Once a high-flying tech stock priced for very strong and ongoing growth underpinned by AI adoption, Salesforce has experienced a tough 2025 to date, declining from $US370 in December 2024 to a recent low below $US240. More interesting, has been its lack of recovery relative to the broader tech sector following April’s market conniption. As we screen the market for interesting ideas, CRM US has come up multiple times due to its consistency in growing earnings at high rates over time, and while the recent trends have become choppier, the overall trajectory of earnings growth remains solid. When it hit its peak in early December, it had just delivered a very strong quarterly and guided well for the period ahead, talking up their success with an AI agent product called Agentforce, designed to create and deploy autonomous agents that can perform complex tasks across various business functions such as sales, service, marketing, and commerce.
Since then, the wind has come out of the sails with the market concerned about the macro backdrop in the first instance, but more importantly, the prospect of large-scale M&A. At the recent quarterly update last week, they announced a $US8 billion acquisition of Informatica, which aims to enhance its data management capabilities and beef up Agentforces’ effectiveness. While acquisitions bring risk, and $US8bn sounds like a big number, relative to the size of the CRM business (market cap of $US252bn) we view this as a modest outlay.
Further, we don’t think it’s reason enough not to consider such a well-regarded, integrated platform in the sales functions of many of the world’s largest brands, with AI creating such a huge opportunity for a company like CRM.
- While much of the focus at their Q1 results on the 28th May was on the acquisition, they did outline good growth metrics across their business with revenue of $US9.83bn up 8% YoY and mildly upgraded full year revenue guidance to be in line with the quarterly growth rate of 8%. Their AI and Data Cloud offerings achieved over $US1 billion in annual recurring revenue (ARR), up 120% YoY. Importantly, nearly 60% of Salesforce’s top 100 deals in the quarter included AI and Data Cloud components, highlighting the growing adoption of these technologies among their major clients.
Looking ahead, consensus expectations have CRM US growing earnings at an average rate of over 12% for the next 3-years, and it’s now back to an attractive valuation, trading on ~22x earnings.
