Tech giant’s stock plunges due to uncertainty in the future. Shares of Salesforce took a hit, dropping by over 4% on Thursday following a pessimistic annual revenue and profit forecast. This raised concerns about when the enterprise cloud company would start reaping significant returns from its substantial investments in artificial intelligence. Salesforce’s CEO, Marc Benioff, has been actively steering the company towards data-driven machine learning and generative AI, aiming to capitalize on the swiftly changing tech landscape.
However, the lackluster annual revenue guidance has cast doubt on the speed at which Agentforce, Salesforce’s AI agent builder platform, can be monetized, given that its business clouds and subscription revenue are trailing due to reduced spending by enterprise clients. Gil Luria, managing director at D.A. Davidson, noted that the focus on Agentforce seems to come at the expense of other areas of the business, resulting in a deceleration. He added, “Since Agentforce may not significantly contribute for at least a year or two, Salesforce is likely to experience even slower growth this year.”
Outgoing CFO Amy Weaver mentioned that the adoption phase for Agentforce is in its early stages, with the company concentrating on deploying the software to customers. However, she anticipates a “meaningful contribution in fiscal 2027.” Danni Hewson, head of financial analysis at AJ Bell, highlighted that although the outlook for Salesforce appears gloomy, there is a potential for a turnaround. Given the substantial investment in AI, Salesforce needs to deliver promptly as the competitive landscape is intense.
Investors are closely monitoring major tech companies like Microsoft and Meta to demonstrate returns on the significant investments made in AI. Despite the challenges, Salesforce’s data cloud, which is a key driver behind its AI initiatives, remains a positive aspect. Data cloud and AI annual recurring revenue surged by 120% last year, laying the groundwork for potential growth acceleration. Salesforce’s 12-month forward price-to-earnings ratio stands at 27.07, contrasting with Snowflake’s 162.52 and ServiceNow’s 55.23.
Should the current losses persist, the company is poised to lose over $12 billion in market value. Reported by Zaheer Kachwala in Bengaluru; Edited by Shailesh Kuber and Shilpi Majumdar.
