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Salesforce Faces Reality Check After AI-Driven Jump to Record
Salesforce Inc.'s big push into artificial intelligence has helped drive shares to a record high. Now, Wall Street wants proof that the heavy spending is going to pay off. The maker of customer relations management software is due to report results after the close, with investors particularly focused on any comments on AI-related trends going forward. Salesforce (CRM) launched its Agentforce generative AI product in October, and has been hiring aggressively to sell the tool, which can complete tasks like customer support without human supervision. It also recently acquired Tenyx, a developer of AI-powered voice agents.
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Salesforce Faces Reality Check After AI-Driven Jump to Record
(Bloomberg) -- Salesforce Inc.'s big push into artificial intelligence has helped drive shares to a record high. Now, Wall Street wants proof that the heavy spending is going to pay off. The maker of customer relations management software is due to report results after the close, with investors particularly focused on any comments on AI-related trends going forward. Salesforce (CRM) launched its Agentforce generative AI product in October, and has been hiring aggressively to sell the tool, which can complete tasks like customer support without human supervision. It also recently acquired Tenyx, a developer of AI-powered voice agents. "Agentforce has overtaken the CRM narrative by storm with a marketing/product release blitz and positive but early partner feedback," wrote Citi analyst Tyler Radke. The results could offer "a reality check" after the stock's roughly 30% gain since Salesforce's annual Dreamforce event in September, he said. While AI has been a major driver of Wall Street gains for almost two years, the biggest revenue boost has been at chipmakers like Nvidia Corp. and cloud-computing companies like Microsoft Corp. Investors are betting that software will be the next group to benefit in a big way, and Salesforce is a popular candidate to show upside. The company has long focused on the technology and optimism around Agentforce is especially strong. "We see the new AI suite as being one of the most transformational to a large business as any we've seen," wrote Eric Clark, portfolio manager of the Rational Dynamic Brands Fund, in emailed comments. "The market will be very pleased when they see the adoption rates over the next three years." Still, the rollout and initial usage of Salesforce's AI products could be lumpy, he said, recommending investors use any share-price volatility as a buying opportunity. In three years time, "the stock will look much cheaper than it does now once we see the revenue, margin, and EPS ramp," he added. The third-quarter results come after a tumultuous year for the shares, which plunged in May following a weak sales growth forecast which underscored concerns that it was getting left behind in AI. The stock has climbed more than 50% since then, and its most recent results were well received, with an estimate-beating outlook driven by cost cutting. While the shares have recovered, analysts haven't yet boosted their estimates in a big way. The consensus estimate for the company's net 2025 earnings is basically unchanged over the past quarter, the period over which the management team began to talk up the new AI tools. The forecast for revenue is similarly flat over that period, according to data compiled by Bloomberg. The combination of share-price gains and static estimates has pushed Salesforce's valuation higher. The stock trades at 30 times estimated forward earnings, up from an all-time low of 21 in May. It's also now more expensive than the Nasdaq 100 Index's multiple of almost 27. Still, if Salesforce is able to show investors that Agentforce and other AI products will begin to provide a big tailwind next year, the shares may be able to continue on their hot streak. Feedback for the technology has been good, according to JPMorgan's most recent quarterly survey of Salesforce partners. "Agentforce captivates customers, highlights the art of the possible in AI," analysts including Mark Murphy wrote, adding that the product debuted with the joint-highest all-time score among Salesforce products in the survey. For this quarter, however, expectations may be too high, according to Murphy. "Agentforce, while a critical development, is unlikely to materially move the needle on revenue growth for about a year," he wrote. "It isn't uncommon to see some backing and filling around earnings reports when excitement has mounted for an AI product cycle." Tech Chart of the Day When Pat Gelsinger was named Intel's CEO in January 2021, there was widespread optimism that he would be able to right the ship at the troubled chipmaker. Those hopes have not come to pass. The stock has slumped about 55% since Gelsinger's appointment, and his tenure ended with him being forced out after the board lost confidence in his turnaround plans. The Philadelphia Stock Exchange Semiconductor Index is up almost 70% over that same period, while Nvidia has soared more than 900%.
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Salesforce's recent focus on AI has driven its stock to record highs, but investors are now looking for concrete evidence that the company's significant AI investments will yield substantial returns.
Salesforce Inc., a leading customer relations management software provider, has seen its shares soar to record highs, largely driven by its ambitious push into artificial intelligence (AI). The company's stock has climbed more than 50% since May, with a particularly strong 30% gain following its annual Dreamforce event in September 12.
At the heart of Salesforce's AI strategy is Agentforce, a generative AI product launched in October. This tool is designed to automate tasks like customer support without human intervention. To bolster its AI capabilities, Salesforce has also acquired Tenyx, a developer of AI-powered voice agents 12.
As Salesforce prepares to report its quarterly results, investors are keenly focused on any forward-looking statements regarding AI-related trends. The market is seeking validation that the company's substantial AI investments will translate into tangible financial benefits 1.
Citi analyst Tyler Radke notes that "Agentforce has overtaken the CRM narrative by storm," but cautions that the upcoming results could offer "a reality check" given the recent stock surge 2.
The AI boom has been a significant driver of Wall Street gains for nearly two years, with chipmakers like Nvidia and cloud computing giants like Microsoft being the primary beneficiaries. Investors are now betting that software companies, particularly Salesforce, will be the next to reap substantial rewards from AI integration 2.
While optimism surrounds Salesforce's AI initiatives, some analysts urge caution. JPMorgan's Mark Murphy suggests that despite Agentforce's critical importance, it's "unlikely to materially move the needle on revenue growth for about a year" 2.
Eric Clark, portfolio manager at Rational Dynamic Brands Fund, views Salesforce's new AI suite as "one of the most transformational to a large business as any we've seen," but acknowledges that initial adoption and usage could be uneven 2.
Salesforce's valuation has increased significantly, with the stock now trading at 30 times estimated forward earnings, up from an all-time low of 21 in May. This places it at a premium to the Nasdaq 100 Index's multiple of almost 27 2.
Despite the stock's recovery, analyst estimates for Salesforce's future earnings and revenue have remained largely unchanged. This disconnect between share price gains and static financial projections has raised questions about the company's ability to deliver on its AI promises 2.
As Salesforce navigates this crucial juncture, the market eagerly awaits concrete evidence that its AI investments will drive substantial growth. The company's ability to demonstrate the tangible benefits of Agentforce and other AI products will likely determine whether it can maintain its current momentum and justify its elevated valuation.
Reference
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Salesforce's shares fall as weak annual forecast raises questions about AI monetization, particularly for its Agentforce platform. The company's transition to AI-driven solutions faces challenges in showing immediate returns.
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Salesforce's Q4 fiscal 2025 results and the performance of its Agentforce AI platform are set to influence both the company's stock and the broader perception of AI agents in the tech industry.
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Salesforce's stock price increases following the company's announcement of new AI-powered tools and a positive outlook for the upcoming fiscal year. The software firm aims to leverage artificial intelligence to drive growth and improve its products.
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Salesforce's stock jumps following impressive Q3 results and optimistic forecasts, largely driven by the success of its new AI product, Agentforce. The company's strategic pivot towards AI technology is seen as a potential catalyst for future growth.
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Salesforce's AI head, Clara Shih, leaves as CEO Marc Benioff targets deploying a billion AI agents within a year. The company's Agentforce platform gains traction, driving stock surge and sparking industry competition.
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