2. 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.”
