CRM Stock: Can Salesforce Regain Momentum?

CRM stock has fallen back slightly in 2024; cost pressures and AI competition could be to blame.

Salesforce is a leader when it comes to combining SaaS with AI and applying them to enterprise software. However, it spooked markets in May with its most downbeat revenue forecast on record. Do its fundamentals suggest CRM stock could regain momentum in the future?

What is Salesforce?

Salesforce [CRM], as its ticker suggests, came to prominence as a developer of customer relationship management (CRM) software, and one of the earliest cloud-based, software-as-a-service (SaaS) products.

While its SaaS CRM product remains its core offering, it has developed and acquired various other products and brands over the years, including Tableau, Slack and Heroku.

It also embraced artificial intelligence (AI) long before the rise of OpenAI’s ChatGPT.

Salesforce Chair, CEO and Co-Founder Marc Benioff announced that Salesforce would be “an AI-first company” at an internal all-hands meeting in 2014. Generative AI has been interwoven throughout all its products since the launch of AI Cloud in June 2023.

Cost Reduction Moves

In July, Salesforce announced that it was cutting 300 jobs as part of broader efforts to streamline its operations.

These added to 700 redundancies earlier in the year, according to Bloomberg, as well as a 10% reduction in head count at the start of 2023.

While the latest numbers do not reflect a substantial proportion of Salesforce’s total workforce, they underscore the pressure that technology companies face to control their costs.

CRM Stock Performance

After Bloomberg reported the cuts, the stock fell 0.5% on 15 July. As of 24 July, Salesforce’s share price has fallen 5.1% year-to-date, but has gained 9.5% over the past 12 months.

Salesforce stock had been performing solidly if not stratospherically this year, until a disappointing earnings report on 29 May sent the stock tumbling 19.7% in a single session the following day.

While Salesforce beat analyst expectations on quarterly earnings, analysts and investors were concerned that its weak revenue forecasts indicated declining software demand and greater AI competition.

Salesforce by Numbers

In its 2024 financial year — which ended on 31 January 2024 —  Salesforce grew its annual revenue 11% to $34.9bn. Non-GAAP earnings per share (EPS) rose 56.9% year-over-year to $8.22.

In Q1 of the 2025 financial year, Salesforce posted revenue of $9.3bn, again up 11% year-over-year, and EPS of $2.44, a 44.38% increase year-over-year.

Guidance for the 2025 financial year predicts EPS of $9.86–9.94 and total annual revenue of $37.7–38bn. These ranges suggest year-over-year earnings growth of 19.95–20.92% and revenue growth of 8.02–8.88%. This would mark the first time that Salesforce’s annual revenue growth fell into single digits.

Investors could compare Salesforce to two of its competitors: Adobe [ADBE] and Intuit [INTU]. Both companies produce SaaS products, predominantly for enterprise, and both have made significant moves to incorporate generative AI to enhance their offerings. Both also have a similar market capitalisation to Salesforce.

Source: Yahoo Finance

These numbers make Salesforce appear well-priced compared to its closest competitors. Granted, it is not expected to grow revenue particularly quickly over the next two years; however, it is expected to post better earnings growth for the price investors pay.

Salesforce Stock: The Investment Case

The Bull Case

These favourable valuations form the basis for the bull case in Salesforce, though they also apply to its competitors. A forward P/E ratio of around 25 is fairly reasonable for a technology company.

Additionally, it has a dominant position within its market.

Salesforce was recently ranked the top CRM provider in the International Data Corporation’s (IDC) ‘2024 Worldwide Semiannual Software Tracker’ for the 11th consecutive time. According to IDC’s report, Salesforce gained more revenue during 2023 than any other CRM vendor and held 21.7% of the market.

It is also well-positioned as a major beneficiary of AI. Its generative AI model, Einstein, is embedded into all its products. Clara Shih, CEO of Salesforce AI, told the New York Times in May that she works across Salesforce and its subsidiaries to ensure that all the company’s products are AI-first.

The Bear Case

However, Salesforce’s position as an AI leader could become a headwind for the stock should investor confidence in the technology wane.
There are indications this is already happening. Nvidia [NVDA], viewed as a bellwether for the AI trend, has seen unprecedented inside sales alongside a painful correction in its share price since late June.

Salesforce is so far avoiding the fallout from this: its shares gained 4.3% in the month to 24 July while Nvidia’s fell 3.4%. However, having gained 65.1% since the release of ChatGPT on 30 November 2022, Salesforce’s share price appears at face value to be associated with AI demand. Dwindling hype could see the stock fall in future.

Additionally, Salesforce is clearly feeling the pressure to keep its costs under control, as evidenced by the job cuts announced this month. It seems unlikely, given its recent profitability, that this hints at underlying financial issues, but time will tell whether it can continue to meet investors’ expectations going forward, especially having underwhelmed markets with its most recent guidance.

Conclusion

Salesforce is an intriguing stock for investors who want exposure to SaaS as well as AI. However, its revenue growth appears to be slowing, and recent job cuts suggest that the company, like most of its competitors, is feeling the pressure to reduce costs.

Before making any investment decision, investors should conduct thorough independent research and consider the downside as well as the upside risk involved.

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