Salesforce Shares Plummet 7% Despite AI-Fueled Forecast Revision

On Thursday morning Eastern Time, Salesforce, a customer relationship management software giant, faced a steep stock decline, dropping over 7%. Despite the company's first-quarter results surpassing Wall Street expectations and its optimistic annual guidance adjustment due to AI benefits, investor sentiment took a hit due to some unsatisfactory elements within the earnings report, causing the stock to slide.

Salesforce revised its full-year forecast, estimating adjusted earnings per share between $11.27 and $11.33, with revenue projections of $410 to $413 billion. These figures mark an increase from its previous forecast of $11.09 to $11.17 per share and revenue of $405 to $409 billion. The announcement was preceded by a significant move to acquire Informatica, a data management company, for $8 billion, aiming to bolster its artificial intelligence offerings—a move that echoes its substantial prior acquisition of Slack.

Citigroup analyst Tyler Radke noted, "While the first-quarter results do not represent a breakthrough, they indicate a stable demand environment, with the Agentforce product cycle continuing to gain strength." Nonetheless, there were aspects of the report that fell short of expectations. For instance, the second quarter's remaining performance obligation growth rate was slightly below forecasts—30 basis points lower than predicted, as pointed out by JPMorgan analyst Mark Murphy. Additionally, Salesforce's operating profit margin also proved to be less than anticipated.

Morgan Stanley analyst Keith Weiss shared a similar outlook, citing the company's streak of quarters with profit margins exceeding expectations or upwardly revised guidance. However, the first quarter saw a slight underperformance relative to these projections, with no changes made to guidance, leading to a downbeat market reaction.

The immediate aftermath saw Salesforce's stock drop 7% pre-market, signaling the impact of mixed analyst ratings and market anxiety regarding the company's future trajectory amid fluctuating sentiment. RBC Capital adjusted its rating on Salesforce from "Outperform" to "Neutral," substantially reducing its target price to $275, while Bernstein analysts shifted their target price from $243 to $255. Such divergent assessments point to the varied perspectives on Salesforce's prospects in navigating the challenges ahead.