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RIIQ Newsletter

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If this is your first time reading, welcome to Raising InvestorIQ!

Every Sunday morning, we publish a free write-up within our RIIQ Newsletter with leading insight and analysis — the aim is to help investors of all skill levels focus on key fundamentals, gain confidence in developing an investment strategy, and gain an edge in the push to generate true wealth.

Grab your coffee and let’s dive in

In Today’s Newsletter

• Salesforce’s initiative to leverage AI and outpace the competition

• A closer look at Agentforce, Salesforce’s new suite of AI tools

• Recent AI acquisitions that form the basis of a bigger strategy to stay ahead of the curve in the AI race

• A deep-dive into Salesforce’s improving and very attractive key financial metrics

• The key to Salesforce’s competitive advantage

Deep-Dive

INTRO

Salesforce, a global leader in cloud-based Customer Relationship Management (CRM) solutions, has built its reputation by helping businesses streamline their operations and improve customer engagement.

But for potential investors, there’s a bigger story unfolding. Salesforce is no longer just about CRM—it’s making bold moves into artificial intelligence, positioning itself to lead the next wave of tech innovation.

At the center of this push is Agentforce, a groundbreaking suite of AI tools designed to automate and enhance business processes. And that’s just the beginning. Salesforce is also acquiring strategic AI startups and expanding its expertise in critical areas like data security and management.

For investors, the key question is: how is Salesforce leveraging AI to outpace the competition and drive sustainable long-term growth?

Let’s dive in and take a closer look.

Why Salesforce is Betting Big on AI

Salesforce isn't just dabbling in AI—they’re going all in. In 2023 alone, they raked in $31 billion in revenue and are valued at over $250 billion. But here’s the kicker: they’re investing heavily in AI to make sure those numbers keep growing. Over $2 billion went into snapping up four AI companies that are helping to supercharge Salesforce’s capabilities.

Among the new recruits are Zoomin, which is all about managing data that feeds AI models, and Own, a specialist in data security. And let’s not forget about Tenyx, which focuses on voice-powered AI agents, and PredictSpring, a company that brings AI to point-of-sale systems. These acquisitions are more than just shiny new toys for Salesforce—they’re part of a bigger strategy to stay ahead of the curve in the AI race.

What makes these acquisitions stand out is how they fit seamlessly into Salesforce’s long-term vision. The company isn’t just picking up startups for their flashy tech; they’re buying companies that can enhance their core offerings.

With Zoomin and Own, Salesforce is fortifying its AI capabilities and addressing two critical areas—data and security. Meanwhile, Tenyx and PredictSpring are expanding Salesforce’s reach into customer interaction and retail, two sectors that are ripe for AI disruption. Salesforce clearly sees AI as a growth driver, and they’re positioning themselves to capitalize on it in a big way!

Agentforce: Your New AI Sidekick

Let’s talk about Agentforce, the star of Salesforce’s AI show.

Agentforce is like having a supercharged assistant that’s always ready to help, whether it’s handling customer service queries or scheduling sales meetings. And the best part? It’s fully integrated with Salesforce’s CRM, so businesses don’t have to worry about building their own AI systems from scratch. Marc Benioff, Salesforce’s CEO, summed it up perfectly: “Companies no longer have to DIY with their AI.”

Salesforce is aiming high with this one. By the end of 2024, they plan to have one billion of these AI agents in action. These agents are designed to handle repetitive tasks that would normally take up human time, like sending follow-up emails or answering common customer questions. And the potential for savings and efficiency? Huge.

With Agentforce, the future of customer interactions is getting an upgrade. AI agents can operate 24/7, never needing a break, and can handle countless interactions simultaneously. This is a massive boost for businesses with large customer bases, especially in industries like retail, tech support, and healthcare.

How Businesses are Using These AI Agents

The possibilities are endless. Over in Sales Cloud, businesses are deploying AI agents to automate lead generation. Instead of sales teams spending hours sifting through data, Agentforce can do the heavy lifting—identifying prospects and even sending out those all-important first emails.

Meanwhile, in Service Cloud, AI agents are stepping in to tackle customer service queries. Remember those times you waited forever to get an answer about a password reset? With Agentforce, those days could be over.

The real beauty of these AI agents is how they adapt. Because they’re integrated into Salesforce’s existing ecosystem, they can pull data that’s already there and use it to provide highly personalized, contextual interactions.

For businesses, that means happier customers and less time spent on the mundane stuff. And here’s the kicker—Agentforce isn’t just for customer service. These AI agents are making waves in HR, marketing, and even project management. They can automate follow-ups, schedule meetings, and even manage teams.

