Salesforce is Friday's IBD Stock Of The Day. Despite pulling back recently, CRM stock is poised to capitalize on a "tectonic shift" in artificial intelligence.
The company is already a big-cap software maker that helps manage customer relations. Now, it's making a move into the burgeoning AI space where analysts say it will also be a leader. Last month, Salesforce unveiled a $360,000 annual price tag for its AI Cloud Starter Pack.
Baird analyst Rob Oliver says that offering will appeal to large enterprises. But Salesforce is also rolling out its GPT Trust Layer to all customers, allowing them to use generative AI without sacrificing their data or safety. He says Salesforce could sweeten its revenue by north of $10 billion over several years by moving deeper into the AI space.
"We have been most impressed with the speed and thoughtfulness with which Salesforce is embracing generative AI," he said in a report to clients. "We believe that Salesforce is repositioning substantially all of its product offerings to be able to capitalize on this tectonic shift."
Oliver has a neutral rating on CRM stock.
CRM Stock: Pullback Offers Entry
Salesforce shares have pulled back to their 50-day moving average and 21-day line, MarketSmith.com shows. But this possible trendline could offer an entry if shares top their Wednesday high point of 214.62.
CRM stock is also forming a flat base with a 225 buy point on the weekly chart. On Friday, shares dipped 0.3% to close at 209.59.
The macro environment for enterprise companies has been tricky recently. In mid-2022, Salesforce noted a deteriorating backdrop led to sales cycle elongation, deal size compression and disappointment, Deutsche Bank analyst Brad Zelnick said in a report last month.
Since then, the macro environment has stabilized. Salesforce's guidance assumes a steady environment this year, leading to roughly 10% sales growth. In the current quarter, analysts call for $8.53 billion in sales, up about 10.5% year over year. FactSet-polled analysts also project adjusted profit of $1.90 per share, growing almost 60%.
"The company is using this time to focus on becoming more efficient and optimizing its operations so it will be strongly positioned when the economy improves," Zelnick said. "In addition, we were reminded that the front office investments tend to be the first to recover in an improving environment."
Zelnick has a buy rating and 245 price target on CRM stock.
Recent Slump Could Turn Around
Wedbush analyst Daniel Ives noted the tech slump in a recent report. But he said he expects things to pick back up in the second half of this year. The biggest factor in that pickup will be the "AI gold rush." He sees this moment as a "1995 internet moment, not a 1999 dot-bubble moment."
"While bears will continue to fret about tech valuations and the uncertain macro backdrop, we believe this ultimately is the start of a new tech bull market we see heading into 2024 being driven by this AI revolution coupled with a stabilizing IT spending environment," Ives said in his note to clients.
Both Salesforce and analysts say the AI evolution will be a yearslong process. Salesforce's recent AI day was helpful in understanding the opportunity, Evercore ISI analyst Kirk Materne said in a note.
"While (CRM stock) traded down against its peers (on June 12), we believe this was likely some stock profit-taking as the stock rallied into the event," he said. "The monetization of AI is going to play out over years, not months, for Salesforce."
He kept his outperform rating and 240 price target on Salesforce stock.
CRM Stock Has High Ratings
CRM stock has a strong IBD Digital Relative Strength Rating of 89 out of a best-possible 99. This means shares have performed in the top 11% of all stocks over the past 12 months.
Salesforce stock also has a nearly perfect Composite Rating of 98, a measure of fundamental and technical factors.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
