Software stocks have been falling recently as investors worry about their futures due to the growing popularity of artificial intelligence (AI) and what it can do for businesses. One stock that's been performing particularly poorly is Salesforce (CRM +2.47%), which has ironically been positioning itself as a stock that should benefit from AI.
Salesforce stock has fallen 27% this year and is now near a three-year low. Could this be a great buying opportunity for growth investors, or are you better off steering clear of this troubled stock?
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Strong quarterly numbers were not enough to give the stock a big boost
On Feb. 25, Salesforce reported its fourth-quarter earnings. For the three-month period ending Jan. 31, the company's revenue totaled $11.2 billion and rose by 12% year over year, slightly beating analyst expectations of $11.18 billion. Its adjusted per-share profit of $3.81 was also far above the $3.04 in per-share profit that Wall Street was expecting.
For the new fiscal year, which ends in January, Salesforce projects that its top line will rise by around 10% to 11%. It's a decent growth rate, but it may not be all that impressive for a company that has been routinely pumping up its opportunities related to AI and its Agentforce platform. While the stock did rise on the strong quarterly performance, it wasn't significant, especially given the decline that it's been on this year.
NYSE: CRM
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Larger questions loom over Salesforce stock
The lack of excitement around Salesforce's stock despite the tech company posting strong numbers points to a broader concern around the business, and that's whether its software will add enough value for customers to be in high demand. AI can help companies conduct sales and marketing analysis more efficiently, and lessen the need for Salesforce's pricey software. And AI can enable companies to offer similar types of services, making the field more competitive.
Although software stocks have been under the microscope this year, the question marks and concerns around Salesforce are not new; the stock is down 35% over the past 12 months. And even with the decline in value, it's still trading at around 26 times its trailing earnings (the S&P 500 average is a little under 25), offering a glimpse into just how overpriced it was in the past.
Salesforce isn't a cheap stock despite the sell-off this year, and with a slowing growth rate and plenty of uncertainty due to AI, I'd steer clear of it. While it may seem cheap, I wouldn't be surprised if it were to continue to fall in the weeks and months ahead.
