Marc Benioff, CEO of Salesforce, appears on a panel at the World Economic Forum in Davos, Switzerland, on Jan. 18, 2024.
Stefan Wermuth | Bloomberg | Getty Images
Salesforce should be able to continue to grow despite the impact of tariffs and a possible recession.
The news
Bank of America said in a note Wednesday that Salesforce is one of the stocks it would recommend in any environment due to the likelihood of seeing “growing revenue contribution from tangible AI product cycles.” According to analysts, software groups are historically more resilient in the quarters leading up to a recession. They said it tends to take two to three quarters into a recession before the industry experiences a slowdown in revenue and billings. The reason, BofA wrote, is that information technology budgets take a bit of time to “adjust downward in the enterprise.”
Application platform vendors like Salesforce are exposed to tariff risks through their e-commerce and marketing offerings, the analysts said. However, Bank of America believes the company’s scale and product diversification will result in a lesser impact on the revenue model from tariff-driven demand headwinds.
Big picture
Salesforce announced Wednesday a commitment to invest $1 billion in Singapore over the next five years, affirming its commitment to accelerate that country’s digital transformation and adoption of Agentforce, the company’s suite of tools to build AI assistants that can complete tasks without human intervention. Automating certain customer service tasks such as updating a dinner reservation is one example.
In an interview Wednesday at CNBC’s Converge Live conference in Singapore, Salesforce CEO Marc Benioff said the tech industry has seen a rush of investment from companies to build out data centers, referring to them as a “commodity product.” The large influx of investments has driven costs down. “We’re all about building that software over the last 26 years to run on those data centers and we’ve just never seen prices this low for deployment,” he said.
Benioff said there’s an opportunity to take advantage of companies that are looking to be the next generation of hyperscalers. From our perspective, we want to be the software hyperscaler. We want to run across all of them and offer the lowest price for our customers,” Benioff added.
Bottom line
Jeff Marks, director of portfolio analysis for the Club, said, “We agree that software stocks have the potential to bounce — and have already — from their oversold levels.” He cited that as a reason for dipping into our cash position to buy more shares of Salesforce one week ago.
In our Club analysis of Salesforce’s latest earnings in late February, we acknowledged the stock price decline on mixed quarterly results and weak guidance. “However, the enterprise software giant’s AI business is picking up steam, which should propel the stock higher over time,” we wrote at the time, a statement we still stand by.
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