Is AI the Future for Salesforce? Insights from Recent Earnings

Salesforce ((CRM - Free Report)) recently shared its fiscal Q3 earnings, and while the results were somewhat mixed, they succeeded in capturing investors' attention. The company reported earnings that fell slightly short of analyst expectations, yet its revenue outperformed predictions by reaching $9.44 billion—a strong 8% increase compared to last year. Additionally, Salesforce saw a remarkable 29% rise in operating cash flow, totaling $1.98 billion, and a 30% increase in free cash flow, which amounted to $1.78 billion. In this quarter, Salesforce also managed to return $1.6 billion to its shareholders through dividends and buybacks.

However, what truly drove the stock price up by 11% after the earnings announcement was not merely the financial numbers but the launch of Agentforce, Salesforce's innovative autonomous AI agents. This significant development highlights Salesforce's ambition to weave artificial intelligence into all aspects of its platform, establishing its position as a frontrunner in enterprise AI solutions.

After a challenging start to the year, Salesforce has bounced back and is now outperforming the market. The introduction of Agentforce, coupled with its ongoing AI initiatives, indicates that Salesforce is on track for future growth and the potential for greater market performance. Here's how AI might reshape Salesforce's trajectory.

Understanding Agentforce and Its Importance for Salesforce

The foundation of Salesforce's advancements in AI lies with Agentforce, which fundamentally alters the way businesses interact with their data and customers. Agentforce enables organizations to build customizable AI "agents"—virtual assistants designed to undertake specific responsibilities such as sales coaching, customer support, or lead generation. These agents utilize generative AI and Salesforce’s Large Language Models (LLMs) to process natural language queries. For instance, they can interpret customer inquiries and match them with suitable actions or responses.

This AI system is crafted for both flexibility and scalability. Agentforce agents are capable of managing routine support tasks, such as addressing common customer questions. They can also seamlessly transfer complex issues to human agents when necessary or act as sophisticated problem solvers for intricate scenarios. What makes Agentforce particularly appealing is its user-friendly structure. Creating an AI agent does not require coding skills; users need only to input natural language into a straightforward interface. For those with advanced requirements, the platform accommodates enhancements using prompts, data flows, or API integrations, making for a highly adaptable experience.

With Agentforce, Salesforce is solidifying its status as a leader in the realm of enterprise AI. The platform's tools not only enhance efficiency but also empower businesses to capitalize on their data like never before. As this technology matures, it's evident that AI will be a crucial factor in Salesforce's ongoing growth and innovation.

Salesforce's Earnings Performance and Valuation Outlook

Currently, Salesforce holds a Zacks Rank #3 (Hold), which indicates mixed earnings revisions. However, following these new advancements, analysts may soon be inclined to upgrade their ratings. This could be an opportune moment for investors to position themselves ahead of potential upgrades. Even if earnings estimates remain largely unchanged, Salesforce presents an attractive investment opportunity.

The company is projected to achieve a respectable annual earnings growth rate of approximately 14.8% over the next three to five years, and according to insights from the earnings call, free cash flow is expected to surge by 30% within the next year.

Salesforce's current valuation is favorable, particularly when assessing its Free Cash Flow yield. The company boasts a Free Cash Flow yield of 3.3%, surpassing the market average and its own 10-year median of 2.6%, with predictions for even higher cash flow shortly.

Should Investors Consider Purchasing CRM Shares?

With a renewed focus on AI and strong anticipated earnings growth, Salesforce has emerged as an attractive option for investors. The launch of Agentforce solidifies its role as an enterprise AI leader, and its capability to harness artificial intelligence is likely to foster further innovation and revenue growth.

This strategic move aligns Salesforce with other major tech players, such as Microsoft ((MSFT - Free Report)) and Alphabet ((GOOGL - Free Report)), which are also heavily investing in AI-driven agents to gain a competitive advantage. Microsoft has incorporated AI into its offerings, notably with Copilot in Microsoft 365, while Alphabet's Vertex AI Agents reflect the increasing significance of AI-powered agents in reshaping business practices.

Additionally, Salesforce is benefiting from a resurgence of buying interest. After experiencing a period of underperformance, the stock has regained strength and is now outperforming the year-to-date market results. Consequently, for those looking to tap into the AI revolution, Salesforce has become a prominent choice.

Salesforce, AI, Agentforce