Source: Beast Finance Author: Beast Finance
First-quarter financial results
As Salesforce's (CRM) forecast for fiscal 2024 dampened investor confidence in its artificial intelligence business prospects, Beast Finance believes that Salesforce's share price rally this year may be over. While the company delivered impressive financial results in the first quarter and raised its revenue forecast for the year, concerns remain over its tepid growth forecast amid a deteriorating macro economy. And concerns that Salesforce's investment in artificial intelligence may fall short of expectations.
Specifically, Salesforce's first-quarter revenue grew 11% year-over-year (the slowest growth rate in more than a decade). By keeping its full-year revenue guidance unchanged (i.e. about 11% annual growth), management stated that the recently observed lengthening of deal cycles, decline in deals and focus on "quick time to value" in our customer base, our business Persistent challenges remain. It also means that while "every CEO in the world is talking to Salesforce about generative AI," Salesforce's forays into the space may not help its business grow substantially.
Salesforce's Artificial Intelligence Strategy
Salesforce already has artificial intelligence in its customer relationship management software solution offerings and leads the enterprise services market to some extent through the "Einstein AI Platform" it launched last year. (Salesforce's "Einstein AI Platform" launched before OpenAI's ChatGPT sparked attention to AI).
The "Einstein AI Platform," which enables predictions and recommendations primarily by applying machine learning to data analysis, resonates with customers' growing demand for tools.
So far, only 4% of companies in the world claim to have "highly complex large models using data." Beast Finance believes that this is a huge opportunity for companies such as Salesforce that provide enterprise services (especially considering the recent growth momentum of artificial intelligence around the world).
[Every CEO I’ve talked to sees AI as a revolution that starts with the customer and ends with the customer, and every CIO I’ve talked to wants to use AI to increase efficiency and automation and The degree of intelligence - the CEO of Salesforce's speech at the first quarter earnings conference].
But instead of taking full advantage of its first-mover advantage, Salesforce has been trying to catch up and try to seize opportunities in the emerging field of generative artificial intelligence. Based on the "Einstein AI Platform", Salesforce quickly adopted OpenAI's GPT large-scale language model technology, and recently launched "Einstein GPT". Einstein GPT effectively tailors OpenAI's GPT generative model for Salesforce applications, with capabilities spanning "automated customer service responses and services like email." In addition to consumer use cases, Einstein GPT also aims to provide enterprises with low-code and no-code solutions by leveraging the technology, and to further deepen Salesforce's attempt in the developer ecosystem.
[We will launch Einstein GPT for our developers in the ecosystem, which will not only help developers reduce the talent gap, but also reduce development costs - Salesforce CEO's speech at the first quarter earnings conference].
Specifically, Salesforce, the "pioneer" of low-code and no-code, is now able to leverage Einstein GPT, along with some of the company's proprietary LLMs, to increase the efficiency of the enterprise by at least 20%. This is further confirmed by Boldbeast Finance’s recent research in the field of enterprise services, that is, “new employees benefit the most from [the help of artificial intelligence]” and help new employees improve their performance by 35%.
These results show the promise of Salesforce in capturing the opportunities in AI stemming from the growing need for no-code to low-code technologies to improve productivity in the data-driven era. More than 40% of enterprise employees said that this low-code solution (Salesforce already offers through MuleSoft and will be further improved through Einstein GPT) is critical for enterprises to create value in a data-first environment. Addresses talent gap needs.
[93% of companies say that it is becoming more difficult to retain skilled developers... 91% of companies say that automation solutions can help developers get twice the result with half the effort - Salesforce CEO's speech at the first quarter earnings conference] .
In addition to Einstein AI and Einstein GPT, Salesforce also introduced the "GPT trust layer" to address the security needs of enterprises. The "GPT trust layer" is integrated with Einstein GPT. When customers use Salesforce's customer relationship management software, Salesforce can provide customers with a safe experience service. Through the "GPT trust layer", customers can use LLM to build their own generative artificial intelligence customer relationship management solutions without moving or storing data in the model, enabling a "safe and trusted" experience that is critical to enterprise environments .
Boldbeast Finance believes that the "GPT trust layer" artificial intelligence customer relationship management solution is likely to become the main difference between Salesforce and its competitors.
Because nearly 40% of enterprises regard improving network security as a top priority, and Salesforce can provide corresponding services for these enterprises through its artificial intelligence strategy.
By following in the footsteps of pioneers such as Google's PaLM and LaMDA, and OpenAI's GPT and Meta Platforms' LLaMA, Salesforce has also expanded research into the field of AI by developing a proprietary LLM, similar to the "GPT trust layer," Salesforce's proprietary LLM, including ProGen and CodeGen, will strengthen its competitive advantage in AI-enabled CRM solutions and differentiate it from competitors by reducing its future reliance on third-party models such as OpenAI's GPT technology Come.
