The AI craze has been one of the big stories of 2024, as the rapidly developing technology continues to reshape industries and our day-to-day lives.
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Salesforce (NYSE:CRM) might not come to top of one’s mind when considering those companies who are at the forefront of the AI revolution. Still, it is hard to argue that the CRM company has been one of the beneficiaries of the current tech boom, and its share prices are up over 30% year-to-date.
Indeed, the company recently announced that it will be adding some 2,000 employees to help promote its Einstein AI assistant. In addition, the second generation of its AI platform, Agentforce, will be available this coming February.
While bears could point to slowing sales growth from 18% in FY23 to 11% in FY24, the top investor known by the pseudonym On the Pulse, believes that Salesforce is primed to benefit from the increasing drive towards AI.
“Despite slowing sales growth, Salesforce’s gross margins are improving, with AI products like Einstein AI driving future profitability and efficiency,” explains the 5-star investor, who is in the top 5% of TipRanks’ stock pros.
Already with strong gross margin profits, the investor anticipates that Salesforce will be able to capitalize on its heavy AI spending to increase this key metric going forward. In fact, the company’s gross profit, which On the Pulse points out is a “major KPI for software businesses,” rose 50% faster than sales last quarter.
“Despite slowing sales growth, the CRM company is actually producing better profitability,” adds the investor.
On the Pulse writes that the company’s P/E multiple of 34.24x is pretty reasonable for a market leader, especially when one considers the expected double digit growth in earnings both this year and next (22% in 2024 and 12% in 2025).
“With AI development accelerating, more share repurchases on the horizon and a moderate valuation, I think Salesforce could be a top investment for 2025,” sums up the investor, who rates Salesforce a Buy. (To watch On the Pulse’s track record, click here)
On the Pulse’s optimism is reflected on Wall Street as well. With 31 Buy, 9 Hold, and 1 Sell ratings, CRM enjoys a consensus Moderate Buy rating. Its 12-month average price target of $398.34 would translate into gains of ~16% in the year to come.
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
