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The rise of artificial intelligence (AI) has offered both highs and lows for software stocks. Despite new opportunities to innovate, monetization has been a challenge so far, as many enterprise budgets have shifted spending away from software and toward hardware and infrastructure.
Salesforce, Inc. (CRM), a powerhouse in cloud-based customer relationship management solutions, has been leveraging AI to elevate its solutions, but is one of many software companies that’s underperforming the broader market this year. In fact, CRM is among the worst-performing Dow Jones Industrial Average ($DOWI) components of 2024, after leading the index throughout most of 2023.
However, since its brutal post-earnings sell-off in May, the stock has rallied about 13% off its lows at $212. As CRM now looks to regain positive ground on a YTD basis, can the shares keep climbing?
About Salesforce Stock
Incorporated in 1999, San Francisco-headquartered Salesforce, Inc. (CRM), with a market cap of $231 billion, leads in customer relationship management software with its cloud-based platform. The tech company connects companies and customers through a suite of services.
From sales and service to marketing and commerce, CRM provides tools for data analytics, AI, and seamless customer interactions. Notably, its acquisition of Slack and partnerships with companies like IBM (IBM) highlight its commitment to innovation and digital transformation.
After peaking at a new record high of $318.72 in March, CRM shares have lost about 25% of their value. That includes a sharp 19.7% dive on May 30 as investors reacted to earnings.
CRM has tested its YTD breakeven point around $263 a few times in recent weeks and been turned away each time, making this a key level to watch in the near term. The stock is currently down 8.7% for the year.
On July 25, Salesforce paid out a quarterly dividend of $0.40 per share, translating to an annualized $1.60 per share and a yield of 0.67%. With a modest payout ratio of 5.69%, the company’s primary focus is growth.
Priced at 24.07x forward adjusted earnings and 6.10x forward sales, CRM isn’t cheap; the stock trades at a premium to the tech sector median on both metrics. However, it’s currently priced at a discount to its own historical valuations.
Salesforce Craters After Earnings
On May 30, Salesforce reported fiscal Q1 2025 revenue of $9.13 billion, an 11% annual increase, though slightly below Wall Street's expectations. The company’s adjusted EPS soared 44.4% to $2.44, surpassing projections.
Subscription and support revenue climbed 12% to $8.59 billion, while remaining performance obligations grew 10% to $26.4 billion, reflecting strong demand for its cloud solutions amid economic uncertainty. Salesforce exited the quarter with $17.7 billion in cash, cash equivalents and marketable securities, generating a significant free cash flow of $6.08 billion and operating cash flow of $6.25 billion.
Plus, Salesforce's push to weave AI into its products, including via a Slack update and the new Einstein GPT, is driving demand for its solutions.
CEO Marc Benioff called AI a game-changer, explaining, "The one thing that every enterprise needs to make AI work is their customer data, as well as the metadata that describes the data… And customer data and metadata are the new gold for these enterprises, and Salesforce now manages, as I mentioned, 250 petabytes of this precious material. "
Unfortunately, investors were less enthusiastic about CRM’s lowered subscriptions guidance for the full year, as well as a miss on Q1 billings.
The company projects Q2 sales between $9.20 billion and $9.25 billion, marking a 7% to 8% annual growth, with non-GAAP EPS expected between $2.34 and $2.36. For fiscal 2025, revenue is expected between $37.7 billion and $38 billion, with non-GAAP EPS ranging from $9.86 to $9.94.
Analysts tracking Salesforce predict EPS of $7.47 in fiscal 2025, up 23.3% annually, with the bottom line projected to rise another 12.7% to $8.42 in fiscal 2026. Q2 earnings are due out in early September.
What Do Analysts Expect for Salesforce Stock?
Analysts are bullish about CRM stock’s prospects, with a consensus “Moderate Buy” rating overall.
Among the 40 analysts covering the stock, 26 are highly bullish with a “Strong Buy,” two advise a “Moderate Buy,” 11 suggest a “Hold,” and one has a “Strong Sell.”
The mean price target for CRM is $293.27, indicating an upside potential of 22.1% from current levels. The Street-high target price of $350 implies that the stock could rally as much as 45.8%. However, investors may want to wait for a more convincing move into positive YTD territory before buying into the CRM rebound.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
