In 2023 so far, enterprise software giant Salesforce (CRM) and semiconductor maker Intel Corporation (INTC), like many Big Tech stocks, are riding the artificial intelligence (AI) wave. Following their latest quarterly results and upbeat near-term guidance, CRM and INTC stand out as two of the best Dow stocks.
The Dow Jones Industrial Average ($DOWI), one of the oldest stock market indexes, has gained 8.5% year-to-date. While Intel has gained 61% YTD, Salesforce's strong fiscal Q3 results have propelled its stock price this year to skyrocket 92%. Both stocks have outperformed the 30.8% gain in the tech-heavy NASDAQ Composite Index ($NASX). Nevertheless, Wall Street believes these two AI stocks have more room to run. Let’s find out.
The Case For Salesforce
Founded in 1999, Salesforce is known for its leading customer relationship management (CRM) platform. Moreover, strategic acquisitions, such as Tableau and Slack, have expanded Salesforce's capabilities beyond CRM, incorporating analytics, collaboration, and workflow optimization into its portfolio of offerings. Notably, Salesforce's revenue increased at a compounded annual growth rate of 18.7% between fiscal 2019 and fiscal 2023.
Salesforce reported strong results for the third quarter ended Oct. 31, with total revenue up 11% year-over-year to $8.72 billion. Adjusted earnings per share (EPS) increased a massive 495.2% to $1.25 in the quarter. Both revenue and earnings smashed Wall Street’s consensus estimates.
Growth across its diversified offerings, including Tableau, Slack, Sales Cloud, Data Cloud, and Service Cloud, fueled this dramatic revenue and earnings growth. Furthermore, the company has expanded its partnership with Alphabet's (GOOGL) Google to boost business productivity with the touch of generative AI.
Recently, Salesforce announced another collaboration with retailer Williams-Sonoma (WSM), through which the retailer will use the company's offerings such as data, marketing, service, and sales cloud platforms to enhance the shopping experience. Williams Sonoma also aims to explore Salesforce Einstein's generative AI capabilities to personalize its customers' shopping experiences.
Looking ahead, management anticipates strong revenue in the $34.7 billion to $34.8 billion range for fiscal 2024, with adjusted EPS arriving between $8.18 and $8.19.
Meanwhile, analysts predict that Salesforce will end fiscal 2024 with earnings up 56% to $8.19 per share and revenue growth of 11% to $34.8 billion.
Salesforce’s stock has soared 95% year-to-date, but is still trading 5% below its 52-week high, presenting an opportunity for long-term investors to buy it at a discount.
What Are Analysts Saying About Salesforce?
Following its Q3 earnings, analysts at Barclays, Oppenheimer, Bank of America (BAC), JP Morgan (JPM), Deutsche Bank (DB), Wells Fargo (WFC), Morgan Stanley (MS), and many others increased their target prices for CRM.
Overall, Salesforce has a “moderate buy” rating on Wall Street. Out of the 38 analysts that cover the stock, 22 rate it a “strong buy,” two rate it a “moderate buy,” 13 analysts rate it a "hold,” and one rates it a “strong sell.” The average target price for the stock is $271.26, which implies an upside potential of 7.3% from current levels.
Furthermore, Goldman Sachs (GS) analyst Kash Rangan has set a Street-high target price of $345, implying 36.5% upside from current levels. The analyst is impressed with Salesforce's third-quarter results, and believes the company's "strategy to capitalize on the increasing demand for generative AI" will assist its future growth.
Valued at 26 times forward earnings and 6 times forward sales, Salesforce is still a reasonably priced AI stock. Analysts predict revenue and earnings growth of 11% and 16%, respectively, in fiscal 2025.
The Case For Intel
Founded in 1968, Intel is known for its wide array of processors that have powered PCs, servers, and mobile devices for decades. Intel's third-quarter revenue fell 8% year on year to $14.2 billion, weighed down by macroeconomic headwinds as the personal computing market slowly recovers. However, adjusted earnings per share increased to $0.41 from $0.37 a year ago.
While its Client Computing Group; Data Center and AI; and Network and Edge business segments all reported declines in the third quarter, Mobileye and Intel Foundry Services reported impressive growth. Intel is beefing up its manufacturing capabilities with four new units, amounting to $100 billion in manufacturing and research investments in the U.S.
On Dec. 6, Benchmark's Cody Acree increased Intel’s target price from $42 to $52. The analyst is impressed with “Intel's leadership's advancements in design, product, and manufacturing,” which he believes will drive the stock higher in the near future. Furthermore, Acree is confident Intel has the potential to compete not only in the desktop and data center markets but also in the rapidly expanding AI market.
Intel's business is heavily reliant on consumer PC spending. As a result, a recovery in the PC market and AI prospects are likely to be tailwinds for revenue growth in the coming quarters. Market research firm Canalys forecasts global PC shipments could return to growth of 5% starting in the fourth quarter of 2023. Furthermore, AI-powered devices may drive an 8% increase in 2024 shipments over this year.
A recovery in the PC market will benefit Intel's Client Computing Group business unit, which accounts for the majority of the company's total revenue. On Dec. 14, Intel will release its AI-powered Core Ultra processor and 5th Generation Intel Xeon processor. What’s more, the company highlighted its intention to “bring AI everywhere,” from “client and edge to network and cloud.”
Keeping this in mind, analysts predict revenue growth of 13.4% to $61.1 billion in 2024, with earnings growth of around 100.4%. Based on the explosive projected 2024 growth, Intel’s shares are still cheap at 22 times forward earnings.
What Is Wall Street Saying About Intel?
Out of the 31 analysts covering Intel stock, 4 have a “strong buy” recommendation, 3 suggest a “moderate buy,” and 19 suggest a “hold." Plus, 1 analyst says INTC stock as a “moderate sell,” while 4 say it’s a “strong sell.”
INTC stock is already trading at a premium to analysts' average price target of $37.25. However, the Street-high target price of $56 from Northland Securities implies a potential upside of about 26% in the next 12 months.
