Chicago, IL – December 9, 2024 – Today, Zacks Investment Ideas feature highlights Salesforce CRM, Microsoft MSFT and Alphabet GOOGL.
Is AI the Future for Salesforce? Insights from Recent Earnings
Salesforce reported its fiscal Q3 earnings on Tuesday, revealing a mixed bag of results that still managed to excite investors. While the company slightly missed analyst estimates on earnings, it exceeded expectations on revenue, reporting $9.44 billion—a robust 8% year-over-year increase. Operating cash flow surged 29% year-over-year to $1.98 billion, with free cash flow climbing 30% to $1.78 billion. Salesforce also returned $1.6 billion to shareholders through buybacks and dividends in the quarter.
But the real catalyst for the stock’s impressive 11% jump post-earnings wasn’t just the numbers—it was the unveiling of Agentforce, Salesforce’s new autonomous AI agents. This innovation underscores Salesforce’s commitment to integrating artificial intelligence across its platform, positioning it as a leader in enterprise AI solutions.
After underperforming for much of the year, Salesforce has turned the corner, now outperforming the market year-to-date. With Agentforce and its broader AI initiatives, Salesforce appears poised to deliver sustained growth and market-beating performance over the next year. Here's why AI could redefine Salesforce's future.
What Is Agentforce, and Why Does It Matter for Salesforce?
At the heart of Salesforce’s AI evolution is Agentforce, a cutting-edge feature that redefines how businesses interact with their data and customers. Agentforce allows businesses to create customizable AI “agents”—virtual assistants capable of handling specific tasks like sales coaching, customer service, or lead generation. These agents are powered by generative AI and leverage Salesforce’s Large Language Models (LLMs) to interpret natural language inputs. For example, they can take customer questions or instructions and match them to appropriate actions or responses.
This system is designed for flexibility and scalability. Agents can handle routine support tasks like answering basic customer queries, seamlessly escalate issues to human agents when needed, or act as advanced problem solvers for complex scenarios. Perhaps the most exciting aspect of Agentforce is its simplicity. Building an AI agent requires no coding expertise—just natural language inputs in the intuitive user interface. For those with more advanced needs, the platform supports enhancements through prompts, data flows, or API integrations, offering a highly customizable experience.
With Agentforce, Salesforce is positioning itself as a leader in enterprise AI, creating tools that not only increase efficiency but also allow businesses to harness the full potential of their data. As this technology evolves, it’s clear that AI will be a driving force in Salesforce’s growth and innovation.
Salesforce Earnings Trend and Valuation
Currently, Salesforce has a Zacks Rank #3 (Hold) rating, reflecting mixed earnings revisions. However, with these new developments on its platform, I would not be surprised if analysts started upgrading the stock soon. Now may be the time to front-run those upgrades. And even if it doesn’t get significant increases to earnings estimates, Salesforce is a compelling investment opportunity.
The company is expected to grow its earnings at a very respectable 14.8% annually over the next three to five years and as noted in the earnings call, free cash flow is expected to jump 30% in the next year.
Salesforce also boasts a favorable valuation at current levels, especially when looking at its Free Cash Flow yield percentage. It currently has a Free Cash Flow yield of 3.3%, which is above the broad market average and above its 10-year median of 2.6%, with expectations of even higher cash flow in the near term.
Should Investors Buy Shares in CRM?
With its renewed focus on AI and strong earnings growth, Salesforce has become a compelling opportunity for investors. The unveiling of Agentforce solidifies its position as a leader in enterprise AI, and its ability to leverage artificial intelligence is expected to drive further innovation and revenue growth.
This aligns Salesforce with other tech giants, like Microsoft and Alphabet, which are also heavily investing in AI agents to enhance their competitive edge. Microsoft’s integration of AI into its products, such as Copilot in Microsoft 365, and Alphabet’s Vertex AI Agents, highlight the growing importance of AI-driven agents in transforming business operations.
Finally, Salesforce now has the momentum of strong buying interest at its back. Following a period of underperformance, the stock has regained its footing and is outperforming the market year-to-date. For investors seeking exposure to the AI revolution, Salesforce has become a real standout.
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