New Price Target for Salesforce Ahead of $7 Trillion AI Opportunity
As Wall Street is optimistic about Salesforce's AI innovation, here's an opportunity to initiate a small- to medium-sized position.
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Not to pat myself on the back or anything, after all, I do have trouble with both shoulders due to years of playing ice hockey and jumping out of helicopters, but I last wrote to you in regard to Salesforce CRM on December 4 after that firm had reported its third quarter financial results the night prior.
Salesforce had posted an adjusted EPS of $2.41 (GAAP EPS: $1.58) on revenue of $9.444 billion. The top-line print exceeded Wall Street's expectations and was good enough for year-over-year growth of 8.3%. The adjusted earnings number fell a few pennies short of consensus, but the firm's current remaining performance obligation grew 10% to $26.4 billion.
However, despite the rise of Agentforce, which is the Salesforce platform for AI-powered assistants, the guidance for the current quarter had, in my opinion, been somewhat lackluster. That said, readers may recall that Marc Benioff on CNBC post-earnings, said, "The results, starting in this quarter, are already showing what is going to be possible for the future. We closed over 200 Agentforce deals the first week of it being available."
Remember....
That guidance... For the current quarter, Salesforce saw revenue of $9.9 billion to $10.1 billion, which would be good for year-over-year growth of 7% to 9%. That was below the consensus view of $10.4 billion at the time. The firm also saw GAAP EPS of $1.55 to $1.60 and adjusted EPS of $2.57 to $2.62. Wall Street consensus had been for an adjusted EPS of $2.60. Again, the guidance was a touch on the light side. The full-year guidance wasn't any stronger relative to consensus.
Readers may recall that in that piece, three and a half weeks ago, I showed you a chart of a failed cup-with-handle pattern and suggested shorting the stock at $360 or higher with the last sale at $361.10. Here is that chart pulled from that article...
I just didn't see how the disconnect between what was said about the Agentforce launch and the less-than-impressive forward guidance could co-exist. The stock still has not traded as high since as it did on December 4 and closed last night at $341.7, after trading as low as $331.14 last week. That trade was one of the winners. Now, I think I'm changing my mind. Oh, and the technicals have evolved. Let's talk.
Moving Forward
Well, Wall Street is up around $2.61 now for adjusted EPS. That's up a penny from where they were when the guidance was issued. Wall Street is now down around $10.05 billion on revenue, which is toward the high end of that guidance. That's only growth of 8.1%, so an upside surprise on sales when the firm reports in late February might be the trader's call here.
Then there' s Dan Ives at Wedbush, who seems the eternal optimist when it comes to tech stocks, but in all fairness to Ives, he has regained his five-star status at TipRanks after having been knocked all the way down to three stars back in mid-2024.
Ives reiterated his "Outperform" (buy-equivalent) rating on CRM on Thursday as well as his $425 target price. Ives had taken his target price up to $425 from $375 back on December 4 when I made that short call. I have already been right. Now, maybe it's his turn.
On Thursday, Ives wrote, "With the AI Revolution entering the software phase heading into 2025, CRM is well positioned to capture its fair share of market expansion as the AI monetization phase will catalyze CRM's growth over the next 12 to 18 months with a $7 trillion-dollar digital labor market opportunity on the horizon for CRM. With the goal of accelerating the path to building next-gen AI agents grounded in customer data to lower costs and increase automation for businesses, Agentforce 2.0 is looking to enable AI to perform advanced actions for humans with elevated trust layers built in for agents paving the way for a new era of digital labor. We believe CRM is a clear second derivative beneficiary of the AI Revolution that could add ~$80 per share to the CRM story as this monetization story takes shape over the next 12 to 18 months with Benioff & Co. leading the charge and this new era of AI growth."
Back to The Chart
Readers will see that CRM, which has been trading for the most part within a rising-Pitchfork model going back to the lows of this past September, has filled the gap created in early December. The stock has now created a closing-pennant pattern (orange lines) within the Pitchfork that looks to potentially coincide with support at either the lower trendline of said Pitchfork or the 50-Day SMA (blue line).
Experienced traders know that closing pennants often create a violent move either to the upside or downside, which is difficult to predict. That said, despite a still bearish looking daily MACD, that violent move is likely to occur at or close to support. My somewhat educated opinion is that the run will more likely or not be to the upside. Ives is feeling pretty good about Agentforce. So was Benioff. I am pretty sure that I am willing to initiate a small- to medium-sized long position in this name while it's still looking weak because the set-up does present upside possibilities.
Being that I came up with this exact plan as I was working my way through the article, I cannot front-run my own and will wait for my piece to go public and you all have a chance to read it before I act, so the exact numbers in the trade could change.
My Plan (in Minimal Lots)
- Purchase 100 shares of CRM at or close to $340
- Sell (write) one January 17 $330 put for about $4
- Net basis: $336
Target Price: $393
Pivot: $342 (21-day EMA)
Add: At $330 (on the sold put, if need be)
Panic: Loss of 50-day SMA (currently $326.50)
Note: The investor could end up being long 200 shares at a net basis of $333 by January 17 with the stock trading below $330.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
