On Thursday, Goldman Sachs (NYSE:GS) adjusted its outlook on Salesforce.com (NYSE:CRM) shares, raising the company's price target from $325 to $360, while maintaining a Buy rating on the stock. The revision follows the Agentforce World Tour, an event that bolstered confidence in Salesforce's artificial intelligence (AI) strategy.
The firm's analyst noted that discussions with partners and customers during the tour led to a greater conviction in Salesforce's execution of its AI strategy. The focus has shifted towards revenue-generating use-cases since the release of Agentforce at Dreamforce. The increased understanding of revenue opportunities through Agentforce, powered by Data Cloud, is expected to drive customer demand and validate Data Cloud's value proposition.
Goldman Sachs highlighted that Salesforce's Data Cloud is performing strongly, with 1.9 trillion weekly AI transactions through Model Builder and 83.2 billion weekly workflows through Flow Builder. This performance is anticipated to support durable growth and incremental demand for the company's services.
The analyst also identified several key tailwinds that could add 2-3 percentage points to subscription revenue growth by the second half of calendar year 2025. These include macroeconomic improvement, IT budget shifts towards AI spending, effective AI strategy execution, Data Cloud's growth as it nears $1 billion in revenue, and cyclical improvements in Marketing and Commerce Cloud.
Looking forward, Goldman Sachs believes that investors are keen on Salesforce's third-quarter fiscal year 2025 results, particularly regarding the company's committed remaining performance obligations (cRPO) and revenue expectations. Investors are also looking for insights into the fiscal year 2026 and the impact of Data Cloud and Agentforce on future growth.
The firm expects Salesforce's free cash flow per share for calendar year 2026 to reach the target set in February 2023, suggesting that Salesforce's sustainable growth and AI capabilities could command a 25-30x enterprise value to free cash flow (EV/FCF) multiple in a stable market cycle.
In other recent news, Salesforce has unveiled a suite of AI agent testing tools, including the Agentforce Testing Center, Sandboxes for Agentforce and Data Cloud, and monitoring tools for Agentforce. These developments aim to meet the demand for reliable AI solutions in enterprise settings. Salesforce has also updated its Digital Wallet feature to offer transparent monitoring of usage across the AI development lifecycle.
In the realm of analyst notes, Scotiabank (TSX:BNS) initiated coverage of Salesforce with a bullish Sector Outperform rating, while Erste Group upgraded Salesforce from Hold to Buy, citing consistent revenue growth and operating margin expansion. However, both Erste Group and TD Cowen downgraded the stock to Hold due to projected slower growth.
Salesforce reported strong second-quarter earnings, with earnings per share of $2.56, an 8% increase in sales, and a 9% rise in subscription and support revenues. The company also acquired Zoomin and Own Company for $1.9 billion in cash and plans to hire 1,000 new employees to support Agentforce sales.
Furthermore, Salesforce was identified by Starboard Value LP as a potential value creation opportunity at the 2024 Active-Passive Investor Summit. Moreover, hedge fund D.E. Shaw backed Mantle Ridge's campaign for changes at Air Products and Chemicals (NYSE:APD), Inc., emphasizing Salesforce's ongoing industry efforts. These are the latest developments in Salesforce's ongoing industry efforts.
InvestingPro Insights
Salesforce's strong market position and financial performance, as highlighted in the article, are further supported by real-time data from InvestingPro. The company's market capitalization stands at an impressive $311.37 billion, reflecting its dominant position in the software industry.
InvestingPro Tips reveal that Salesforce has a perfect Piotroski Score of 9, indicating strong financial health and operational efficiency. This aligns with Goldman Sachs' positive outlook on the company's execution of its AI strategy and potential for durable growth.
The company's gross profit margin is an impressive 76.35%, underscoring its ability to maintain profitability while investing in innovative technologies like AI. This high margin supports Salesforce's capacity to fund its AI initiatives, including the development of Agentforce and Data Cloud, which are expected to drive future growth.
InvestingPro data shows that Salesforce's revenue for the last twelve months reached $36.47 billion, with a growth rate of 10.26%. This solid performance backs up Goldman Sachs' expectation of additional tailwinds that could further boost subscription revenue growth.
For investors seeking more comprehensive insights, InvestingPro offers 16 additional tips for Salesforce, providing a deeper understanding of the company's financial health and market position.
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