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On Monday, DA Davidson analysts issued a downgrade for Salesforce.com (NYSE:CRM) stock, shifting from a ’Neutral’ to an ’Underperform’ rating and setting a price target (PT) of $200.00. According to InvestingPro data, this target stands significantly below the current analyst consensus, with price targets ranging from $243 to $442. The stock currently trades at $247.26, and InvestingPro analysis suggests the company is undervalued relative to its Fair Value. The research firm expressed concerns over the company’s strategic direction, specifically regarding its focus on artificial intelligence (AI) at the expense of its core business.
The analysts remarked that Salesforce’s pursuit of AI opportunities seems premature and is significantly altering the company’s profile. This shift in strategy has prompted DA Davidson to not only downgrade the stock but also to reduce the price target from its previous level and to remove Salesforce from the firm’s esteemed Best-of-Breed Bison list. Despite these concerns, InvestingPro data shows Salesforce maintains impressive gross profit margins of 77.19% and has achieved revenue growth of 8.72% over the last twelve months.
The downgrade was motivated by the expectation of a continued slowdown in the organic growth of Salesforce’s non-Data/AI cloud services. DA Davidson anticipates this deceleration to be a key factor in the company’s predicted underperformance in the market. However, InvestingPro maintains a "GOOD" overall financial health score for Salesforce, with additional ProTips highlighting its strong market position and operational efficiency. Subscribers can access the comprehensive Pro Research Report for detailed analysis of Salesforce’s financial health and growth prospects.
Salesforce, a leading provider of customer relationship management software, has been expanding its AI capabilities in recent years. However, DA Davidson’s analysis suggests that this focus might be detracting from the company’s traditional strengths and could potentially impact its financial performance.
The reduction in the price target to $200 from its prior mark reflects the analysts’ revised expectations for Salesforce’s stock performance. With the downgrade to ’Underperform,’ DA Davidson signals a less optimistic outlook for the company’s investment potential compared to its previous neutral stance.
In other recent news, Salesforce has announced a quarterly cash dividend increase of 4%, setting the new payout at $0.42 per share, reflecting the company’s confidence in its financial stability. Truist Securities has reaffirmed its Buy rating on Salesforce, maintaining a $400 price target. The firm cites Salesforce Industries’ robust growth, with a reported $5.7 billion in annual recurring revenue for fiscal year 2025, a 20% increase year-over-year. This growth significantly outpaces the company’s overall revenue growth of 9% for the same period.
Guggenheim Securities has upgraded Salesforce’s stock rating from Sell to Neutral, noting that the stock’s recent decline aligns with the company’s future prospects. Despite the upgrade, Guggenheim highlights ongoing challenges, particularly with the momentum of Salesforce’s Agentforce product. Additionally, a recent report from Salesforce emphasizes the importance of AI agents for retailers in maintaining competitiveness, as three-quarters of retailers view AI as crucial within a year. The report also notes that 76% of retailers plan to increase their investment in AI, highlighting its potential to streamline operations and enhance customer service. These developments underscore Salesforce’s strategic focus on AI and industry-specific solutions to drive growth and stability.
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