Investors should consider artificial intelligence (AI) in three phases. The first phase includes high-performance semiconductors and networking equipment needed to build a supercomputing infrastructure. Nvidia has dominated the first phase, but chipmakers love it Broadcom and networking specialists such as Arista Networks have also benefited from it.
The second phase involves cloud providers offering infrastructure and platform services needed to build conversational copilots, autonomous agents, and other AI applications. Public clouds like Microsoft, AmazonAnd Alphabet are winners in the second phase, as are platform providers Palantir.
The third phase involves software vendors who combine products from the first two phases with their own data and technical knowledge to build AI applications. UBS Analysts believe that this phase ultimately offers the greatest opportunity to generate revenue. The phases are not mutually exclusive, but they do build on each other.
Just because we’re entering the third phase doesn’t mean the first two phases are over, but the third phase wouldn’t be possible without the underlying hardware and cloud services. One company Wall Street likes in the AI software space is Salesforce(NYSE: CRM). The stock has a consensus Buy rating and a median target of $415 per share. That implies an upside of 24% from the current share price of $336.
Here’s what investors need to know.
Salesforce has dominated the customer relationship management (CRM) market for more than a decade. According to the International Data Corp. (IDC), it had a revenue share of almost 22% last year, more than the next four rivals combined. The company also ranked first in several individual CRM software verticals, including sales, customer service and marketing.
Earlier this year, Salesforce announced Agentforce, a platform that delivers digital labor powered by artificial intelligence (AI). Agentforce’s usefulness goes beyond that of conversational copilots by “using advanced reasoning to make decisions and take action, such as resolving customer cases, qualifying sales leads and optimizing marketing campaigns,” according to the press release.
To date, Salesforce has launched two agent AI products: Agentforce Service Agent and Agent Builder. The first is a customer-facing conversational interface that can automate customer service workflows; The latter allows companies to build custom AI agents. Yet the company continues to innovate. Salesforce recently announced new features and use cases, collectively called Agentforce 2.0, most of which will launch in February 2025.
CEO Marc Benioff believes Agentforce 2.0 gives Salesforce a strong lead over competitors like Microsoft in the race to automate labor and improve employee productivity. “Demand for Agentforce has been tremendous,” he said in the press release. “No other company comes close to offering this complete enterprise AI solution.”
Salesforce reported solid financial results in the third quarter of its fiscal year 2025, which ended in October 2024, despite the lack of estimates. Revenue rose 8% to $9.4 billion thanks to particularly strong growth in sales and customer service software, and non-GAAP earnings rose 14% to $2.41 per diluted share.
Brian Millham, president and chief operating officer of Salesforce, reported strong demand for Data Cloud and Agentforce on the company’s third-quarter earnings call. Data Cloud is the foundational layer that aggregates information from other clouds (i.e. sales, service, and marketing). That data then forms the basis for decisions made by autonomous agents.
Currently, 25% of Fortune 100 companies are Data Cloud customers, paving the way for strong adoption of Agentforce in the coming quarters. The company closed more than 200 Agentforce deals in the third quarter, despite releasing the platform days before the end of the quarter. And Benioff told analysts: “The pipeline is in the thousands.”
Shareholders should be encouraged by that news. According to Grand View Research, spending on AI agents is expected to grow 45% annually through 2030.
Image source: Getty Images.
Wall Street estimates that Salesforce’s adjusted earnings will grow 12% annually through fiscal 2026, which ends in January 2026. That consensus estimate makes the current valuation of 35 times adjusted earnings look quite expensive. That said, analysts may upgrade earnings estimates if Agentforce sees particularly strong adoption.
To that end, investors who are comfortable with volatility can buy a small position today. However, I also think that better buying opportunities will arise in the future. So, potential investors and current shareholders interested in building larger positions should be willing to buy the stock on the dip. Personally, I would be more interested in Salesforce if the stock price fell 15% to 20%.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine holds positions at Amazon, Arista Networks, Nvidia and Palantir Technologies. The Motley Fool holds positions in and recommends Alphabet, Amazon, Arista Networks, Microsoft, Nvidia, Palantir Technologies and Salesforce. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Software Is the Next Big AI Opportunity: 1 Brilliant AI Stock to Buy Before 2025, According to Wall Street Originally published by The Motley Fool
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