Investors are eagerly awaiting Salesforce Inc.’s (NYSE:CRM) upcoming earnings report, which could provide crucial insights into the impact of AI investment growth on software stocks. As the tech industry continues to pour billions into artificial intelligence, questions remain about when these investments will translate into tangible growth and profitability. Salesforce, a leader in customer relationship management software, is at the forefront of this trend and may offer a key indicator of the broader market’s future.
AI Investment Growth and Market Expectations
The focus on AI investment growth has intensified as companies across various sectors allocate significant resources to integrating AI technologies into their operations. Salesforce has been particularly vocal about the potential of AI to drive revenue growth. However, despite these promises, the company recently projected the slowest sales growth in its history, causing its biggest one-day stock drop since 2004. The upcoming earnings report will be a critical test for Salesforce and the broader software sector.
According to Dave Mazza, CEO of Roundhill Investments, “We’re looking for much greater clarity about when AI growth will really come in, and the more you push out when, the more you start to question if it will happen at all.” This sentiment underscores the market’s growing impatience with the delayed impact of AI on software stocks, which have struggled to keep pace with other areas of the technology sector.
Software Stocks Lag Behind Hardware in AI-Driven Gains
While AI investment growth has buoyed companies in the hardware sector, particularly chipmakers, software stocks have lagged significantly. The primary index for semiconductor companies is up 22% this year, outperforming the 16% gain of the Nasdaq 100 Index and the modest 6.4% rise in the software index. In contrast, Salesforce shares have increased by less than 1% in 2024, highlighting the discrepancy between AI-driven hardware and software performance.
This disparity has led to mixed results within the software sector. Last week, shares of Snowflake Inc. (NYSE:SNOW) fell after the company issued a less-than-reassuring outlook on its AI positioning. On the other hand, Workday Inc. (NASDAQ:WDAY) saw its shares climb after emphasizing a stronger focus on profitability. The market’s reaction to Salesforce’s results will likely have broader implications for the entire sector.
Salesforce’s Strategic Adjustments Amid AI Uncertainty
In response to investor concerns, Salesforce has implemented several strategies to bolster confidence. The company initiated its first dividend earlier this year and expanded its stock buyback plan by $10 billion. Despite these measures, the market remains laser-focused on growth metrics. Salesforce is expected to report an 8.6% increase in revenue this fiscal year, a slowdown from the previous year’s 11% growth. Moreover, net earnings are projected to decelerate from 45% growth this year to 17% by fiscal 2026.
Hilary Frisch, senior research analyst at ClearBridge Investments, expressed cautious optimism about Salesforce’s AI prospects. “I still think Salesforce will be one of the primary beneficiaries from AI, but while I had hoped to see an impact by the end of this year, I’ve had to push that out to the second half of 2025,” Frisch said. This tempered outlook reflects the broader uncertainty surrounding the timeline for AI investment growth to yield significant results.
The Broader Implications for AI Investment Growth
The upcoming Salesforce earnings report will serve as a bellwether for the software sector’s ability to capitalize on AI investment growth. If the results mirror the disappointment seen with Snowflake, it could cast doubt on the near-term prospects for AI-driven software companies. Conversely, if Salesforce follows in the footsteps of Workday, emphasizing profitability and long-term growth potential, it could signal a turning point for the sector.
As Salesforce remains the third-largest component of the software index by market capitalization, behind Microsoft Corp. (NASDAQ:MSFT) and Oracle Corp. (NYSE:ORCL), its performance will significantly influence investor sentiment. The market’s reaction to Salesforce’s earnings will provide critical insights into whether AI investment growth can truly deliver on its promises, or if the anticipated benefits will remain elusive for the foreseeable future.
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