Analyst Highlights Salesforce (CRM) Potential in $1.2 Trillion Enabling Tech Market

We recently published a list of Top 10 Trending AI Stocks in Q4. In this article, we are going to take a look at where Salesforce Inc (NYSE:CRM) stands against other top trending AI stocks in Q4.

As LLMs continue to hog data from the open internet for training, publishers are growing concerned about their intellectual property and compensation. In a latest development, The New York Times issued a cease and desist letter to Perplexity to stop using its data for training without permission.

Gene Munster of Deepwater Asset Management, while talking about this news on CNBC, said that these developments could prove “horrendous” for LLMs in the short term.

“The short-term economics for these large language models is horrendous, and so, I think it changes from bad to worse in the short term. I just want to put some quick context around those numbers. Right now, OpenAI pays NewsCorp about $50 million. They’re going to do about $4 billion in revenue this year and $11 billion next year, so, I mean, it’s measurable.”

However, Munster thinks in the long term, these licensing deals would not impact major LLM companies negatively given the ROI they’d be enjoying.

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The analyst also made a prediction about Perplexity. He believes the company would be acquired because it’s competing with a lot of “big guns.” He quoted Oracle’s Larry Ellison who said that it takes about $100 billion to be a “proprietary” large language model.

“So, you look at the $6 billion at OpenAI, and you need to be raising in chunks of billions, not millions. Understand that it’s a big raise for a private company that’s moving quickly, but they’re going to get acquired. They’re just up against too many other big guns here to try to get to those coveted four or five spots of the LLM landscape.”

For this article we picked 10 AI stocks trending based on latest news. With each company we have mentioned its hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

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Salesforce Inc (NYSE:CRM)

Number of Hedge Fund Investors: 117

UBS recently published a list of stocks it believes will be industry leaders by 2030. UBS believes the next decade will favor companies that use technology to disrupt industries.

“We see these as leading disruptors in industries undergoing technological change, which should have a lasting impact,” said UBS analyst Hartmut Issel in a note.

The firm identified 29 companies it expects to deliver stronger earnings growth than the broader market (S&P 500, NASDAQ), supported by “positive, long-term trends,” according to Issel.

Salesforce Inc (NYSE:CRM) was among these stocks in the Enabling Tech category.

According to UBS, revenue for enabling tech could rise to $1.2T by 2025, or ~15% CAGR from FY20–25.

In the second quarter, Salesforce’s revenue rose 8% year over year while gross profits jumped 10%.

Salesforce Inc (NYSE:CRM) is also on investors’ radar because of its acquisitions. The company recently agreed to acquire AI voice agent firm Tenyx. This acquisition follows Salesforce’s strategic partnership with Workday to develop an AI-powered assistant for employees. The company has also agreed to buy SaaS data protection startup Own for $1.9 billion in cash.

Wall Street expects $11.12 per share in profits for Salesforce Inc (NYSE:CRM) next year, representing a 10% year-over-year increase. For the current financial year, profits are expected to grow by 23%, with estimates trending upwards. Based on these forecasts, Salesforce trades at a forward price-to-earnings ratio of 22, which is attractive given the AI-related growth catalysts.

Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:

“In a tough backdrop for software companies, shares of Salesforce, Inc. (NYSE:CRM) cratered after the company reported quarterly results that surprised to the downside due to a tougher spending environment. The company reported revenue growth that missed on expectations, while also lowering its outlook for revenue growth, due to a more measured buying environment from its customers. Salesforce experienced elongated sales cycles, deal compression and elevated budget scrutiny, which pushed some deals to following quarters. Taking a step back, the company’s evolving AI story should not be overlooked as it is integrated across the company’s sprawling suite of cloud and digital assets.”

Overall, CRM ranks 8th on our list of top trending AI stocks in Q4. While we acknowledge the potential of CRM, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.