Salesforce is having a bad year. This is where investors want to see growth

Salesforce, once a titan in the tech industry, is experiencing a tumultuous year, with its stock plummeting 25%—the steepest decline among large-cap tech companies and the second largest drop in the Dow, trailing only UnitedHealth. In stark contrast, Oracle has seen its stock surge by 34%, putting the two companies in a vastly different financial landscape. Currently, Oracle boasts a market capitalization of $630 billion, while Salesforce has fallen to $239 billion, a gap of approximately $400 billion. The fortunes of the two companies have shifted dramatically since Marc Benioff, Salesforce's CEO, surpassed his mentor Larry Ellison in market cap during the boom of 2020. As a result, Ellison now ranks second on the Bloomberg Billionaires Index with a net worth of $278 billion, while Benioff finds himself further down the list at 318th, with $10.4 billion to his name. Investors are keenly awaiting Salesforce's upcoming quarterly report, hoping to hear Benioff's plans for revitalization. The company has struggled with sales growth, which has remained in the single digits for four consecutive quarters, primarily due to market saturation in customer relationship management software. Analysts predict a revenue growth of just 8.7% for the upcoming quarter, totaling around $10.1 billion, according to LSEG. In the last quarter, customer service products accounted for a significant portion of Salesforce's $9.3 billion in subscription and support revenue. The company generates income from its Service Cloud offering, which charges based on the number of agents using the software. However, with the rise of artificial intelligence, there are concerns that automation may handle an increasing number of customer inquiries, potentially jeopardizing Salesforce's revenue streams. Benioff acknowledged this challenge, noting that AI is already managing between 30% to 50% of the company's operations, which led to the elimination of 1,000 jobs earlier this year. To adapt, Salesforce has launched Agentforce, an AI tool designed to assist with customer support requests. Since its October debut, Agentforce has reportedly generated $100 million in annualized revenue, but analysts like Michael Turrin from Wells Fargo caution that it may not be enough to significantly impact Salesforce's overall business. In contrast, Oracle has emerged as a frontrunner in the AI landscape, securing cloud infrastructure commitments from high-profile companies like OpenAI and Elon Musk's xAI. This positioning has allowed Oracle to thrive while Salesforce navigates its own challenges. As investors grapple with Salesforce's stock performance, there is hope for a turnaround. Analysts are looking for improvements in performance obligations that indicate future revenue, with expectations set at 9% for the August quarter. Notably, the ability to sustain a growth profile of 10% or more is a crucial metric for investor confidence. Salesforce's strategy may also include external growth, as the company recently announced its intention to acquire data management firm Informatica for $8 billion—the largest acquisition since its $27.1 billion purchase of Slack in 2021. Activist investors have been vocal about their dissatisfaction with Benioff's acquisitions and the company's stock performance, pushing for more efficient sales and profit structures. In response, Salesforce has accelerated its margin expansion plans. While some investors, like Vulcan Value Partners, remain optimistic about Salesforce's growth prospects, others are urging caution, emphasizing the importance of value per share. Analysts predict earnings per share to rise to $2.78, compared to $2.56 from the previous year, signaling a potential recovery. The tech landscape is ever-changing, and both Salesforce and Oracle find themselves at critical junctures in their respective journeys.