the Standard & Poor’s 500Software stocks have stumbled recently. With the company’s share price declining by 23% since the beginning of the year, Sales force (NYSE:CRM) is taking decisive action.

The company is looking to raise $25 billion in debt to use in stock buybacks while its shares decline. It’s a bold move indeed, but is it brilliant or desperate?

Software as a service

The stock market is concerned about AI agents undercutting software companies, and Salesforce is one of the biggest potential victims.

There are several ways this can happen. More straightforward is that customers may just build their own AI agents that don’t need the company’s user interface.

Even if customers remain committed to the company, subscriptions are currently based on the number of users. But it is possible that this number will decrease significantly if artificial intelligence significantly replaces humans.

Salesforce is looking to change its pricing model, but that means lower recurring revenue. The stock market handles this very poorly, which is why the stock price is falling.

Debt and repurchase

A company buying back stock when its shares are cheap can be a really good move. It reduces the number of shares outstanding, which helps increase earnings per share.

However, doing this with debt is very risky. The associated borrowing costs mean the company needs to generate enough cash to offset this in order to get going.

Salesforce’s credit rating was downgraded by Moody’s After the announcement. So the company can look forward to 4.5% interest on the debt it takes on.

At a price-to-earnings (P/E) ratio of 25, the company would have to increase its earnings to move into business. If it doesn’t, the consequences could be dire for investors.

Charter Communications

Another S&P 500 company has used debt to buy back stock in recent years Charter Communications (Nasdaq:CHTR). But this did not work out at all for investors.

Over the past five years, the company’s earnings per share have increased by 46% despite net income growing by a much smaller percentage. This is the effect of stock buybacks in the business.

Unfortunately, the company’s debt increased by 60%. While this was cheap when interest rates were low, Charter now has to refinance these costs at higher costs.

That’s why the stock is down 64% in the past five years. But the question is whether Salesforce’s big bet on itself will mean it will end up in a similar situation.

All in investing

The biggest problem Charter faces is that its core cable TV business has been in decline. Buying back stock didn’t do anything to change that.

Could Salesforce be in a similar situation? The company’s growth has slowed recently, but it’s not the same kind of outright declines — at least not yet.

If the company can stave off the AI ​​threat, buying its own shares would be a great move. But if not, the debt could be disastrous. That’s why I’m looking elsewhere.