The enterprise software giant has an “unfair advantage” in AI that may be underappreciated.
Artificial intelligence (AI) developments have accelerated in the last few years.
Just a few years ago, AI typically referred to machine learning models that predicted the next best thing to do. Anything from facial recognition to what you see next in your Instagram feed is driven by machine learning algorithms.
The second wave came with advancements in generative AI, with large language models built on the predictive capabilities of the first wave to generate new content from those predictions. OpenAI’s ChatGPT brought generative AI to the masses in 2022, and its use across industries has exploded over the last two years.
The next wave of AI will build further on generative AI’s capabilities, enabling AI to make decisions and take actions across applications without human intervention. Salesforce (CRM -0.42%) CEO Marc Benioff calls it the “digital workforce.” And his company is leading the growth in this Agentic AI with its new Agentforce product.
While there’s already been some excitement among investors for Salesforce’s AI capabilities, sending shares up 39% since early September as of this writing (Dec. 30, 2024), the company is just getting started. Here’s why Salesforce could see better-than-expected results in 2025, sending its stock even higher.
Image source: Getty Images.
An “unfair advantage” in Agentic AI
Salesforce is a leader in enterprise software. Its offerings span a customer relationship management solution, marketing automation, customer service applications, and data organization and analysis. As a result, many companies run a lot of their operations through Salesforce software and use it to store and harness customer and business data.
That’s a big advantage when it comes to AI. Artificial intelligence algorithms are only as good as the data used to train them. Salesforce has accurate and specific data about each of its enterprise customers that nobody else has. While individual businesses could give other companies access to those data, Salesforce’s ability to quickly and simply integrate client data as well as its own data sets makes it a top choice for customers looking to add AI agents to their “workforce.” During the company’s third-quarter earnings call, Benioff called Salesforce’s data an “unfair advantage,” noting Agentforce agents are more accurate and less hallucinogenic as a result.
Benioff also called out what might be Salesforce’s largest competitor in Agentic AI, Microsoft (NASDAQ: MSFT). While Microsoft has a lot of access to enterprise customers thanks to its Office productivity suite and other enterprise software solutions, it doesn’t have as much high-quality data on a business as Salesforce. As a result, Microsoft’s Copilot abilities might not be up to Agentforce in many instances. Benioff points out Microsoft isn’t using Copilot to power its online help desk like Salesforce.
Agentforce can be used to deflect customer service cases or resolve issues. It can process unorganized data for review and then use it to optimize marketing campaigns it created in the first place. It can qualify sales leads those marketing campaigns bring in before handing them off to a human agent for a sales call, ensuring businesses can close more deals in less time.
The customer response has been strong. Salesforce signed 200 Agentforce deals in its first week after launching at the end of October. On the third-quarter earnings call, Benioff said there are thousands more transactions in the pipeline.
Analysts expect a surge in AI agent spending as well. Multiple forecasts call for greater than 40% annual average growth through the end of the decade or beyond. Salesforce is well-positioned to win a significant share of that market.
A stock worth a premium price
Salesforce stock isn’t cheap, but compared to other big AI stocks, it trades for an attractive valuation.
Investors can currently pick up shares of the stock for about 30 times analysts’ fiscal 2026 (ending January 2026) estimates. That’s a better price than Microsoft’s forward earnings multiple of 33.
Salesforce’s current remaining performance obligations accelerated last quarter, climbing 10% year over year. That suggests Salesforce will see revenue accelerate in the coming quarters. With the strong early demand for Agentforce, that acceleration could continue for several more quarters.
Meanwhile, management’s focus on driving profitable growth is paying off. The current forecast for Salesforce’s fiscal 2025 (ending in January) operating margin is now 32.9%, up 240 basis points from 2024. Management sees further improvements ahead as it anticipates strong growth in its Data Cloud, driven by Agentforce adoption. Salesforce’s profits should grow faster than revenue for the foreseeable future.
While analysts don’t see Salesforce taking off significantly in 2025 (earnings estimates call for 12% earnings growth), they seem to be optimistic on the stock price. The median analyst price target is $415, implying 23% upside from here.
But if there’s one thing investors have learned from the last two years of AI innovation, it’s that these things often grow faster than anticipated. That could lead Salesforce to outperform analysts’ expectations over the next few years, as it leads the third wave of artificial intelligence.
Adam Levy has positions in Microsoft and Salesforce. The Motley Fool has positions in and recommends Microsoft and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
