(Reuters) -Salesforce shares dropped nearly 7% before the bell on Thursday, after the cloud software provider's weak third-quarter revenue forecast hinted at delayed returns from its AI investments.
Salesforce Shares Plummet as Revenue Forecast Raises AI Concerns
Salesforce's Revenue Forecast and Market Reaction
By Akriti Shah
Impact of AI Investments
(Reuters) -Salesforce shares dropped nearly 8% on Thursday, after the cloud software provider's soft third-quarter revenue forecast hinted at delayed returns from its AI investments.
Analyst Insights on Market Conditions
Rising investor bets on AI-driven cloud companies are pressuring them to deliver hefty returns on their billion-dollar investments into the breakthrough technology, even as economic uncertainty forces customers to pull back on spending.
Salesforce's Acquisitions and Future Growth
The outlook is "giving bears fresh ammo amid mounting fears that the software sector is ripe for disruption and questions over whether incumbents can fully monetize AI," said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
Salesforce has rolled out AI across its cloud services at a rapid pace, culminating in the 2024 commercial launch of Agentforce - its AI agent platform designed to automate tasks, streamline operations and help lift margins.
The company forecast third-quarter revenue between $10.24 billion and $10.29 billion, with the midpoint coming in below analysts' average estimate of $10.29 billion, according to data compiled by LSEG.
The cloud software provider also announced a $20 billion increase to its existing share buyback program, but that did little to cheer investors concerned about the dour forecast.
"This growth outlook is uninspiring," analysts at Oppenheimer said. The guidance reveals a "continuing tough macro environment for front-office suppliers like Salesforce this year."
With shares down about 24% so far this year, Salesforce has steered toward acquisitions after years on the sidelines, aiming to boost its offerings and profitability.
In May, it acquired data management platform Informatica for about $8 billion.
The stock trades at over 20.96 times its 12-month forward earnings estimates, compared with rivals Microsoft and Oracle's 31.26 and 30.84, respectively.
Salesforce beat second-quarter revenue estimates and given its cheap valuation, some analysts expect the company has room for growth.
"Second-quarter results and positive company commentary are sufficient at this juncture, considering CRM shares are trading near a historically low valuation level and deep discount to software peers," analysts at J.P. Morgan said.
(Reporting by Akriti Shah, Siddarth S and Harshita Mary Varghese in Bengaluru; Editing by Devika Syamnath)
