AI demand supports Salesforce's bull case (Agent Force +240%), but valuation requires adjusting for one-time profit gains and low ROIC.

Now, let's raise the stakes a bit. Salesforce, ticker symbol CRM. Guys, this one got a lot more interesting overnight. For months, Wall Street was convinced that AI was going to destroy Salesforce.

The logic was simple. If AI agents can do the work, why would companies keep paying for all those expensive software seats? On that fear alone, the stock fell about 24% from its high.

Then on August 26th, it reported earnings and the stock skyrocketed.

Here's the bull case. The same AI that was supposed to kill Salesforce might be the thing that actually saves it. Its new AI product, Agent Force, saw revenue explode. Are you ready for this?

240%. The whole idea behind it is that those AI agents actually need Salesforce's customer data and workflows in order to function properly. They cannot operate in a vacuum.

Future bookings grew 14% faster than current sales, and the total signed up future business now sits at $66 billion. Cash flow jumped over 80%. Salesforce even deepened its AI partnership with Anthropic, plugging Claude directly into its platform.

And the old knock on Salesforce, that it never made enough profit, is basically long gone. Margins have expanded significantly,

but the bear case does have real teeth. So, you got to pay attention to that. First, that headline profit number is misleading. Salesforce reported $5.90 per share. Sounds amazing.

But, roughly $2.53 of that came from one-time investment gains, and not the actual business. The real operating number is closer to $3.37. Don't get fooled by the big headline.

Second, some of that growth came from a recent acquisition, not just some organic growth internally. And a few of its other products, like MuleSoft and Tableau, have been a little bit sluggish.

Third, its giant $25 billion buyback sounds awesome until you realize it was largely funded by taking on about $25 billion of new debt. So much debt, actually, that the S&P lowered its credit outlook on Salesforce.

So, the question is, is AI destroying this company, or is Salesforce quietly becoming one of the biggest AI platforms in business? Now guys, before we dive into the numbers on CRM, which is Salesforce, I want to remind you never take our title and thumbnail literally.

We are not here to give you a stock tip. We are here to teach you a process so that one day you can sleep better at night knowing that you've applied a process on how to value a stock, make good assumptions about its future, and understand that the price you're paying is different than the value you're getting.

So, let's pull up Salesforce cuz I think you're going to get quite the treat on where the stock price is today. Up 21% today. You can go look back at our videos. We've made videos on Salesforce. We were quite impressed with the numbers.

It is a $215 billion market cap business with an enterprise value of 275. That's $60 essentially in debt. They generated 14 and 1/2 billion last year in free cash flow and 9.6 billion in 5-year average free cash flow.

And guys, look how much bigger their free cash flow is than their net income. So, this is a company that's selling for 15 times free cash flow versus 27 times earnings. Most investors out there are focused on the PE and the net income, not the free cash flow.

We're here to change that for you. That's a big reason why I teach on YouTube is because people just look at one or two numbers, take them at what they're what they're showing as opposed to asking more questions.

Next. This is the only thing I don't like about Salesforce really. Very sluggish returns on capital. I don't like that very much. 4 and 1/2% for the last 5 years, 7 and 1/2% last year.

But I do like this. Profit margin increasing. 11% for the last 10, 12% for the last 5, 18.7 for the last 1 year, but that could include those investment gains that they had.

And another thing, 27 and 1/2 billion in acquisitions over the last 5 years, which doesn't impress me as much when I see the the three and five-year revenue growth of 10% and 13.9%.

So, let's check out their eight pillars. All right. So, the returns on capital are crap, and we talked about earnings being a lot lower than free cash flow, so the five-year PE is crap. Everything else is a check mark.

Let's go check out what analysts think. Ooh, analysts seem to be optimistic about this. $11.80 per share this year, growing to $25 per share in 2031. That's a lot of growth potential.

With revenue growing from 41 and 1/2 billion to 70.5 billion, which is basically basically 10% growth every single year. That's what they're banking on.

So, again, guys, we have some story, we have some numbers. Let's put it all together in our stock analyzer tool. So, for the next 10 years, I went conservative. I did 5, 7 and 1/2, and 10% revenue growth.

Next, I focus on free cash flow. I did 25, 30, and 35%. You can see the free cash flow over the last 10 years getting a lot better. Ironically, not ironic, so are the returns on capital.

So, even though the returns on capital are lower, they are getting better.

Next, my PE for 10 years down the road, I put 14, 18, and 22, mostly driven down by the returns on capital. And finally, I got to change this to my 9 and 1/2% return across the board.

So, I hit the analyze button. And according to my assumptions, I have a low price of 200 based on cash flow, a high price of 550, with a middle price of 340. So, if my middle assumptions occur, based on my multiple free cash flow, I can expect a 14% annualized return.

But, they are taking on more debt, but not as much as the next company we're going to talk about.