Down 6% on the year, Salesforce (NYSE:CRM) remains a troubled stock that investors should avoid for the time being. With demand for cloud computing soaring, one might assume that Salesforce stock would be marching higher.
But poor earnings and downbeat guidance have sunk CRM stock and led it to underperform the broader market. Salesforce stockholders missed out on this year’s rally.
Earnings Disappointment
Salesforce stock really cratered after the company’s most recent financial results delivered at the end of May. CRM stock plunged 16% immediately after the cloud computing firm reported it had missed its quarterly revenue target for the first time since 2006.
Salesforce reported EPS of $2.44, compared to a $2.38 that was expected among analysts.
The cloud software vendor announced first-quarter revenue of $9.13 billion versus $9.17 billion that had been forecast on Wall Street. Despite the miss, sales did increase 11% from a year earlier.
Salesforce blamed the poor results on longer deal cycles during the quarter and the implementation of a new go-to-market strategy. Revenue from the Professional Services unit fell 9% to $548 million during the quarter.
Equally bad, Salesforce provided forward guidance that missed analysts’ forecasts. The company said it expects earnings in the current second quarter of $2.34 to $2.36 on $9.20 billion to $9.25 billion in revenue.
Analysts had $2.40 in earnings and $9.37 billion in revenue penciled in for Salesforce. Management said they expect deal compression and slowing projects to weigh on the company’s financial performance for the rest of this year.
AI Push
Like every tech giant, Salesforce is pushing hard to capitalize on artificial intelligence. During Q1, Salesforce started selling its “Einstein Copilot” digital customer service representative. Customers were given access to AI features such as conversation summaries.
Salesforce also announced that it is opening a new AI center in London, England as part of a larger $4 billion investment in the United Kingdom.
Salesforce has said that it plans to open a 40,000-square-foot facility in downtown London capable of hosting 300 people.
The AI center will be used to encourage industry collaboration among technology companies and engage in AI training and upskilling programs for workers. Salesforce said it expects the AI center will create 500,000 jobs across the U.K.
The AI center is part of a broader investment that Salesforce is making in the U.K. over five years. But it comes as analysts question whether the company’s investments in AI are paying off, especially in light of the weak forward guidance that’s been issued.
Sell Salesforce Stock
Salesforce remains the world’s largest enterprise software firm. The company and its stock are not going anywhere.
That said, Salesforce has hit a rough patch and is struggling to both grow its sale and profits, and to make headway in the AI sector. While a recovery might eventually occur, it appears to be a long way off.
As such, investors should keep to the sidelines for now. Salesforce stock is not a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
