$CRM - BofA's 2025 Top IT stock pick. Really?
$Bank of America(BAC)$ analysts revealed that although the US software market grew +59% in 2023 and +23% in 2024, development projections still run below historical averages.
In its 14 Jan 2025 report, BofA reported that (a) revenue multiples & growth expectations remain below 5-year median and pre-Covid levels and (b) for 2025, below 3 secular themes are potential hopefuls.
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Agentic AI,
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Growing enterprise IT budgets.
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Sustained cloud migration.
Agentic AI.
What is Agentic AI ? It refers to AI systems that can (i) learn, (ii) act, and (iii) make decisions autonomously, without constant human input.
Bank of America sees it as a key differentiator for software companies.
Agentic AI deployments could displace workers as early as H2 2025 across industries, Eg. contact centers, software engineering and marketing, for a start.
IT Budget.
The 2nd key trend is accelerated enterprise IT spending, that is expected to gather pace through 2026.
Tech heavyweights like Meta, Microsoft, and Amazon have been investing heavily on AI and will likely expand their investments in 2025.
During MSFT’s October 2024 quarterly earnings’ conference, Finance chief, Amy Hood had confirmed that AI-demand continues to be higher than MSFT’s available capacity.
Cloud Migration.
And, sustained cloud migration remains a key growth driver for the software sector as optimization headwinds ease, the bank said.
The bank has summed up that:
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They remain selective on small caps.
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However, they are bullish about the software sector for 2025.
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In particular from H2 2025 onwards, as accelerating secular tailwinds and easing cyclical headwinds converge.
Who are the winners in this gold rush? Bank of America is betting on $Salesforce.com(CRM)$.
BofA 2025 Top Pick !
BofA sees potential for positive returns in undervalued names within subsectors like (1) CRM (customer relationship management) and (2) Infrastructure especially which BofA has identified as particularly well-positioned for growth in 2025.
BofA Other Picks:
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Microsoft(MSFT)$.
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ServiceNow(NOW)$.
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Global-e Online (GLBE).
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Five9 (FIVN).
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Monday.com (MNDY).
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Asana (ASAN) .
Due to limited real-estate, this post will focus on BofA’s biggest potential stock - Salesforce(CRM)$.
Salesforce (CRM)$.
Salesforce is often seen as the leader in leveraging AI to enhance customer relationship management, and is a "leading front office Agentic AI play".
On 17 Dec 2024, Salesforce had unveiled its latest digital labour platform - Agentforce 2.0, that can autonomously provide customer support without preprogrammed responses.
Notable Agentforce's clients include:
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IBM (IBM).
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Finnair - national airline of Finland.
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Accenture (ACN) - a global multinational professional services company that specializes in information technology (IT) services and management consulting.
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UK’s Heathrow Airport.
All of them are using the platform to (i) augment their teams (humans), (ii) streamline operations, and (iii) unlock new growth opportunities.
Q3 2024 Earnings.
On 03 Dec 2024, Salesforce reported its fiscal third-quarter results.
Revenue surpassed Wall Street's expectations, but earnings fell slightly short. Revenue grew +8% YoY to $9.44 billion, beating the $9.34 billion consensus estimate.(see above)
Adjusted earnings per share (EPS) came in at $2.41, missing Wall Street’s expectation of $2.44 by -$0.03. (see above)
2025 Outlook.
The company also raised the low end of its fiscal 2025 revenue guidance, now expecting $37.8 billion to $38 billion.
This caused Salesforce's stock price to surge +11% on the next trading day following the earnings.
Salesforce CEO Marc Benioff emphasized the company's progress in artificial intelligence, specifically the Agentforce platform.
He stated that this represents a significant advancement in how work is done, as AI agents empower humans to revolutionize all customer interactions.
AI-driven +$80 Upside ?
Investment firm Wedbush is also bullish about the broader software sector for 2025.
