Software Stocks Shine in Q3 as Salesforce and Microsoft Deliver Strong Earnings

Jim Cramer highlighted the strong performance of software companies in Q3 2026, with Salesforce and Microsoft leading the charge. Salesforce saw its earnings surge 86.90% year over year, outpacing its 10.80% revenue growth. This indicates the company is retaining more of its sales as profit, a hallmark of a mature software business. Salesforce's stock rose 46% over the quarter, trading at a forward earnings multiple of 13.99, suggesting continued earnings growth.

Microsoft also delivered robust results, with revenue growing 17.70% and earnings increasing 31.30%. The company maintained an impressive 40.31% net margin. Cramer noted that AI has shifted from being a perceived threat to a revenue driver for these software giants. Microsoft's stock climbed 37% during the quarter.

In contrast, Caterpillar experienced a 24% decline in its stock despite strong fundamentals. The company's revenue grew 24.00% and earnings rose 64.90%, with a remarkable 56.97% return on equity. However, its valuation at 19.25 times book value raised concerns, as it resembles a software multiple for a machinery manufacturer. The quarter saw a shift in investor focus from asset-heavy companies to those with improved margins.

The market's pricing of these companies reflects their earnings potential. Salesforce is the cheapest of the three, trading at 13.99 times forward earnings, while Microsoft's valuation includes significant capital spending on data centers. Caterpillar, despite its strong performance, trades at a high forward multiple, making it the most expensive among the three.