We recently published a list of 8 Most Profitable Tech Stocks Right Now. In this article, we are going to take a look at where Salesforce (NYSE:CRM) stands against other most profitable tech stocks right now.
Technology Sector’s ‘High Bar’
In an interview with CNBC on October 10, Drew Pettit, Director of US Equity Strategy at Citi Research, shared his thoughts about the upcoming earnings season and its potential impact on the market. With the Dow and S&P 500 reaching new closing highs, Pettit raised the question of whether earnings would justify the current valuations. The technology sector has been on a tear, with many software names running up significantly in recent weeks. However, Pettit’s warning suggests that investors should be cautious about getting too caught up in the hype. He noted that when there’s a high bar, investors should be prepared for potential disappointments.
Pettit sounded a note of caution when it came to the tech sector, particularly software stocks. He noted that software has the highest bar within tech, not just in terms of growth expectations but also in terms of monetization. Many software companies are not seeing the expected growth in the next three years, which is already priced into their valuations. This mismatch between expectations and reality could create volatility in the sector.
In terms of specific guidance, Pettit expects companies to use the current uncertainty as an excuse to walk down expectations for Q4. This is a typical trend in US markets, where companies tend to set low expectations and then beat them. Pettit advises investors to focus on companies that can deliver on their promises.
Overall, Pettit’s comments suggest that investors should be cautious about the tech sector, particularly software stocks, and focus on companies that can deliver on their promises. He also emphasizes the importance of looking beyond the current quarter and focusing on long-term growth prospects.
Tech Sector Will Thrive Despite Short-term Challenges
Dan Flax, Senior Research Analyst at Neuberger Berman is bullish on the technology sector, with a focus on companies that are well-positioned to capitalize on the next generation of workloads and are executing well on their product cycles. Flax expects concerns about cyclical headwinds to remain a factor but also sees select opportunities in the sector. He also noted that enterprise customers are looking to adjust to changes in the landscape cyclically and invest in transforming their organizations, which will drive technology spending in the second half of the decade.
As investors navigate the current market landscape, it is essential to approach the tech sector with a sense of caution. While the sector has been experiencing a significant upswing, investors should focus on companies that have a proven track record of delivering on their promises, rather than getting caught up in the hype surrounding certain stocks.
Our Methodology
To compile our list of the 8 most profitable tech stocks right now, we used the Finviz and Yahoo stock screeners to compile an initial list of the 40 largest technology companies by market cap. From that list, we narrowed our choices to companies with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds, as of Q2 of 2024.
Why do we care about what hedge funds do? 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).
A customer service team in an office setting using the company’s Customer 360 platform to communicate with customers.
Salesforce (NYSE:CRM)
Number of Hedge Fund Holders: 117
TTM Net Income: $5.63 Billion
5-Year Net Income CAGR: 42.75%
Salesforce (NYSE:CRM) is a global leader in cloud-based Customer Relationship Management (CRM) software. The company provides businesses with a platform for marketing, sales, customer service, and commerce across various devices. Salesforce’s (NYSE:CRM) diverse client portfolio includes organizations in the healthcare, retail, and manufacturing sectors. The company supports enterprise digital transformations and has a strong international presence, serving clients in over 150 countries.
In Q2, Salesforce (NYSE:CRM) reported sales of $9.33 billion, up 8.4% year over year, and gross profits of $7.17 billion, up 10% year over year. Operating income reached $1.78 billion, up 21% year over year, with a margin of 19%.
On September 13, Salesforce (NYSE:CRM) announced the acquisition of Tenyx, a developer of AI-powered voice agents, to enhance its customer service capabilities. This strategic move is expected to expand the company’s autonomous agent capabilities for Service Agent by integrating Tenyx’s innovative voice AI solutions, ultimately delivering more intuitive and seamless customer interactions through AI-driven solutions. By combining Tenyx’s deep knowledge of voice AI with Salesforce Service Cloud, the company aims to set new standards in customer experience.
In July, Salesforce (NYSE:CRM) and Workday announced a strategic partnership to create a new AI-powered employee service agent that will automate tasks, provide personalized support, and surface data-driven insights to help employees work smarter and faster. The partnership will bring together the two companies’ platforms, datasets, and AI capabilities to deliver a seamless employee experience powered by generative AI. The partnership will also enable seamless integration between Workday and Slack, allowing employees to access and collaborate around financial and HR records directly in Slack.
Salesforce (NYSE:CRM) is a compelling investment opportunity, with strong growth prospects, and a new AI acquisition to boost future growth. The company’s earnings are projected to increase by 20.52% in the current year. Industry analysts are bullish and have a consensus Buy rating on the stock
Overall, CRM ranks 6th on our list of most profitable tech stocks right now. While we acknowledge the potential of CRM to grow, our conviction lies in the belief that 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
Add Comment