It has highlighted Salesforce as one of the biggest potential winners, along with Palantir (PLTR)$ - his perennial favourite.
The firm is generally bullish in the broader software sector and has highlighted Salesforce as one of the biggest potential winners, along with Palantir (PLTR) .
In his December 2024 report, Wedbush analyst Daniel Ives foresee that:
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Salesforce is a clear 2nd derivative beneficiary of the AI Revolution.
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The AI-driven growth could potentially increase Salesforce additionally by +$80 per share over the next 12 to 18 months, as the revenue opportunities from AI become more apparent.
Salesforce stock price as of 17 Jan 2025
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Salesforce’s Fri, 17 Jan 2025 closing price was $324.56 per share, off its 12 month’s peak of $367.87 (4 Dec 2024). (see above)
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Wedbush has a “Outperform” rating and a price target of $425 per share.
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Bank of America has a “Buy” rating and a price target of $440 per share.
History In Time.
Salesforce is the world’s largest provider of cloud-based customer relationship management (CRM) services.
Its software-as-a-service (SaaS) platforms bridge the gap between companies and customers around the world, facilitating and personalizing sales management, customer service, and marketing.
It’s success could be attributed to its strategic acquisitions of complementary software companies and filled gaps demanded by its customers.
This have subsequently fueled Salesforce’s extraordinary growth over the past decade.
From fiscal 2014 to fiscal 2024 (January 2024), Salesforce’s revenue grew at a compound annual growth rate (CAGR) of 24%.
And a good part of the growth came from organic, big acquisitions of companies. This includes:
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Demandware, rebranded as Salesforce CommerceCloud.
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Mulesoft.
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Tableau.
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Slack.
These additions contributed substantially to expand the Salesforce ecosystem.
Although it was one of the earliest players in the CRM and SaaS arena, Salesforce eventually encounter competitors hungry for a piece of the CRM-pie as well.
Competitors include:
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Microsoft’s Dynamics 365 software for CRM.
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Oracle’s NetSuite.
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SAP.
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HubSpot.
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Zendesk.
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Insightly.
My viewpoints: (mine only)
In a rapidly IT changing landscape, Salesforce has it works cut out for the immediate to long term.
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It needs to seek out untapped international emerging markets as its future growth before Wall Street frowns on its “lack of” revenue growth.
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Regular acquisitions (no matter how strategic) will run its course eventually.
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Rather than wait for that day to arrive, Salesforce will do better to carve out a path for itself.
With Agentic AI already infused into its products, it is timely of Salesforce to research & development (R&D) into quantum computing to bring its product to the next level.
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Its investment in quantum technology in January 2023, as a part of quantum sensing vendor Q-CTRL’s $27.4 million series B extension funding is a step in the right direction.
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It also invested in Cambridge Quantum Computing (CQC), a UK-based company specializing in quantum software and quantum computing, in May 2023.
Into The Future.
24/7 Wall St has a consensus taken from 44 different Wall Street analysts. (see above)
Collectively, they have predicted Salesforce’s price target in 12 months to be $310.00.
This calculates as a loss of -2.47% from 13 Jan 2025’s stock price of $317.85.
However, overall average recommendation was “Outperform”.
Integration of blockchain technology into Salesforce’s product offerings is expected to be a key driver sometime in 2025.
FY 2027 will likely begin to see the primary fruits from the international sales and marketing initiated during the latter part of FY 2024 and all of 2025.
A target price of $380.70 would represent a +19.77% gain from 13 Jan 2025’s stock price of $317.85. And then $412.80 the following year and so on so forth…
While Salesforce’s list of action items seems progressive, its competitors should be doing the same progressive work too. As investors, we need to glue our ears to both Salesforce & its competitors to ensure we are on the right path.
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Do you think BofA is right in picking Salesforce CRM as the top IT stock for 2025 ?
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Do you think 2025 will be the year where AI begin to takeover menial & repetitive human jobs ?
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