscal 2024,” CEO Antonio Neri said. “From an innovation perspective, we continue to keep pace with new accelerators, technology, and time to market customer demands.”

HPE shares are up over 10% year to date.