We recently compiled a list of the Jim Cramer’s Top 10 Must-Watch Stocks Today. In this article, we are going to take a look at where Salesforce Inc. (NYSE:CRM) stands against the other must-watch stocks according to Jim Cramer.
Jim Cramer recently discussed Nvidia’s latest earnings report on Mad Money. Despite a solid quarter, the company did not exceed the high expectations set by investors and failed to deliver its key products quickly enough to sustain its previous extraordinary performance. This disappointment led to a relatively muted market reaction, with only modest movements in major indices.
“Turns out that the company is mortal after all. Even though it reported a great quarter last night, it wasn’t able to deliver its key product fast enough to allow the company to do what it’s done so many times before: blow away earnings and raise forecasts to unfathomable levels. The company didn’t define today’s trading because it failed to dazzle in the way that so many money managers had come to expect. The major indices didn’t move much—the Dow advanced 244 points, the S&P was basically flat, and the NASDAQ dipped just 0.23%.”
Cramer expressed relief that the company’s quarter brought an end to the unrealistic expectations that had surrounded the stock. He emphasized that the company is not a miracle company but a firm specializing in high-performance chips that enhance productivity and problem-solving. Cramer noted that the market had unfairly elevated the company to a status where it was expected to perform miraculous feats beyond its actual capabilities.
“My response to all this? Goodness gracious! With this quarter’s results, the albatross of perfection is now gone; the millstone has been shredded. As much as I love the company, I’m thrilled that we can finally return to a market where there are many important stocks representing many important trends, rather than just one stock capturing the attention of legions of investors—many of whom have no idea what it does, let alone where it fits into the technological food chain.
What I’m saying is that, in the end, the company isn’t a concept; it’s not a cult; it’s not a miracle maker. It’s a company that designs incredibly fast chips that enable rapid calculations to help companies speed up problem-solving and improve productivity. You can’t ask the company’s Blackwell chip to cure cancer or put a man on Mars, and it certainly can’t bring about world peace. Yet, when you look at how this stock was trading in recent weeks, the market was basically asking CEO Jensen Huang to do all these things and more.”
He believes the company should be held as an investment, not traded based on fluctuating expectations. While acknowledging that the stock had become overvalued before the quarter, Cramer maintains his belief in the company’s value.
“Right now, it looks like the company can expand customer gross margins—important but not earth-shaking, especially since the enterprise is the client, not you; you won’t even see it. Now that this quarter is in the rearview mirror, my hope is that those who wagered on the stock, rather than invested in the company, will finally move on. No more exacting comparisons with AMD, please. We need to go back to a world where we value the company like any other company, with a reasonable price-to-earnings (P/E) multiple based on its growth.”
Jim Cramer also addressed the question of whether AI investments are yielding tangible returns, especially in terms of improving gross margins. He noted that many of the most convincing AI applications have taken time to develop. Early investment in AI often focuses on training models, and only after this stage can AI start delivering practical benefits. Cramer emphasized that AI’s most significant impacts are typically in enterprise settings rather than for individual consumers.
“For the skeptics, the most compelling AI use cases have been slow to develop. Much of the early investment goes toward training AI models. Only after this process comes to fruition can artificial intelligence actually do something useful for users. It’s important to note that most areas where AI is truly useful are enterprise-oriented.
As a consumer, you may not see how effective these models can be. Keep the term “enterprise” in mind, because it means it’s not aimed at individual users. That’s why tonight I’m going to start something new: a running list of some of the best AI use cases we’ve heard about.”
To highlight the progress in this area, Cramer is introducing a new feature: a running list of notable AI use cases. He pointed out that some AI applications have been in use for a while. For instance, OpenAI generates revenue from its ChatGPT offerings, with a free version available alongside paid subscriptions like ChatGPT Plus for $20 a month and more expensive options for businesses.
“Some of these have been around for a while. For example, there’s a free version of ChatGPT, but OpenAI generates revenue from $20-a-month ChatGPT Plus subscriptions, as well as higher-priced offerings for enterprise customers. The same goes for Gemini and Claude, which have similar pricing. Microsoft’s Copilot functionality and Adobe’s Firefly tools have also been part of their broader product suite since late last year. Both are money makers.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he highlighted ten stocks with notable growth potential. It also examines hedge fund perspectives on these stocks, ranking them from least to most owned based on hedge fund ownership.
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 Inc.(NYSE:CRM)
Number of Hedge Fund Investors: 117
Jim Cramer recently covered updates from Salesforce Inc. (NYSE:CRM) CEO Marc Benioff regarding the company’s new Agentforce AI platform. Cramer notes that Salesforce Inc. (NYSE:CRM)’s AI initiative is expected to significantly boost margins since AI bots are more cost-effective than human employees. Despite this promising development, Cramer was surprised that Salesforce Inc. (NYSE:CRM) didn’t rise, as the use cases for Agentforce are compelling. To Cramer, Salesforce Inc. (NYSE:CRM)’s current decline seems like an error, given the potential value of the technology.
“Last night, we heard from Salesforce CEO Marc Benioff, who discussed how his Agentforce AI platform is starting to gain traction. Agentforce helps companies create fully autonomous AI sales and service agents. Benioff shared some exciting developments, mentioning companies that have already deployed Agentforce and seen meaningful results.
Salesforce’s new AI initiative will lead to a massive expansion of gross margins, as bots are much cheaper than people. We’ll learn more at the company’s annual Dreamforce Festival in three weeks. Again, it’s not a barn burner, but that’s the point of artificial intelligence: it doesn’t burn barns; it simply imitates us, which can be very valuable for businesses. That stock should have been up, not down today, because the use cases were so compelling. I don’t know what happened; it was a mistake, to me.”
Salesforce Inc. (NYSE:CRM) presents a compelling investment opportunity due to its strong financial performance, attractive valuation, and focus on profitability, even amid recent revenue challenges. Although Salesforce Inc. (NYSE:CRM) missed revenue expectations for the first time in 18 years in Q1 2024, leading to a decline in its stock price, Salesforce has made notable progress in other areas. Its adjusted operating margins grew to 32.1%, and operating cash flow increased by 39% to $6.25 billion.
Furthermore, free cash flow surged by 43% to $6.1 billion, showcasing effective cost management and a capital-light business model. Salesforce Inc. (NYSE:CRM)’s valuation is particularly appealing in the context of high-tech sector valuations. Salesforce Inc. (NYSE:CRM) is trading at a forward P/E ratio of 24.2x and a price-to-free-cash-flow multiple of 20x, making it one of the most attractively priced in its history. Analysts are optimistic, with a consensus price target of about $297, indicating a 23.3% potential upside from current levels.
Mar Vista Focus strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc.’s (NYSE:CRM) stock came under pressure in Q2 as the company modestly missed Street expectations for software bookings and reduced its FY2025 subscription revenue guidance to “around 10%” year-to-year growth from “greater than 10%.” We believe Salesforce is experiencing cyclical pressures as software demand across the industry is pressured at the margin. This has led to longer sales cycles; smaller deal sizes and budgets being allocated away from enterprise software to emerging areas like generative AI. We continue to believe that Salesforce will see a tailwind to demand from its generative AI offerings as many AI use cases are found in front office software like customer relationship management. This, coupled with Salesforce’s treasure trove of customer data, positions it well to exploit the evolution of next-generation AI offerings.”
Overall CRM ranks 2nd on our list of Jim Cramer’s must-watch stocks today. 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.