Monetizing AI: Salesforce’s Big Play

But enough talk about technology. Let’s talk what’s concrete for us: dollars! And why $CRM is worthy of consideration as an investment…

Salesforce’s plan to roll out one billion AI agents by the end of 2024 isn’t just ambitious—it’s also a huge revenue opportunity. Each AI-handled conversation will cost businesses about $2, and that price could drop with higher usage. Add it all up, and you’ve got a pretty lucrative new revenue stream on the horizon for Salesforce.

This pricing model is key to Salesforce’s strategy. At $2 per conversation, businesses that rely heavily on customer interactions—think e-commerce giants or global service centers—could rack up thousands of interactions per day. Even with discounts for high usage, this creates a significant revenue stream for Salesforce. And because these AI agents don’t require the same resources as human employees, the potential for profit margins is massive.

Salesforce is also pouring over $50 million into AI training programs. The goal? To make sure businesses know exactly how to get the most out of these powerful tools. And by making these technologies accessible to everyone, from the biggest corporations to the smallest startups, Salesforce is positioning itself to dominate the AI space in a big way.

A Closer Look at the Numbers

Now that we’ve covered the exciting AI developments, it’s time to dive into some key financial metrics. Salesforce isn't just making waves with cutting-edge technology; their financial performance is equally impressive.

Take return on equity (ROE), for example. As of 2024, Salesforce boasts a ROE of 10%. This metric demonstrates how effectively the company is using its equity to generate profits. The higher the ROE, the better the company is at turning investments into earnings, and Salesforce’s growing figure shows that they’re doing an great job in this regard.

About the price-to-earnings (P/E) ratio, Salesforce’s current P/E ratio of 50 may seem high at first glance (see graph below), but it’s well within the norm for a high-growth tech company, especially given its expansion into AI with tools like Agentforce.

In comparison, SAP has a much higher P/E ratio of 98, reflecting even greater growth expectations from the market. Synopsys (SNPS), with a P/E of 56, falls in between, showing similar confidence in its growth potential.

Salesforce’s P/E, while elevated, aligns with industry standards and signals solid investor confidence in its future growth, though it’s more conservative compared to SAP. We can expect this ratio to likely increase, though, as the company makes strides with its new AI initiative and the Market begins to realize its potential.

Let’s not forget free cash flow level, which is as you know a critical measure of a company’s financial health. FCF is projected to rise significantly over the next few years, from $12 per share in 2024 (see graph below) to over $20 by 2028, thanks to new revenue streams as we mentioned earlier.

That kind of growth gives Salesforce plenty of room to keep investing in AI development, acquisitions, and R&D. It also means they have the financial flexibility to explore new areas of innovation without overextending themselves.

On top of that, Salesforce’s gross profit margin sits at an impressive 76%. This figure speaks to the efficiency with which Salesforce operates, especially as they roll out higher-margin AI services. For investors, these numbers are a sign that Salesforce is not just focused on growth—they’re also focused on maintaining strong profitability as they scale.

Salesforce’s Competitive Advantage: Staying Ahead of the Pack

So, what gives Salesforce the edge? The answer lies in their integrated ecosystem. Salesforce’s ability to seamlessly combine CRM, AI, and cloud services sets them apart from the competition.

Whether it’s Microsoft’s Dynamics 365, Oracle’s NetSuite, or other players like SAP, no one offers the same comprehensive suite of tools. And with AI now in the mix, Salesforce’s offerings are becoming even more indispensable to businesses looking to stay ahead in today’s fast-paced digital world.

But don’t be fooled—Salesforce isn’t resting on its laurels. The competition is fierce, and companies like Microsoft and Oracle are investing heavily in their own AI platforms.

Yet, Salesforce’s advantage comes from their speed of innovation. They’re quick to integrate acquisitions and roll out new features, meaning businesses don’t have to wait to adopt cutting-edge technologies. And because Salesforce focuses on creating AI tools that work out of the box, companies can hit the ground running without needing specialized AI expertise.

Keep An Eye on This Promising Stock

Salesforce is going all-in on AI, and they’re not slowing down anytime soon.

With the rollout of Agentforce, strategic acquisitions of top AI companies, and a constant push for innovation, Salesforce is firmly positioned at the forefront of the AI revolution. For investors, this means a company actively shaping the future, poised to offer businesses the tools they need to transform operations, boost efficiency, and enhance customer interactions.

With a goal to deploy one billion AI agents by the end of 2024, Salesforce isn’t just talking about the future of AI—it’s making it happen right now. Whether you’re drawn to their CRM leadership or excited about their AI initiatives, Salesforce is proving it knows how to stay ahead in the tech space, making it a stock worth watching closely.

Key Insight

FCF is projected to rise significantly over the next few years, from $12 per share in 2024 (see graph below) to over $20 by 2028, thanks to new revenue streams as we mentioned earlier.

That kind of growth gives Salesforce plenty of room to keep investing in AI development, acquisitions, and R&D. It also means they have the financial flexibility to explore new areas of innovation without overextending themselves.

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Information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions.  I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP.

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