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Salesforce stock jumps on Q3 earnings beat, AI outlook

Salesforce (CRM) beat third-quarter earnings estimates, encouraging Wall Street analysts to raise their price targets on Salesforce stock. With generative AI on the radar of many industries, Salesforce's plans for artificial intelligence adoption are being watched closely.

Yahoo Finance’s Seana Smith and Brad Smith weigh in on investor responses to these results, alongside Salesforce's own outlook.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

BRAD SMITH: Well, let's talk a little bit about investors who are tracking Salesforce on the day. Ticker symbol CRM on the move after the company saw revenue climb 11% from last year, raised its 2024 guidance for operating cash flow growth. And this comes after it implemented a restructuring plan that involved laying off 10% of its workforce. That was earlier this year.

What you should know happening here now, as Luther Vandross would say, multiple firms coming out this morning and upgrading or at least their price target. And in two cases, you've got new buy ratings coming in from JP Morgan and RBC there. But JMP, they upgraded their price target on Salesforce, $293, Morgan Stanley sitting at $290 now, Barclays adjusting to $300.

So all of this considered, lots of fanfare coming off of this quarter where ultimately they had initiated some new fourth quarter revenue guidance of about $9.18 billion to $9.23 billion. That's up by about 10 point or 10% year over year. And then they also narrowed their full-year revenue guidance for fiscal 2024. That range now gonna be $34.75 billion to $34.8 billion. That's up by about 11% year over year as well.

SEANA SMITH: Yeah, Brad. You mentioned the street reaction. And one of the-- you mentioned that Morgan Stanley raised its price target on the stock. And the commentary there from the analyst stuck out to me, Keith Weiss basically saying that, yes, this is impressive when it comes with the 3Q beat, which is really across the board almost, much better than feared fourth quarter forecast.

But there are still questions just about 2025 when it comes to generative AI, when it comes to the position of Salesforce among a relatively crowded market or one, I should say, that's dominated by a few very powerful names.

That is the question for investors just in terms of what that upside looks like. And this is a stock that has done extremely well since the start of the year. We're looking at gains of just about 70%, the top performer within the Dow. So, yes, their cost cutting efforts are working.

We know that Salesforce has essentially shifted their strategy. It's a company that has heavily relied on M&A activity to grow. They disbanded their M&A team when we talk about some of those restructuring efforts, the layoffs that happened earlier this year.

So what's going to drive that growth going forward-- I know Sozzi has been covering this very closely-- there has been a huge focal point on AI. But again, how big of a player they are and how much they can really make a dent in that space, I think they still need to prove.

BRAD SMITH: Yes, Sozzi was at the AI Day that Salesforce had earlier this year. I was watching online from my desk in my hoodie in the comfort of that. But one of the things that really jumped out to me at that AI Day because this is an AI story that continues to move forward for salesforce.com, one of the things that you're gonna continue to hear from Salesforce, Microsoft is how they can make sure that within all of the applications that they put into workforces and into not just the sales teams, not the marketing teams but overall corporate-wide, it's gonna be about the copilot.

And it's gonna be about the ability for anybody who touches these applications to run prompts, run them at scale, run them very efficiently, and then be able to fine-tune exactly what the output is in order to have that much more quickly, a quicker of a customer relationship put together, a marketing automation campaign even, and then tracking of that digital body language all the way through to a potential sale or just knowing more granular data on your customers too.

And so all that considered, I was kind of blown away by that AI Day that took place earlier. I think they did a good job of communicating to the street where that incremental revenue is gonna come forward and on a margin basis, how that should trickle through.

SEANA SMITH: Yeah, exactly because we revenue growth was up 11% in the latest quarter in line with expectations. But it was amongst the slowest growth numbers that we have seen for sales on record here for Salesforce. So exactly what that catalyst is going to be, we'll see how big of a dent AI proves to be.

BRAD SMITH: Yeah, 52-week high they're gonna be hitting at the open most likely.