Wall Street will be expecting Salesforce (CRM) to improve profit margins for CRM stock in 2025 amid higher investments in artificial intelligence. But revenue growth from AI products most likely will be the biggest factor for Salesforce stock.
↑
X
From Artificial Intelligence To Interest Rate Cuts, Here’s How Investors Can Win Big In 2024
In 2024, CRM stock has gained 28%. Salesforce stock hit a high of 369 on Dec. 4 but has retreated during December. Shares trade near the 50-day moving average of CRM stock.
The iShares Expanded Tech-Software Sector ETF (IGV), an industry index that includes many big-cap software companies, has advanced 26% in 2024. The S&P 500 has gained 25%.
In late 2024, Salesforce and other software makers began shifting marketing strategy away from generative AI “copilots” to autonomous, goal-driven AI “agents.“
Copilots, basically conversational chatbot interfaces, aim to improve worker productivity but rely on human prompts. Agents execute multi-step tasks on behalf of users by solving problems and taking action.
Salesforce introduced Agentforce at its Dreamforce customer conference in September. In December, Salesforce announced an upgraded version, Agentforce 2.0, along with its “Digital Labor Platform.”
Salesforce is incorporating AI agent technology into its broad array of customer management, customer service and marketing automation products.
The software maker’s new Agentforce business model is “consumption” based. That means customers will be charged based on usage.
The big question is how much revenue growth will come from Salesforce’s new AI products. In fiscal 2026, which starts with the March quarter, Wall Street projects only 9% revenue growth to $41.4 billion for CRM stock.
“We estimate Agentforce could provide incremental 1% to 2% points of revenue growth in fiscal 2026 and fiscal 2027 each,” said Bank of America analyst Brad Sills in a report.
Wall Street also expects AI products to boost a key financial metric: current remaining performance obligations. CRPO bookings are an aggregate of deferred revenue and order backlog.
Meanwhile, Salesforce reported third-quarter earnings that missed estimates amid a one-time investment loss, while revenue and a key metric came in above expectations.
What’s more, Salesforce is once again making acquisitions, albeit smaller ones. In its biggest deal since Slack, Salesforce in September acquired Own, a data protection and data management vendor, for $1.9 billion in cash. Further, Salesforce recently bought Zoomin, an unstructured data management company with existing ties with Salesforce.
Last year, a Salesforce reportedly was in talks with Informatica (INFA) but a deal did not materialize.
Further, Salesforce sells software under a subscription model. Its software helps businesses organize and handle sales operations and customer relationships. The company has expanded into marketing, e-commerce and data analytics. It’s making a big push into the life sciences market.
Still, Microsoft‘s (MSFT) Dynamics software has gained traction as a lower-priced alternative to Salesforce tools, analysts say
The customers of software-as-a-service, or SaaS, companies like Salesforce purchase renewable subscriptions, rather than on-premise software licenses. Also, customers receive automatic software updates via the web.
In 2023, Salesforce refocused on improving operating margins amid cost-cutting spurred by activist investors.
Further, a Salesforce acquisition spree that began in 2013 has complicated its margin outlook for over a decade.
In 2018, Salesforce bought MuleSoft for $6.5 billion in cash and stock. MuleSoft’s software automates the integration of new tools with legacy enterprise platforms and speeds application development.
Meanwhile, Salesforce in 2019 agreed to buy data analytics firm Tableau for $15.7 billion in an all-stock deal. Tableau provides data visualization software. In addition, it enables customers to build databases, graphs and maps using time series analytics, a technique that analyzes a series of data points ordered in time.
Then came the Slack Technologies deal. Amid growing competition with Microsoft, Salesforce paid $28 billion for the workplace collaboration software maker.
According to IBD Stock Checkup, CRM stock currently has a Relative Strength Rating of 87 out of a best-possible 99. The best stocks tend to have ratings of 80 and above.
Meanwhile, CRM stock holds an IBD Composite Rating of 97 out of a best possible 99. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
In addition, Salesforce stock has an Accumulation/Distribution Rating of B. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
As of Dec. 30, Salesforce stock is not in a buy zone. CRM stock needs to build a fresh base to be actionable.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.
YOU MAY ALSO LIKE:
IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today
Learn How To Time The Market With IBD’s ETF Market Strategy
How To Use The 10-Week Moving Average For Buying And Selling
Get Free IBD Newsletters: Market Prep | Tech Report | How To Invest
