Salesforce’s share price is up nearly 12% after falling short of earnings expectations and beating Wall Street’s revenue forecast, according to Barron’s.
The company’s strong revenue growth comes as no surprise to me.
How so? Nearly a month ago, Salesforce stock hit a record high — and trades 15% above where it was when I wrote about the company in a November Forbes post.
Client demand for Agentforce — the company’s AI agent — may have propelled the stock’s growth. Agentforce is a category of generative AI applications that can check car rental reservations at the airport or screen possible sales leads, tasks which I wrote about in my book, Brain Rush.
Here are three reasons Salesforce stock could keep rising:
- Growth in the Agentic AI market.
- Salesforce’s optimistic revenue projections.
- Agentforce’s high value to customers.
Salesforce sees more customers adopting this service. “Agentforce will be the number one supplier,” said Salesforce CEO Marc Benioff in an interview with Fast Company. “I think we’ll have more than a billion agents running from Salesforce within the next 12 months. Even at Dreamforce, I got 10,000 customers hands-on with Agentforce,” Benioff added.
To turn demand for Agentforce into significant revenue, Salesforce is hiring more than 1,000 more people, noted CX Today. “Agentforce became available just two weeks ago and we’re already hearing incredible feedback from our customers,” Benioff said in a message released last month by Bloomberg.
The recent rise in Salesforce’s stock suggests investors are catching on. This puts pressure on the company to keep growing faster than analysts forecast — otherwise its stock price could fall.
Growth In The Agentic AI Category
Agentic AI is a global market expected to end 2024 with $31 billion in revenue and to grow thereafter at a 32% annual rate for the next few years, noted Emergen Research.
In Brain Rush, I speculated on the future of AI — including the emergence of autonomous agents. Such agents would plan and execute tasks, such as designing and delivering a marketing campaign that would iteratively query large language models to sense and respond to external feedback.
With companies expected to invest a collective $1 trillion in generative AI, experts have raised questions about how companies will earn a return on the investment. In my view, that could come from a killer app — such as the iTunes store was for the iPod and VisiCalc was for PCs — that creates a new growth curve, thereby enabling companies to exceed investor expectations, noted my September op-ed in the Boston Globe.
Agentic AI could become such a killer app. “Intelligent agents in AI will change decision making and improve situational awareness in organizations through quicker data analysis and prediction intelligence,” wrote Tom Coshow, senior director with Gartner’s technical service providers division, in a Gartner report about intelligent agents in AI that was featured in Network World.
“While you’re sleeping, agentic AI could look at five of your company’s systems, analyze far more data than you ever could and decide the necessary actions,” Coshow added.
Salesforce’s Expectations-Beating Performance And Prospects
Agentforce helped Salesforce exceed Wall Street expectations for the quarter ending October 31 and raise growth guidance for the company’s fiscal fourth quarter. If more customers sign up for the service, Agentforce could be at the beginning of a growth spurt that helps Salesforce to boost its stock price.
Here are the key numbers:
- Third-quarter sales: $9.44 billion — up 8.3% and $90 million above the FactSet consensus.
- Q3 adjusted earnings per share: $2.41 — three cents below analysts’ expectations, according to the Wall Street Journal.
- Full year 2024 revenue forecast: $37.9 billion — the midpoint of a range between $37.8 billion and $38 billion — “adding $100 million to the low-end of its previous guidance,” the Journal reported.
- Full year 2024 adjusted earnings per share forecast: about $10.01 — the midpoint of a range between $9.98 and $10.03 — six cents a share below the midpoint of the prior range, noted the Journal.
“We delivered another quarter of exceptional financial performance across revenue, margin, cash flow, and cRPO,” Benioff said in a statement. “Agentforce, our complete AI system for enterprises built into the Salesforce Platform, is at the heart of a groundbreaking transformation.”
Agentforce’s High Payoff For Customers
Agentforce boosts several companies’ productivity. Here are three examples:
- Increasing a manufacturer’s customer service productivity. BACA Systems, a machine manufacturer based in Orion Township, Mich, used Agentforce to handle more service calls without adding more “human staff,” said Andrew Russo, enterprise architect at BACA, in an interview with the Journal.
- Alleviating a publisher’s customer service bottleneck. Agentforce enabled educational publisher Wiley to resolve autonomously more than 40% of customer inquiries “during its busy back-to-school season,” reported VentureBeat.
- Finding the right match faster for a staffing firm’s clients. Bullhorn, a Boston-based provider of software for staffing firms, sees business value in Agentforce. The service can enable Bullhorn to search for more job candidates, find the best matches, and arrange meetings between them candidates and the recruiter, Bullhorn President and Chief Operating Officer Matt Fischer told me in an October 28 interview.
Of 200 to 300 generative AI experiments the typical large company is undertaking, some 10 to 15 result in widespread internal rollouts, and perhaps one or two get released to customers, according to the Globe.
Large companies want a payoff from theirAI experiments. “Almost every CEO or CIO that I talk to, they’re basically saying, ‘Look, my organization did 100, 200 proof of concepts,’ ” AWS CEO Matt Garman told the Journal. “Then they say, ‘How do I go find the one, two, five of those proof of concepts that are valuable, and that are delivering real ROI?’ ”
Salesforce seems to think it has an answer. “We’re delivering these incredible Agentforce capabilities as well,” Benioff told the Journal. “This is a bold leap in the future of work, where AI agents let humans unite to transform all of our customer interactions.”
If Agentforce adds materially to Salesforce’s top-line growth rate, investors could benefit.