Salesforce Aims to Lead AI Innovation in Enterprise Tech, Faces Capital Management Challenges

December 5, 2024 TruthUSA

Salesforce CRM joins scores of IT companies that have placed artificial intelligence (AI) at the core of their business strategy. The cloud-based software company is positioning itself as a key player in the AI-driven enterprise technology with Agentforce, an AI system built into its platform, according to a statement following the release of its third-quarter financial results.

For years, Salesforce has been delivering solid sales gains to appease momentum investors on Wall Street. On Dec. 4, the company reported an 8 percent rise in annual sales, to $9.4 billion, beating analyst estimates. Net income was $1.5 billion, up 25 percent from a year earlier.

“We delivered another quarter of exceptional financial performance across revenue, margin, cash flow, and cRPO,” Marc Benioff, Salesforce chair and CEO, said in a statement following the release of its third-quarter financial results.

“Agentforce, our complete AI system for enterprises built into the Salesforce platform, is at the heart of a groundbreaking transformation,” he said.

“The rise of autonomous AI agents is revolutionizing global labor, reshaping how industries operate and scale. With Agentforce, we’re not just witnessing the future—we’re leading it, unleashing a new era of digital labor for every business and every industry.”

Tom South, director of organic and web at Epos, commented on the company’s AI focus. “Salesforce’s AI-driven platform aimed at automating routine business tasks and providing real-time insights,” he told The Epoch Times. “This move positions Salesforce to capitalize on the growing AI market, aligning with its strategy to integrate AI across its product offerings.”

Wall Street reacted positively to Salesforce’s third-quarter financial results. The company’s shares rose sharply in early regular trading on Wednesday, and for the year is ahead of the broader market.

Sidharth Ramsinghaney, director of strategy and operations at cloud communications company Twilio, views Salesforce’s execution as an example of strategic transformation.

“They’re not just adding AI features—they’re fundamentally reshaping their business model from traditional CRM to enterprise-wide digital labor solutions. The financial results reflect this shift, with expanding margins and robust cash flows indicating strong market reception,” he told The Epoch Times. (CRM refers to customer relationship management.)

However, Michael Kodari, CEO at KOSEC Securities, is concerned about valuation. “The company continues to show resilience with robust revenue growth and an impressive ability to monetize its cloud offerings,” he told The Epoch Times. “However, at a 206 P/E ratio and with an all-time high market cap, the valuation reflects a market priced for perfection,” he said, referring to price-to-earnings.

Then, there is the problem with the company’s capital management, as measured by economic profit or economic value added (EVA). That’s the difference between the return on invested capital (ROIC) and the opportunity cost of that capital, as measured by the weighted average cost of capital (WACC).

A positive EVA indicates that the company manages capital effectively and that its investments in different projects create superior market returns. In contrast, a negative EVA indicates that the company delivers inferior market returns from these projects.

Salesforce investments fall into the second category. According to Gurufocus.com, Salesforce’s EVA has remained consistently negative over the last decade, meaning the company needs to manage its capital more effectively, as its investments have delivered inferior market returns.

There is a good reason for Salesforce’s capital management challenges: the company needs to pay more for acquisitions, benefiting the stockholders of the acquired companies rather than its own.

Meanwhile, Kodari was concerned about underlying risks, such as a weaker balance sheet and increasing macroeconomic uncertainty. “High multiples combined with aggressive market optimism leave little room for error,” he said.

“As liquidity in the broader market tightens and sector recalibration occurs, Salesforce could face challenges sustaining its current trajectory.”

Kodari recommended investment caution. “While the near-term momentum is positive, investors should approach cautiously, focusing on strategic entry points or reassessing positions for potential volatility ahead,” he said. “Long-term potential remains intact, but the risk of overextension in the short term is real.”

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