(1) ProGen LLM: Specifically targeting chemical and biological use cases, supporting the development of "solutions to human diseases and environmental challenges". Inside Salesforce AI Research, ProGen LLM has been used "to identify potential treatments for neurological and autoimmune diseases," underscoring the technology's growing pivotal role in supporting "bioscience and healthcare" applications. This development could further boost Salesforce's success in industry-specific cloud segments such as the "health cloud," and deepen its market share gains in generative AI opportunities in the healthcare and life sciences industries.
(2) CodeGen LLM: CodeGen LLM aims to enable customers (including no-code to low-code business users and code-enabled developers) to write and build applications through simple text prompts. Unlike existing text-to-code solutions, CodeGen LLM will facilitate the development of conversational AI capabilities in the process—similar to the conversation-like experience ChatGPT provides today. This will continue to complement the CRM-focused productivity solutions Salesforce has rolled out in recent years, as evidenced by the integration of MuleSoft, Tableau and Slack. The integration of future technologies will be the key to "opening technology to new people" and will also bring huge improvements to the productivity of existing and potential customers.
Is AI a Threat or an Opportunity for Salesforce?
While Salesforce is in line for both profits and growth, the widening gap between slowing revenue growth and margin expansion has investors concerned about whether its market leadership in customer relationship management software will last. last long. And the first quarter was Salesforce's slowest growth quarter in more than a decade, and the market expects growth to be similarly slow this quarter, underscoring the impact of ongoing macroeconomic challenges on enterprise IT spending on Salesforce's business. Very serious effects.
The emergence of generative artificial intelligence has also intensified competition in the industry-although Salesforce aims to achieve its value differentiation in the era of artificial intelligence through the "GPT trust layer" and the introduction of proprietary LLM, its position as the market leader in customer relationship management software Investors' moats are at risk of being disrupted.
Specifically, the widespread availability and adoption of generative artificial intelligence is rapidly increasing sales capabilities across the industry and undermining Salesforce's continued efforts to complement and expand its presence in customer relationship management software with the launch of the "Einstein AI Platform" and "Einstein GPT." The desire to occupy a leadership position.
For example, Microsoft (MSFT) has integrated OpenAI’s GPT technology into its productivity software, as seen through its expanding Copilot (Microsoft’s AI assistant in Windows 11), which highlights the importance of generative artificial intelligence. A threat to Salesforce's market leadership in customer relationship management software.
Microsoft's Dynamics 365 (intelligent business application) has also been recognized and adopted by more and more enterprises by utilizing the Copilot solution supported by GPT-4 to support its attempts in customer relationship management solutions.
Copilot can be used to automatically reply to emails, conduct sentiment analysis, provide feedback and customer insights, automatically generate product descriptions, and "flag external factors such as weather, finance, and geography that can cause supply chain problems."
This is essentially the same way Salesforce aims to improve customer productivity with Einstein GPT.
That suggests a rising competitive threat from the advent of generative artificial intelligence, which could also erode Salesforce's leadership in customer relationship management software.
Fundamental Analysis of Salesforce
Based on Salesforce's latest financial performance and forward guidance cited by management, as well as our forecast for Salesforce and taking into account the risks and opportunities the company faces when generative artificial intelligence emerges, Boldbeast Finance expects Salesforce's revenue for the next five years will grow at a moderate rate of 9% on average.
DataCloud is likely to become one of Salesforce's fastest-growing subscription revenue streams, which is also in line with Salesforce's expectations. Over time, DataCloud will be built into customers' products along with Einstein GPT to cope with the growing data and labor. Incremental opportunities presented by an intelligence-first environment.
This could lead to greater subscription revenue for Salesforce for the foreseeable future and provide an additional boost to the company's ongoing margin expansion efforts, as the subscription-based segment is more profitable.
Meanwhile, Salesforce's customer relationship management software business is likely to remain subdued in the near term, given that the challenging macroeconomic environment will also put pressure on companies to spend on IT.
Conclusion
Despite the growing interest in generative artificial intelligence right now, this nascent technology likely won't do much for Salesforce's growth prospects in the near term.
Competition in the AI space also exacerbates the question of whether Salesforce's bottom line is sustainable -- if Salesforce's profit growth continues to stagnate, then either due to transient macroeconomic challenges or the emergence of new technologies such as generative artificial intelligence , will pose a destructive threat to Salesforce's moat in the customer relationship management software market.