A $30 million revenue beat doesn’t normally create a 20% rally
Salesforce just delivered one of the biggest moves in its history.
Shares climbed more than 20% Thursday, putting the stock on track for its second-best day ever. Adobe, ServiceNow, Palantir, Autodesk and Figma joined the rally, while the iShares Expanded Tech-Software ETF gained roughly 5%.
Salesforce reported second-quarter revenue of $11.35 billion, compared with the $11.32 billion analysts expected. Revenue grew 11% from a year earlier.
Good numbers, certainly.
But beating revenue expectations by roughly $30 million on more than $11 billion of quarterly sales does not explain a 20% move in a company this large.
The market was reacting to something bigger.
For much of this year, investors have treated generative AI as a potential threat to the software-as-a-service model. If AI agents can build applications, automate workflows and interact directly with company data, the fear is that businesses may eventually need fewer traditional software seats and fewer standalone applications.
Salesforce’s quarter pushed back against that narrative.
We think Thursday’s rally was less about one earnings beat and more about investors deciding that the “AI kills software” trade may have gone too far.
Salesforce is trying to make AI part of the product, not the replacement for it
The timing of Salesforce’s expanded Anthropic partnership matters.
Salesforce CEO Marc Benioff and Anthropic CEO Dario Amodei unveiled “Claudeforce,” a new plugin designed to let salespeople access important Salesforce data through Anthropic’s Claude chatbot.
The idea is straightforward: instead of forcing workers to choose between Salesforce and a frontier AI model, Salesforce wants Claude operating inside the Salesforce ecosystem.
That is a much better position than watching AI develop outside the platform and hoping customers keep paying for the old workflow.
The software companies with the strongest data, customer relationships and embedded workflows may have an advantage here. A powerful AI model still needs access to useful business information, permissions, customer records and existing systems before it can do meaningful work inside a company.
Salesforce already sits on top of a massive amount of that data.
Its opportunity is to make AI more useful because Salesforce exists, rather than allowing AI to make Salesforce less necessary.
The earnings gave investors enough evidence to reconsider the bear case
Profitability was also strong.
Salesforce reported adjusted earnings of $5.90 per share, far above the $3.27 analysts expected. Net income increased 87% year over year to $3.53 billion, from $1.89 billion a year earlier.
The company also reported a $2.6 billion gain from its investment in Anthropic, whose valuation has climbed to roughly $965 billion ahead of an anticipated public offering.
We would separate that investment gain from the core operating thesis. Anthropic becoming more valuable is nice for Salesforce, but it does not tell us whether Salesforce can grow its own software business faster.
The operating numbers do show a company that remains profitable and continues growing despite months of predictions that generative AI would begin tearing apart the SaaS model.
Benioff called those predictions the “SaaSpocalypse” and argued they simply have not materialized for Salesforce.
One quarter does not settle the argument.
It does make the bearish version harder to defend.
We think software may be entering a much more selective AI phase
The market spent the first part of the AI boom rewarding the companies supplying the infrastructure: GPUs, networking equipment, data centers and power.
Software has had a more complicated experience.
Investors know AI should create enormous value in software, but they have struggled with a simple question: who captures it?
Does the value accrue to the model provider? The software platform? The customer using AI to reduce headcount? Or a new company that replaces the incumbent entirely?
Salesforce’s rally suggests investors are becoming more willing to believe that established software companies can defend their position by integrating the models rather than competing against them.
We think there is something to that argument.
Companies such as Salesforce already possess several advantages that AI startups have to build from scratch:
- Massive installed customer bases
- Years of proprietary business data
- Deep integration into corporate workflows
- Existing security and permission systems
- Large sales organizations capable of distributing new AI products quickly
Those advantages do not make incumbents untouchable. They do make the idea of every major SaaS platform disappearing because of a chatbot look increasingly simplistic.
But we aren’t ready to declare the SaaS scare over
A 20% rally can make a debate look more settled than it really is.
Salesforce still grew revenue 11%, which is respectable but not the kind of acceleration that would prove AI has already created a new growth cycle for the business.
The next stage needs to show up in the operating numbers.
We want to see whether tools such as Claudeforce and Salesforce’s broader AI products lead customers to spend more, adopt additional products or become more dependent on the platform.
We are watching:
- AI-related revenue growth: Are new products becoming material to Salesforce’s total growth?
- Customer spending: Does AI increase contract values, or simply get bundled into existing subscriptions?
- Margins: Can Salesforce monetize AI without giving most of the economics away to model and infrastructure providers?
- Seat pressure: Do AI agents eventually reduce the number of human users companies pay for?
- Peer results: Do Adobe, ServiceNow and other major software companies begin showing the same resilience?
If those indicators improve together, the opportunity becomes much larger than Salesforce.
It would support a broader thesis that some of the software stocks punished over AI disruption fears may have been priced for a threat that develops much more slowly than expected.
The market may be moving from fearing AI disruption to pricing AI adoption
Thursday’s software rally is worth remembering because the narrative changed.
For months, AI was treated as something that could destroy SaaS economics.
Salesforce just reminded investors that incumbents can use the same technology themselves.
We don’t think every software stock deserves to rally simply because Salesforce had a strong day. Some products will be commoditized. Some businesses will lose pricing power. And companies that slap an AI assistant onto an old product without creating real customer value will eventually be exposed.
But the better software platforms may be in a very different position.
They already own the workflow, the customer relationship and the data. If they can place frontier AI models on top of those assets and charge customers for the productivity gains, AI could become less of an existential threat and more of a new monetization layer.
Salesforce has not proven that outcome yet.
Its quarter gave investors a reason to start pricing in the possibility.
For us, that is the real significance of the 20% move: the software market may finally be shifting from asking which companies AI will kill to asking which incumbents can actually make money from it.
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