I guess Salesforce (CRM) didn’t get the memo…
Salesforce Annihilates the SaaS-pocalypse
The “SaaS-pocalypse” was supposed to kill software. But I guess Salesforce (CRM) didn’t get the memo.
SaaS stands for software-as-a-service. Instead of selling permanent software licenses, companies such as Salesforce and Adobe (ADBE) began charging recurring subscriptions.
Many subscriptions were sold by the “seat.” That was one license for each employee using the software. This gave software companies predictable revenue while ensuring customers always had the latest version.
It became one of the best business models of the past 15 years.
But AI agents appeared to threaten it. If one agent can do the work of five employees, why should a company keep paying for five software seats?
The concern is legitimate for generic applications with little proprietary data or control over important workflows. But investors took the argument too far and assumed it would apply to mission-critical enterprise software like Salesforce. And the company just proved that thesis wrong.
As the SaaS-pocalypse idea took hold, CRM fell approximately 40% from mid-January to the June low. But from there, the stock rallied, with shares exploding 23% higher in a single session last week.
This is the market finally realizing what we’ve argued for months: Not all software companies were vulnerable to disruption from artificial intelligence.
During its latest quarterly earnings call, CRM reported revenues rose 11% year-over-year to $11.3 billion. And current remaining performance obligations — revenue expected from existing contracts over the next year — grew 14%. And management raised its full-year outlook as well.
Those were strong results. But they were not enough by themselves to justify a 23% surge.
The real surprise came from Salesforce’s AI products.
Agentforce and Data 360 annual recurring revenue reached nearly $3.9 billion, up more than 210% year-over-year. Customers used Agentforce and Slack to complete 3.2 billion Agentic Work Units during the quarter, up 97% sequentially.
An Agentic Work Unit measures a discrete task completed by an AI agent. It might update a customer record, process a request, call another software tool, or complete a workflow.
That is more useful than counting tokens. Tokens measure how much information an AI model processes. Agentic Work Units measure how much actual work gets done.
Salesforce President Robin Washington said, “AI is amplifying the power, reach, and value of our platform.”
This is what the market missed.
AI agents may reduce the number of employees clicking through an application. But they still need customer records, pricing histories, sales pipelines, support tickets, permissions, and business rules. That information lives inside mission-critical systems like Salesforce.
The interface may become less important. But the underlying system of record becomes more valuable.
Salesforce is also changing how it gets paid. Agentforce offers usage-based pricing through Flex Credits and conversations. For some customer-service tasks, Salesforce charges when an agent successfully resolves an issue, no matter how much compute was required. And it doesn’t charge the client at all if the problem gets escalated to a human.
That aligns Salesforce’s revenue with the value it creates.
The SaaS-pocalypse is not ending because AI stopped improving. It is ending because investors are finally separating vulnerable software from essential platforms.
Generic per-seat applications remain at risk. But companies that own critical data, control important workflows, embed AI into their products, and charge for completed work can thrive.
Salesforce just proved it.
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What Feels Permanent Usually Isn’t
Jason Bodner
Founder, Outlier Intel
September arrived right on schedule. Midterm election anxiety is rising. Bond yields are elevated. Oil is above $90. Some growth stocks are getting hit. Investors who felt comfortable in June suddenly do not.
None of this should be surprising. Midterm election years are the weakest of the four-year presidential cycle, averaging 5.8% returns since 1926 with average intra-year drawdowns of 16%. The first nine months average declines of about 1% as uncertainty builds. We have been talking about this for months.
So far, the script is playing out.
What matters is what comes next. Midterm years have averaged a 7% gain in Q4 with an 88% positive rate once election uncertainty fades. Since 1950, the S&P 500 has averaged a 36% one-year forward return from its midterm-year lows. The choppiness is the price of admission.
Here is how the fear mechanism works. The Strait of Hormuz handles roughly one-fifth of global oil trade. Disrupt that flow and oil rises. Gasoline follows. Headline inflation rises. Bond investors demand higher yields. The Fed feels pressure even though monetary policy cannot produce a single barrel of oil.
