Salesforce Stock Plummets Amid Growth Concerns After Weak Outlook

Salesforce stock NYSE:CRM

Shares of Salesforce Inc. (NYSE:CRM) plunged by the most in nearly two decades after the company reported its slowest quarterly sales growth on record, raising concerns about its position in the artificial intelligence sector.

In a statement released Wednesday, the San Francisco-based company forecast revenue growth of up to 8% to $9.25 billion for the period ending in July. This marks the first quarter of single-digit sales growth for Salesforce since it became a publicly traded company almost two decades ago. The stock plunged by 21% to $215.40, marking its largest intraday decline since July 21, 2004.

According to data compiled by Bloomberg, analysts had expected revenue to reach $9.35 billion on average. Salesforce also said profit, excluding certain items, would be approximately $2.35 per share, falling short of expectations.

Investor concerns have been growing over Salesforce’s decelerating sales growth in the past year as the company shifted its focus toward improving profitability. While management has touted the potential of artificial intelligence-powered software and features to drive revenue, Salesforce has also ramped up share buybacks and initiated a dividend to appease Wall Street.

Year-to-date, the stock had gained only 3.2% through Wednesday’s close. Salesforce’s outlook on Thursday weighed on the performance of many software companies, including Oracle Corp. (NYSE:ORCL), ServiceNow Inc. (NYSE: NOW), and SAP SE (NYSE: SAP). In contrast, Inc. (NYSE:AI) rallied on the back of a stronger-than-expected sales forecast.

Rishi Jaluria, an analyst at RBC Capital Markets, questioned whether the increased focus on AI by Chief Information Officers should translate into more expansion for Salesforce.

Salesforce CEO Marc Benioff, however, remained bullish on the company’s long-term prospects, pointing to the recent focus on profitability and the potential of artificial intelligence. However, most analysts do not expect generative AI features within Salesforce applications to meaningfully impact revenue until 2025 or 2026.

A key area of focus for executives and investors was Salesforce’s Data Cloud, which saw a 24% increase to $1.4 billion in the business unit containing Data Cloud, MuleSoft, and Tableau. This beat analysts’ expectations.

In terms of acquisition strategy, Salesforce reportedly considered buying Informatica Inc., a data-organization software maker, highlighting its commitment to diversifying its product offerings. Mike Spencer, Executive Vice President at Salesforce, noted that while some investors may frown upon large acquisitions, they remain part of the company’s playbook.

During a conference call following the results, Benioff stressed the importance of ensuring that any major acquisitions align with the company’s strategic priorities and are beneficial to customers.

In the fiscal first quarter ended April 30, Salesforce reported an 11% revenue increase to $9.13 billion, with profit, excluding certain items, at $2.44 per share, beating analysts’ estimates.

However, the company’s current remaining performance obligation, a measure of contracted sales, grew by only 10% to $26.4 billion, falling short of estimates. Chief Operating Officer Brian Millham noted that customers showed more caution in the quarter, with smaller purchases and delayed new deal signings.

Anurag Rana, an analyst at Bloomberg Intelligence, suggested that traditional giants like Salesforce could face increased competition as enterprises allocate more of their budgets toward generative AI-related hardware and software. Recent results from Workday Inc. (NASDAQ:WDAY) and UiPath Inc. (NYSE:PATH) echoed similar sentiments. According to Karl Keirstead, an analyst at UBS, the challenges in the software sector are broad-based and not unique to Salesforce, with no evidence of a recovery in the second half of the year.