Salesforce: An Early AI Opportunity With Long-Term Potential

Key Points

• Salesforce’s cautious guidance positions it for potential outperformance later this year.
• Analysts lowered targets to align with the consensus, projecting a 30% upside.
• The AI services market is forecast to grow at a 30% CAGR, with Salesforce gaining share.

Salesforce’s NYSE: CRM Q4 results and guidance for 2025 failed to spark a rally but did nothing but improve the long-term outlook. The long-term outlook includes a dominating position in the AI services industry driven by new products, including Agentforce, and advances in existing AI technology, including Data Cloud. The two are driving a robust influx of new contracts, a multi-billion dollar revenue stream that has only begun to flow. Is AI still in its earliest stages? Of course, it is; the data center infrastructure to build all the models and support all the apps is still being built. Salesforce is ahead of the game in developing the technology and driving its adoption. 

AI services and automation are serious opportunities for this company. The AI software services market value is estimated at $98 billion for 2024; the annual recurring revenue for Salesforce’s Data Cloud and AI at the end of Agent Force’s first quarter of availability was $900 million. That’s about 1% of a market forecast to grow at a 30% CAGR, in which Salesforce takes a share. CRM’s AI and Data Cloud ARR is up 120% year-over-year on client wins and penetration, expected to remain solid in 2025. Regarding the AI software services market, it is expected to sustain a 30% CAGR through 2030 and grow 4x in that time. 

Adoption is the key to AI’s success, and Salesforce's plans to invest $1 billion in Singapore are evidence of its leadership position. The company plans to spend the money over five years as it aids the country's transition to an automated, AI-assisted model. The plan is to expand architecture, align with Singapore’s data residency regulations, and work with educational facilities to develop awareness, increase proficiency, and drive the adoption of Salesforce products across industry verticals. Likewise, Singapore Airlines, which uses Salesforce products to deliver consistent, personalized services, is partnering to develop new CRM AI tech for the airline industry. 

Analysts Reset Price Targets: Long-Term Outlook Is Intact

The response from the analysts following the Q4 release is bearish at first glance, but a deeper dig reveals several interesting details. Not only is the group firm with its Moderate Buy rating and belief the stock can rise by at least 30% this year. The post-release activity includes numerous price target reductions, sufficient to put the stock on MarketBeat’s list of Most Downgraded Stocks. 

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Still, the revisions align with the consensus, and many are leading to the high-end range. The consensus implies a 30% upside, and the high-end range adds double-digits to it. The risk is that analysts will continue to lower their targets this year, but that is unlikely. 

The critical takeaway from the analyst's reports and commentary is that the guidance is cautious. The company prudently invests in growth, preparing to scale profitability as demand grows. The likely outcome is that Salesforce will exceed its guidance and issue guidance improvements as the year progresses, creating a catalyst for analysts and the broader market.

As it is, the company is forecasted to sustain a high-single-digit revenue CAGR despite the generally more robust forecast for AI services growth, putting it at only 10x its 2035 earnings forecasts. The stock could rise by 200% to 300% over the next few years in this scenario. 

Salesforce Pulls Back Into a Buying Opportunity

Salesforce stock pulled back following the FQ4 release because there were no catalysts to drive traders into action. However, numerous catalysts drive investors, so the price decline presents an opportunity for them.

The risk is that Salesforce's stock price will pull back further before bottoming. The critical support level is near $280 in mid-March and may be broken before the month’s end. The market for CRM stock could fall to the $255 level in that scenario, providing an even deeper value.