Higher yields pressure growth stocks because future earnings get discounted at a higher rate. This week the 30-year Treasury hit 5.34%, its highest since 2007. Japan’s 10-year bond touched a 30-year high. U.K. gilt yields hit their highest since 1998.
One variable. A lot of similar symptoms.
Friday’s jobs report added to the puzzle. The economy added 162,000 jobs in August, nearly triple expectations, while unemployment held at 4.1%. The headline needs context: 42,000 jobs came from public education, reversing July’s 45,000 decline. Still, the message is clear: the economy is stronger than expected, even with high oil and rates.
Corporate America says the same thing. With 97% of S&P 500 companies reported, 86% beat earnings estimates and 77% beat revenues. Blended earnings growth reached 52.0%, the highest since Q2 2021 and more than double the 23.1% expected on June 30.
Ten of 11 sectors beat earnings expectations. Net profit margins hit a record. For Q3, positive guidance is running nearly 2-to-1 over negative guidance. And the forward P/E is 19.6, below the five-year average of 19.9. In other words, businesses are producing record earnings while the market has gotten cheaper.
The AI buildout has not changed either. Jensen Huang guided to 70% revenue growth for fiscal 2028. Samsung, SK Hynix, and Micron, which control more than 90% of global DRAM, all warned of supply shortages through 2028.
The businesses haven’t changed. The narrative has.
Volatile Septembers in midterm years always feel uncomfortable. They also end.
November and December of midterm years are historically among the strongest months of the four-year presidential cycle. This time, the calendar and the political incentives may be pointing in the same direction.
As the Tao Te Ching says, return is the movement of the Tao. The nature of things is to cycle. The direction that looks permanent rarely is.
When to Panic Over Rising Rates (It’s Not Yet)
Clint Brewer
Research Analyst, Opportunistic Trader
Interest rates are on the rise everywhere you look.
In the U.S., the yield on the 30-year Treasury sits at 5.27%. It hovers near the highest level in nearly two decades. The 10-year Treasury yield just touched 4.80%, which is the highest since 2023.
And it’s not just a U.S. phenomenon. A Bloomberg index tracking global sovereign bond yields sits at the highest level since the 2008 financial crisis.
Investors are fearful that rising rates will take a bite out of stock prices. Rising rates can impact market valuations by making the value of future corporate profits worth less in today’s terms.
Rising rates can also present competition for investor capital. As rates rise, bonds become a more attractive option for investors to park their cash instead of riding the ups and downs of the stock market.
With rates on the rise, the question is this: When will it matter for the stocks in my portfolio?
To answer that question, you need to watch three indicators.
The first is overall financial conditions, which is a way to measure the cost and availability of credit.
Loose conditions mean that credit is plentiful, typically a boon for the economy and stock prices. Tight conditions are the other way around. The Fed’s Chicago district releases a weekly indicator of conditions, where a reading below zero means conditions are loose. Here’s the chart:
You can see that conditions are near the loosest levels of the past several years, so rising rates aren’t presenting an issue just yet.
The second indicator is high-yield bond spreads. The spread shows the difference between a risk-free rate like Treasury yields and those of riskier borrowers. If rising rates are going to pose an issue to financially distressed companies, it should show up in their cost of borrowing. Here’s the chart of spreads.
So far, high-yield spreads aren’t budging from historically low levels. That’s a sign that high-yield investors aren’t panicking yet, and they are often an early warning signal for the stock market.
The last indicator I would watch is the speed of rate increases. The last time rising interest rates played a key role in causing a bear market was in 2022. Back then, the Fed jacked up short-term rates from essentially zero in March 2022 to over 3% in just six months.
The 30-year yield went from 2.4% to 4.3% in the same period. While long-term rates have been increasing recently, it’s nowhere near the acceleration we saw in 2022.
Yes, rising interest rates across the yield curve can pose problems for stock prices. But the usual indicators of market stress aren’t ringing any alarms yet.
For anybody waiting for a market crash set off by higher rates, the data tells us they’ll have to keep waiting.
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