Salesforce's AI Capex Surprise Resets the Margin Narrative

Salesforce shares fell 5% on Monday after the company disclosed plans to increase capital spending on AI infrastructure, a move that caught investors focused on margin expansion off guard. The stock closed at $245, its lowest level in three weeks, and briefly dipped below $240 during the session.

The spending plan, detailed in a regulatory filing Friday, calls for an additional $2 billion to $3 billion in capital expenditures over the next 12 months. The bulk of the spending is earmarked for data centers and GPU capacity to support the Einstein Copilot platform, Salesforce's generative AI assistant.

The news marks a shift from the cost-cutting discipline that activist investors had urged on the company. Activist investor Starboard Value had pushed for margin improvement, and CEO Marc Benioff responded with aggressive cost cuts. The stock rewarded that discipline as the operating margin surged from 15% to 22% over the past year, pushing the stock up 35%.

"The market priced in margin expansion, not a capex cycle," said Mark Moerdler, an analyst at Bernstein. "This resets the narrative." The selloff wiped out roughly $12 billion in market value. Trading volume nearly doubled the 30-day average, signaling institutional repositioning.

The capex push is tied to Salesforce's broader generative AI strategy. The company plans to embed Einstein Copilot across its sales and marketing clouds, a move that requires significant compute capacity. Salesforce said it expects the investments to produce "meaningful" revenue by fiscal 2026. The company offered no specific guidance.

Some analysts questioned whether the spending would generate returns quickly enough. "The risk is that Salesforce is investing in AI at the same time as every other enterprise software company," said Rishi Jaluria, an analyst at RBC Capital Markets. "Differentiation is not guaranteed." Jaluria noted that competitors like Microsoft and Amazon have cloud businesses that can monetize AI spending more directly than Salesforce.

Moerdler added that the margin story had been the sole reason for the stock's outperformance. If that story stalls, he said, there is no valuation cushion. The stock traded at about 28 times forward earnings before the selloff, a premium to the S&P 500 though below its own five-year average. The decline brought that multiple closer to 25 times.

Moerdler said the tension between near-term margin targets and long-term AI investment is now central to the Salesforce story. The market had been focused on the margin expansion trajectory, he said, and the capex news forces a reassessment.

Salesforce has $14 billion in cash and short-term investments, giving it the flexibility to fund the capex without taking on debt. The company also authorized a $10 billion share buyback program in February, which it has been executing at a steady pace. Salesforce bought back $2 billion in stock last quarter. The capex news shifted the focus from capital returns to capital deployment.

"The buyback is a backstop, not a catalyst," Moerdler said. "The catalyst now is whether the AI bet pays off."

Salesforce reports fiscal second-quarter earnings on Aug. 28. The call will provide more detail on the AI investment plans and margin expectations.

The company's Alpha Score sits at 39 out of 100, a Mixed rating that reflects the tension between its strong cash position and the uncertainty around its AI spending plan. More on the CRM stock page.