"AI Transformation" Cannot Hide Weak Subscription Revenue, Morgan Stanley Slashes Salesforce (CRM.US) Target Price to $185

According to Zhitong Finance APP, Morgan Stanley has recently downgraded Salesforce (CRM.US) from "Overweight" to "Equal-weight" and has slashed its target price by approximately 35% from $287 to $185, stating that there is a significant disconnect between the company's rapid AI advancements and the persistent weakness in its subscription revenue growth.

AI’s “High Profile” Fails to Drive a Fundamental Turning Point

Against the backdrop of a broad technology stock revaluation, Morgan Stanley analyst Adam Wood noted in a research report that although Salesforce is "actively pursuing self-disruption," its core organic growth has yet to see a turnaround. So far this year, Salesforce’s share price has suffered a cumulative decline of about 34%, marking a significant pullback from its 52-week high of $274.

Wood wrote: "Key performance indicators (KPI) for Agentforce are changing, but the development momentum in AI has not yet reversed the situation regarding cRPO (current remaining performance obligations)/organic revenue growth, as traditional assets (mainly Commerce and Tableau) continue to drag results." For this SaaS giant led by Marc Benioff, Wood described recent performance as "A Tale of Two Cities": on one hand, the AI agent product momentum continues to strengthen; on the other, subscription revenue growth continues to deteriorate or lacks growth opportunities and visible forward-looking indicators. The opposing forces offset each other, resulting in an awkward growth narrative.

Core Contradiction: Strategic Correctness Does Not Equal a Growth Inflection Point

The main issue market participants currently care about is how long Salesforce's business transformation cycle from old to new will take. In his report, Wood thoroughly analyzed the impact of this disconnect on capital markets: "The mismatch between strong agent KPIs and the lack of an inflection in organic growth indicators has resulted in a sharp decline in stock price. Investors are all focused on one key issue: when will Agentforce and the new headless profit initiatives sufficiently offset the structural drag from underperforming parts of the portfolio (Commerce, Tableau) to drive sustained subscription revenue growth?"

Although Salesforce is accelerating the deep integration of acquired and internal assets such as Informatica, MuleSoft, Data 360, and Slack in an effort to build an enterprise-grade intelligent AI control platform—and Wood also acknowledges the “strategic correctness” of shifting towards headless software and Agentic (agent) directions—the lack of a clear monetization path makes it difficult for investors to buy in.

Profitability in its Early Days: Wood added that although the direction of the transformation is correct, its profitability is still "at the starting stage," and the pace of growth acceleration may be slower than some expect.

Capital Expenditure Squeezing Leverage: Even though the company’s profit margins may rise, any reinvestment into Agentforce, Data 360, or a headless architecture may limit leverage, thereby "delaying self-help returns."

Too Early to Judge: Wood emphasized, "We believe that the integration of Informatica, MuleSoft, Data 360, and Slack provides a strong argument for Salesforce to build an enterprise-grade intelligent AI control platform. However, we also recognize that strategic correctness does not equal a growth inflection point, which is crucial for rekindling investor interest in Salesforce stock. Thus, the company's challenge remains in translating intelligent activities into predictable subscription growth, and the current pricing path most clearly indicates that it is still too early to make a judgment on Salesforce’s future."

Widening Wall Street Disagreement: SaaS Model Undergoes Restructuring Pains in the AI Era

The downgrading of Salesforce is not an isolated incident; it reflects the common predicament facing the SaaS software sector in the AI era—namely, the traditional per-seat pricing model is being squeezed by AI agents, while new outcome-/usage-based monetization models are still being explored.

There is now evident divergence on Wall Street regarding Salesforce's future trajectory:

In recent years, Salesforce has undertaken a series of aggressive transformation measures, including reorganizing its internal services team, deploying customer service AI bot Agentforce, and acquiring AI customer service platform Fin at high cost. However, during this transition period—when traditional business momentum slows and new AI ventures have yet to generate large-scale recurring revenue—market patience with the company’s "rotation" is being put to the test.

For Salesforce and CEO Marc Benioff, the key to winning back Wall Street’s trust is breaking out of the awkward situation where “AI concepts are hot but traditional subscriptions are weak,” and converting agent metrics into tangible recurring revenue and subscription growth.