We recently compiled a list of the Jim Cramer’s 10 Stock Picks That Could Change Your Investment Game. In this article, we are going to take a look at where Salesforce.com, inc. (NYSE:CRM) stands against the other stocks that could change your investment game according to Jim Cramer.
Tech Stocks Shine When Rates Are High but Struggle After Rate Cuts, Says Cramer
In a recent episode of Mad Money, Jim Cramer points out that tech stocks often perform well when the Federal Reserve maintains high interest rates and the economy slows down. However, when the Fed cuts rates, as it did recently, Wall Street shifts its focus to companies that can show significant earnings growth due to these lower rates. This may seem confusing, but in the stock market, cash is limited, and it’s currently flowing into companies that would struggle without the rate cuts. While many stocks initially rose after the cut, they couldn’t maintain those gains, leading to a market decline.
“The thing is, these tech stocks tend to be winners when the Fed keeps rates high and the economy slows. But when the Fed slams on the accelerator, as it did today, Wall Street bands together and piles into the companies that can post big earnings gains with much lower interest rates. Now, that may sound strange to you. Obviously, the real world makes no distinction between a company that does well all the time and one that does extremely well some of the time.
However, in the crazy world of the stock market, we only have so much cash to go around, and right now, it’s flowing into companies that would have been doomed in a world where the Fed didn’t start cutting rates. These companies have stocks that are much prized right now, so the money funnels into them. Everything else went up but couldn’t stay up after the rate cut. These did stay up; unfortunately, there aren’t enough of them to allow the averages to close in the black. That’s why we close in the red.”
Cramer questions whether all tech stocks are now weaker and suggests that not every company will suffer the same fate. He believes there are still standout stocks in the tech sector that can thrive regardless of economic conditions, even if they don’t perform well on days when the market dips. These companies help larger businesses operate more efficiently, and there’s always a demand for that kind of support, indicating that some tech players will continue to shine.
“So, is every player doomed to the same small part? Are the stocks of all tech companies weaker now? Can nothing transcend that status? Like when I went out for Bye Bye Birdie or Guys and Dolls in high school, I mean, first, no publicly traded company would ever be that low. I was totally expendable, other than as Lieutenant Rooney in ARS Gold Lace, where I don’t think I ever spoke more than a few words.
But there will be stocks that shine even in tech with rates coming down. However, we come out here to find legitimate stars that can thrive regardless of the economy, and they don’t do that well on days like today. Many of these outfits are about helping big companies do more with less, and there’s always demand for that. They’re not big players; you bring in these guys to bridge the gap and perform better with fewer people.”
Jim Cramer: Artificial Intelligence (AI) Drives Profit Growth Despite Slowing Sales
Jim Cramer also highlights that artificial intelligence is a crucial factor in today’s market. Companies using AI can enhance their profit margins, increasing earnings even amid declining sales. This indicates that AI can drive profitability without needing to boost sales.
Our Methodology
This article summarizes Jim Cramer’s latest Mad Money episode, in which he analyzed several stocks. We selected 12 companies and ranked them by their ownership levels among hedge funds, beginning with those that are least owned and moving to those that are most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer service team in an office setting using the company’s Customer 360 platform to communicate with customers.
Salesforce.com, inc. (NYSE:CRM)
Number of Hedge Fund Investors: 117
Jim Cramer expressed his doubts about many AI initiatives he has encountered, suggesting that they often repackage existing ideas rather than offer anything new. However, he sees Salesforce.com, inc. (NYSE:CRM)’s CEO, Marc Benioff’s Agent Force as a notable exception. Cramer believes this innovation has the potential to be genuinely different and highly profitable for both Salesforce and its customers.
“Mark Benioff has added many great products over the years, but he seems most proud of this one. So far, it hasn’t mattered to the stock; it’s only been out for a very short period of time, but a very high percentage of companies here at Dreamforce have already signed up for it. Ultimately, AI will end up doing many things.
I’m skeptical about many of the initiatives I’ve heard for AI; they tend to be old things that would have been done anyway, just being rebranded as AI. But with Marc’s Agent Force, I see something truly different and very lucrative for both Salesforce and its clients.”
Salesforce.com, inc. (NYSE:CRM)’s positive outlook is supported by its strong earnings in Q2 2024, which surpassed analysts’ expectations and highlighted significant revenue growth due to increasing demand for its cloud-based customer relationship management solutions. Salesforce.com, inc. (NYSE:CRM) has successfully acquired and expanded its customer base, solidifying its position as a market leader.
Salesforce.com, inc. (NYSE:CRM) is also making substantial investments in artificial intelligence, particularly with its new Einstein GPT, which adds generative AI features to its CRM platform, enhancing customer experiences and boosting operational efficiency. Furthermore, Salesforce.com, inc. (NYSE:CRM) is broadening its product lineup, including upgrades to its Marketing Cloud and better integration with Slack, allowing it to address a wider array of customer needs and drive long-term growth.
With a diverse customer base that includes many Fortune 500 companies, Salesforce.com, inc. (NYSE:CRM) enjoys high retention rates and increased spending from existing clients, contributing to steady revenue growth. As businesses focus more on digital transformation and improving customer engagement, Salesforce.com, inc. (NYSE:CRM) is well-equipped to take advantage of these trends. Recent strategic partnerships and new product launches have also strengthened investor confidence in Salesforce.com, inc. (NYSE:CRM)’s growth potential, leading to a favourable outlook for Salesforce.
Ithaka US Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc. (NYSE:CRM) is the largest pure-play cloud software company, holding a leading market share in customer relationship management applications and a top-five market share position in the company’s other clouds (Marketing, Service, Platform, Analytics, Integration, and Commerce). The company’s software subscription term-license model differs from the traditional perpetual-license software model in two respects:
(1) the software is hosted on centralized servers and delivered over the internet, as opposed to traditional enterprise software that is loaded directly onto customers’ hard drives or servers; and (2) the revenue model is subscription-based, typically charging monthly fees per user as opposed to charging one-time licensing fees. The stock’s weak relative performance followed its fiscal first quarter earnings announcement, where the company missed top-line and cRPO (current remaining performance obligations) estimates while also issuing weak forward guidance.”
Overall CRM ranks 2nd on our list of the stocks that could change your investment game according to Jim Cramer. While we acknowledge the potential of CRM as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.