Salesforce, the enterprise software company, has emerged as the top-performing stock in the Dow Jones Industrial Average this year. Despite an impressive earnings report, some Wall Street analysts remain cautious about its ability to sustain high rates of growth.
Impressive Earnings Propel Salesforce
In premarket trading on Thursday, Salesforce (ticker: CRM) shares witnessed a 5.4% surge to $226.62 after surpassing quarterly earnings estimates. This year alone, the stock has registered a remarkable 62% increase, outshining tech giants Apple (AAPL) and Microsoft (MSFT) in the Dow.
A Long Way from Previous Highs
Although Salesforce's recent performance has been exceptional, the stock still trails far below its peak of over $300 in 2021. This raises concerns among analysts who doubt whether the company, led by CEO Marc Benioff's strategic initiatives such as price adjustments and investments in artificial intelligence, can reclaim its former glory.
Analysts Retain Cautious Stance
Gil Luria of D.A. Davidson, a reputable Wall Street analyst, points out that Salesforce's revenue growth continues to hover around historic lows of 10% to 11%. Due to the absence of any promising signs of revenue acceleration, Luria maintains a Neutral rating on the stock and sets a price target of $200.
"In the absence of any potential for revenue acceleration, we are adopting a wait-and-see approach," Luria stated.
Despite being the star performer of the Dow Jones Industrial Average, lingering doubts among analysts suggest that Salesforce must address revenue growth concerns in order to sustain its upward trajectory.
Salesforce's Aggressive Embrace of AI
Salesforce, a leading customer-relationship-management software provider, has shown a strong commitment to the AI trend. The company has successfully integrated AI technology into its flagship software, as well as other tools like the messaging app Slack. Despite this, Salesforce does not anticipate any significant impact from AI in the current fiscal year.
Some industry experts, including John DiFucci from Guggenheim Securities, remain skeptical about Salesforce's ability, and that of other application vendors, to monetize their AI investments. The crucial question is whether Salesforce can maintain its double-digit growth.
Guggenheim Securities has maintained a Neutral rating on Salesforce's stock. However, even more positive commentators have concerns about the timeline for AI benefits to positively impact Salesforce's bottom line.
Rishi Jaluria from RBC Capital Markets pointed out that generative AI is still in its early stages of testing and experimenting for customers. As a result, the per-user functionality of AI seems unlikely to have a significant impact in the near future.
Nevertheless, Jaluria has an Outperform rating and a target price of $240 for Salesforce's stock. He highlighted that Salesforce's operating margins have reached 30% ahead of schedule, and the company's guidance should alleviate any concerns about growth dropping to low single-digit percentages.
In conclusion, while there are differing opinions on when Salesforce will fully benefit from AI investments, there is agreement that the company's performance is impressive. The expectation is that Salesforce will continue to thrive in the dynamic landscape of AI and customer-relationship-management solutions.
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