Salesforce stock gets brutal reality check amid software slump

A year ago, Wall Street praised the software sector as “the next AI focus.” But that narrative is now turning.

On Feb. 3, many software stocks took a sharp hit as investors grew worried that advances in artificial intelligence could begin to replace traditional software services. 

Anthropic announced that it was adding new legal tools to its Cowork assistant to help automate legal drafting and research tasks. Shares of Thomson Reuters (TRI), LegalZoom.com (LZ), and London Stock Exchange (LSEG), which provide legal tools or research databases, all fell more than 12%, The Wall Street Journal reported.

The sentiment quickly spread across the broader software market. Two S&P indexes tracking software, financial data, and exchange stocks lost a combined $300 billion in market value. 

PayPal (PYPL), Expedia (EXPE), EPAM Systems (EPAM), Equifax (EFX), and Intuit (INTU) were among the hardest hit. Software makers Adobe (ADBE) and Salesforce (CRM) were also hit.

Software industry giants stumbled last year

Even before the Feb. 3 selloff, the software and services sector had been under pressure for some time. Over the past 12 months as of Feb. 4, shares of Adobe and Salesforce have tumbled 42% and 36%, respectively, Morningstar data shows.

“I think we have one or two of these periods every year. The cause is always different, but the effect is always the same. Some of the most popular trades of the previous uptrend just get absolutely nuked,” said Josh Brown, CEO of Ritholtz Wealth Management, CNBC reported.

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Since the emergence of generative AI, traders have questioned whether it has undermined the competitive advantages of software makers, even though they are also using AI to boost their businesses.

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“There continues to be some concerns emanating around the software space, in particular, related to the potential disintermediation that can occur from artificial intelligence,” said Bill Northey, U.S. Bank Asset Management Group’s senior investment director, CNBC reported.

“I think that’s a story that is still yet to be written, but ultimately, we’re seeing that reflected in sentiment at this point in time,” he added.

As the market digests earnings reports from major tech companies and the recent selloff in software stocks, Wall Street is reshaping its views on several leading software players.

Analysts mixed on Salesforce stock before earnings

Salesforce is a software company best known for its customer relationship management tools. It uses AI agents to help businesses manage sales, marketing, customer service, and data analytics.

Salesforce is set to report its fiscal Q4 earnings later this month. On Dec. 3, the company reported an earnings beat for Q3, but its revenue fell short of the consensus estimate.

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"The company has delivered on solid margin expansion on a consistent basis, though there are peripheral concerns that Salesforce may see margin degradation as agentic AI generates a higher revenue mix," Bank of America analyst Brad Sills wrote in December following Salesforce's Q3 earnings, according to a research note sent to TheStreet.

"The answer to that debate remains unclear at this point, given the immateriality of AF revenue at this point."

Salesforce’s business platform layers:

• CRM Clouds – Sales, Service, Marketing, Commerce, Experience
• Platform and Automation – Custom apps, workflows, low-code tools
• Data, Analytics, and Integration – Data Cloud, Tableau, Slack, MuleSoft
• AI and Intelligence – Agentforce
• Industry and Revenue Products – Industry Clouds, CPQ, Revenue Cloud (according to Webkul)

On Feb 2, Piper Sandler analyst Billy Fitzsimmons lowered the price target on Salesforce to $280 from $315 and reiterated an overweight rating, Thefly reported.

Fitzsimmons also cut price targets across the platforms and apps sector, as "seat-compression and vibe coding narratives could set a ceiling on multiples." 

The analyst has mixed views on the software industry and expects continued "pessimism" around the sector.

Still, some analysts see the recent pullback as a potential entry opportunity.

In January, Barclays analyst Raimo Lenschow raised his price target on Salesforce to $338 from $330 and maintained an overweight rating.

Barclays sees a favorable setup for software stocks in 2026, citing stable macro conditions, steady IT spending, low valuations, and a sector that remains out of favor.

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