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Investors should be wary of CEOs who aggressively pump up their products and companies. The danger is that overenthusiasm can set expectations high and, if the company falls short, that can make the stock vulnerable to a sell-off.
Case in point: It's not uncommon for Salesforce (NYSE: CRM) CEO Marc Benioff to talk up Agentforce on TV, saying how great the company's artificial intelligence (AI) platform is, and how much better it is than Microsoft's Copilot. The problem is that the early results aren't there to back the assertions, at least not yet.
Salesforce's growth has been going in the wrong direction
Benioff sees AI as being a big opportunity for Salesforce, which offers a customer relationship management platform to companies, helping them connect with customers, manage data, and advertise. Agentforce can help automate many tasks and provide "always-on support" for both customers and employees. While it sounds like an exciting opportunity, whether or not the reality matches up with the hype is still a question mark.
On the company's most recent earnings report (for the fourth quarter and fiscal year ending Jan. 31), Salesforce posted quarterly sales of $10 billion, which were up 8% year over year. It's a concerning trend for the business because its growth has been slowing down for multiple years.
The company says that its combined data cloud and AI annual recurring revenue currently sits at $900 million and rose by 120% year over year. That's a small slice of the nearly $41 billion that the business expects to generate in sales for the current fiscal year. The Agentforce rollout is, however, still in its early stages (it was launched in October) and could pad that number in the future.
However, the company's guidance for the current year forecasts revenue to rise between 7% to 8%, which doesn't suggest a sharp increase in sales (or any improvement at all).
Investors are paying a high premium for the stock
As Salesforce has matured and grown its profits, the stock's valuation has improved significantly. But based on its performance over the trailing 12 months, it's still trading at price-to-earnings multiple (P/E) of 45 -- a high multiple for a business that's growing by single-digit percentages.
Many tech companies have been investing heavily in AI to avoid missing out on growth opportunities. The danger is that Salesforce may end up doing the same.
The company said it closed 5,000 Agentforce deals since October, but of those, over 3,000 of them were paid deals. Investors should be careful to pay attention to not only the number of paid deals but also to what the bottom line looks like.