Keeley Adams
May 30, 2024 - 06:15

Salesforce stock plunge overreaction Analyst

Salesforce shares fall as company reports revenue miss and slashes forecast. Analyst notes AI investments impacting revenue trajectory. Stock plunge may be overreaction.

Salesforce (CRM) shares are plummeting following the release of its first-quarter results, which showed a revenue miss for the first time in nearly two decades. Additionally, the company slashed its forecast for subscription and support revenue. CFRA Research Senior Equity Analyst Angelo Zino joined Morning Brief to delve into these results.

Zino highlighted that the shift in companies investing in AI initiatives has impacted Salesforce's revenue trajectory, as organizations now have to compete for these funds. This change represents a headwind rather than a tailwind for Salesforce's operations.

Despite the stock's decline, Zino believes the reaction may be an overreaction. While there were areas of disappointment, the company still achieved 11% growth in the quarter. Zino also noted the potential for a pickup in the latter half of the year due to the company's recurring revenue model.

The current environment presents challenges for enterprise companies to secure funding, with a focus on AI investments potentially hindering revenue growth for Salesforce. The company's valuation, trading at around 21 times the EPS estimate for 2025, suggests limited downside.

The ongoing investment in AI initiatives may not yield immediate results, with the benefits likely to materialize in late 2025 or early 2026. This delay in returns on AI investments may impact revenue growth for Salesforce and other enterprise software companies.

Investors should consider the possibility of Salesforce pursuing large-scale acquisitions to stimulate growth. While the company has not confirmed any M&A plans, speculation about potential acquisitions, such as Informatica, suggests a strategic shift towards inorganic growth opportunities.

Overall, the future growth trajectory of Salesforce remains uncertain, with the company navigating challenges in securing enterprise funding amidst increasing AI investments. Investors should monitor the company's strategic decisions and potential acquisitions as factors that could impact its growth prospects.