Salesforce is the 'slowest growing' in software, but still a Buy

Salesforce (CRM) stock is under pressure after reporting second quarter earnings that showed slow growth and a weak outlook.

Jefferies senior analyst Brent Thill explains that Salesforce is underperforming in comparison to its peers like Oracle (ORCL), Microsoft (MSFT), and Snowflake (SNOW).

To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime.

Video Transcript

00:00 Speaker A

So Salesforce reports the stock and it is initially year Brent, were down about nearly 4% in the after hours. But let let's hear your take on the print, print, Brent. Brent, what'd you make of it?

00:15 Brent

I mean, it was in line, it wasn't better than expected and you need better than expected when the AI narrative right now is that it's going to eat all applications. So, you know, don't don't hate the player, hate the game. The game right now is you got to get north of 10% constant currency backlog and that's they hit 10%. Half their customers in Asian Force are paying. It's not having the material driver for growth and they're guiding, you know, to high single digit growth. And so, if you look at every large cap software name in our coverage universe, Salesforce is the slowest growing of them all.

01:06 Speaker A

You know, Brent, Salesforce does have AI products and I'm sure if Mark Benioff was here with us on set, he he'd tell us all about them. Is the problem here that they're just not compelling right now, as compelling as investors hope they would be for customers?

01:31 Brent

I mean, they're in their infancy. You know, the we've talked about AI and applications versus AI and infrastructure. I mean, all the intentions in infrastructure. Microsoft, Oracle, Nvidia, go through the list, right? Where are all the numbers inflecting? In infrastructure. What happened here? No inflection. So, you know, look, everyone has an AI story, but like the reality is the actual impact has been not material to the revenue yet. It will be for Salesforce as we go into next year and the year after, but we're talking about years, we're not talking quarters until it's material. And that's the challenge. Again, when you see inflections in Azure inside Microsoft, you see Oracle's backlog at 100% growth. We're talking 10% constant currency backlog. Like just to put this in perspective, Snowflake's growing 30, right? Go we can go through all the lists like like all the numbers relative to its peers, they are underperforming.

02:44 Speaker A

So So yeah, Brent.

02:46 Brent

It's not bad. It's not bad, like no one's going to say these are bad numbers. We're just playing a relative game where everyone else relative in a relative basis, Josh are way better. And that's why you're seeing Microsoft stock up, Oracle stock up, all these other stocks are down. The reason why sales for stock is down 20 plus percent is that there is no inflection. There's a worry that Benioff's going to go out and do a lot of M&A and there's been no inflection in the in the numbers. I mean, again, we're talking the slowest growing large cap name. Oracle is going to grow faster than than than Salesforce.

03:25 Brent

So we're not negative Nelly's. We're just the point is like when you put it relative, um, you know, they're the slowest moving vessel in in software right now.

03:37 Speaker A

And Brent, correct me if I'm wrong though, you do have a buy on Salesforce. Explain that to us.

03:46 Brent

Valuation valuations at a 10-year low. And we think that uh Agent Force will build. Uh we think that they can sustain again, pretty good numbers. Uh and again, there's no breakout play here and so I'm trying to articulate the good and the bad and just play the ball where it lies. So, um the point of this is that I think when you have the most hated name in in my coverage, you have a valuation at almost a 10-year low and we think they're doing the right things and we think that agent force will have a bigger impact over the next year. Um, you know, again, this is more of a valuation buy than an inflection buy. There's way more companies that are inflecting that we'd like more and we've highlighted those. Microsoft, Snowflake, uh Intuit, you go through the list. There are relatively higher rankings in terms of where we would put money to work. Related Videos

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