Why Salesforce's stock is getting more love from Wall Street analysts lately

By Emily Bary

Salesforce shares have lagged the S&P 500 this year but could be primed for bigger gains thanks to improved product positioning

Analysts are feeling increasingly upbeat about Salesforce Inc.'s prospects, thanks to the company's own artificial-intelligence initiatives that mitigate risk of an "existential challenge."

Piper Sandler's Rob Oliver weighed in positively on Salesforce shares (CRM) Thursday, calling them his new top idea in the large-cap software realm. His note follows one from Northland Capital Markets analyst Nehal Chokshi, who upgraded the stock to outperform from market perform on Wednesday.

Oliver acknowledged that his highly upbeat view isn't necessarily in line with what investors feel when it comes to Salesforce's stock. "Investor sentiment from recent marketing remains mixed," he wrote in his latest report. But in light of "muted" Wall Street expectations and a multiple of 20.5 times forward expectations for free cash flow, Oliver glimpses a compelling risk-reward backdrop.

He also flagged that Salesforce shares have lagged the broad market this year, rising just 6% as the S&P 500 SPX has advanced 20%. Meanwhile, there are various elements of the company's story that look rosier than before, in his view.

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"After a period of mixed customer feedback and uncertainty over the company's Data Cloud strategy, our checks have started to improve," Oliver wrote. The company has done a pair of tuck-in acquisitions that seem to be helping in that realm.

Broadly speaking, Oliver also thinks "the existential challenge from [generative AI] has diminished, if not fully disappeared."

He lifted his price target on Salesforce shares to $340 from $315, while maintaining an outperform rating. At the same time, he acknowledged some risks for Salesforce, such as its sensitivity to the macroeconomic climate and the company's recent announcement that Chief Financial Officer Amy Weaver will step down from her position.

"CFO transitions create uncertainty," he wrote.

Like Oliver, Chokshi cited improved industry checks when he upgraded Salesforce shares earlier in the week. He's encouraged about the company's new Agentforce software that lets businesses devise autonomous applications that can interact with employees and customers. The product seems "indeed differentiated," he wrote.

Chokshi also was impressed by the performance of Agentforce, noting that it could be at least "on par" with Microsoft Corp. (MSFT) offerings - or else it's possible that Salesforce has actually "leapfrogged" Microsoft.

He rates the stock at outperform with a new price target of $400, up from $270 before.

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-Emily Bary

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10-03-24 0837ET

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