Salesforce plummets as weak forecast raises concerns about AI competition

Editorial Auge June 2, 2024

Salesforce (CRM.N) shares fell about 18% on Thursday after its lowest quarterly revenue growth forecast in history raised fears that high interest rates and rival AI offerings are curbing demand at the cloud-based software company.

The company could lose more than $48 billion in market value if losses are sustained, as it also reported quarterly revenue below expectations for the first time since 2006.

"Weak Q1 bookings further test investors' patience as the generative AI innovation (GenAI) cycle has yet to impact top-line results and is now increasingly becoming a point of competitive concern," said analysts at Morgan Stanley.

Salesforce's AI-focused data cloud business contributed 25% of deals valued at more than $1 million in the first quarter, unchanged from the previous quarter. It did not disclose further financial details about the business, which was close to $400 million in annual recurring revenue in its last fiscal year.

Some brokerages warned that Salesforce's forecast also meant that demand for software had fallen further in April.

"It appears that the sales environment worsened from late March and became more pronounced in April, which could explain why off-cycle names such as Workday or Salesforce suffered more than ServiceNow or Microsoft," Barclays analysts said.

Salesforce could turn to big deals to accelerate growth and the company would consider them if they were "accretive" and had "the right merits," CEO Marc Benioff said Wednesday on a post-earnings call.

Activist investors pushed Salesforce last year to prioritize profitability after years of growing its business through big deals, including the $27.7 billion acquisition of Slack in 2021.

"I think investors would not react well to most large deals right now. Given that growth is slowing, a large acquisition would be seen as buying growth," said RBC analyst Rishi Jaluria.

At least 10 brokerages lowered their price targets for the stock following the results. D.A. Davidson's price target of $230 was the lowest among 49 analysts covering the stock.

Collaboration: Grupo Auge | Reuters (International).

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Salesforce (CRM.N) shares fell about 18% on Thursday after its lowest quarterly revenue growth forecast in history raised fears that high interest rates and rival AI offerings are curbing demand at the cloud-based software company.

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