Salesforce (CRM) likely has fewer catalysts heading into fiscal first-quarter results despite stable demand, though the software maker appears to be in a “solid” position ahead of generative artificial intelligence product adoption in the medium term, Morgan Stanley said Friday.
The company is scheduled to release first-quarter results May 29. Morgan Stanley expects earnings of $2.40 a share on revenue of about $9.07 billion. Wall Street is looking for $2.38 and $9.16 billion, respectively, according to the brokerage.
Salesforce performed above its large-cap software peers over the past three months, aided by a first-ever dividend, increased repurchases and upward revisions to estimates, Morgan Stanley said in a note. However, its more recent performance has “softened” following a report on a potential Informatica (INFA) takeover, while many of its front-office software peers have logged weaker-than-projected quarterly results amid a softer demand backdrop, the brokerage said.
Last month, cloud data management company Informatica said it was not in talks to be acquired, following an April 12 report by The Wall Street Journal that Salesforce was in late-stage discussions to buy Informatica. The WSJ later reported that the discussions between the companies had ended after they failed to agree on the terms of a potential deal.
Morgan Stanley said that while its discussions with Salesforce partners indicated stable demand during the first quarter compared with trends seen in the previous three-month period, they do not expect GenAI to “drive meaningful” revenue this year. The firm’s survey shows that estimated times of Gen AI-related project deployment are weighted more towards the second half of 2024 and the full 2025 year rather than in the first half of this year.
The brokerage said it’s likely fair to lower expectations heading into the company’s quarterly print due in part to rising foreign exchange headwinds intra-quarter and because the first quarter historically doesn’t support much upward revisions to the full-year outlook.
Morgan Stanley is “increasingly bullish” on Salesforce’s medium-term outlook amid expectations that the company’s position as a front-office application vendor will position it in the right place for GenAI, with data cloud likely to be the leading indicator for demand, according to the note.
“With the pace of change in technology rapidly accelerating, we expect businesses to mitigate the technology risk by leveraging application vendors like Salesforce to buy capabilities rather than build themselves,” the brokerage said. “We see Salesforce well positioned to expose GenAI capabilities within their sticky workflow to the large customer base, rather than businesses building new workflows around GenAI functionality.”
For Salesforce’s fiscal 2025, Morgan Stanley pegs EPS at $9.74 on revenue of $38 billion versus the Street’s views for $9.80 and $38.07 billion, respectively, according to the note. The firm reiterated its overweight rating on the software maker’s stock, with a $350 price target.