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Why Fell Over 6% Today

By Nicholas Rossolillo – Updated Jan 5, 2022 at 2:51PM

Key Points

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The cloud software pioneer got an analyst downgrade to start 2022.

What happened

Shares of cloud computing software giant (CRM 0.08%) were down 6.4% Wednesday as of 12:55 p.m. ET. It builds on the losses the stock suffered during the final month of 2021 following news of the omicron coronavirus variant and a subsequent tech stock sell-off.

Salesforce is now down 18% from its all-time high reached in November 2021.  

Two people reviewing paperwork in front of a laptop.

Image source: Getty Images.

So what

There was no specific news from Salesforce that caused this most recent dip. Rather, it's due to analyst Karl Keirstead of UBS downgrading shares from buy to neutral, and decreasing the one-year price target from $315 to $265. Citing moderating business software growth rates, Keirstead also downgraded Salesforce peer Adobe.

Now what

Big downgrades in analysts' one-year outlook can be problematic for shareholders in the short term, but bear in mind this is but one Wall Street prediction among many. And though business spending on software upgrades is moderating, the cloud industry is still growing at a robust pace -- and is expected by many tech researchers to continue to do so throughout the next decade or so.  

Plus, this analyst prediction on a slowdown in Salesforce's growth is no surprise. The company itself already indicated as much a couple months ago when it provided its preliminary outlook for the next year (Salesforce's fiscal 2023). Salesforce expects current year revenue (fiscal 2022) to be up 24%, followed by "only" a 20% increase in fiscal 2023.  

Tech business growth rates are a bit wonky right now as they lap the explosion in customer spending early in the pandemic, but that doesn't mean the long-term thesis for staying invested has changed. Salesforce remains a top stock in the cloud computing space as it continues its march toward its $50 billion in annual revenue goal, which it still expects to achieve within the next three years.

Nicholas Rossolillo and his clients own Adobe Inc. and The Motley Fool owns and recommends The Motley Fool recommends Adobe Inc. The Motley Fool has a disclosure policy.

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