By Angela Palumbo

Salesforce checked another box for software companies. The firm's earnings report late Tuesday indicated that demand for software remains strong in this latest quarter, as enterprises spend big on artificial intelligence.

Salesforce's sales came in above Wall Street estimates, and while earnings missed expectations, the company boosted the low end of its 2025 revenue guidance by $100 million to between $37.8 billion and $38 billion.

That boost might seem minimal, but Wall Street is betting on strong demand for the company's new generative AI initiative, Agentforce.

Shares of Salesforce were up 8.6% on Wednesday afternoon, to $359.78, while The Technology Select Sector SPDR exchange-traded fund was up 1.6%, on pace to close at a record, according to Dow Jones Market Data.

Agentforce launched in October. So-called AI agents function similarly to chatbots and are meant to speed up productivity for enterprises that buy them.

"[C]ompanies like FedEx, Adecco, Accenture, Ace Hardware, IBM, RBC Wealth Management, and many more are now building their digital labor forces on the Salesforce platform with Agentforce," Salesforce CEO Marc Benioff said on the company's earnings call Tuesday.

The demand for gen-AI software and what it could do for company productivity has helped boost demand in the space -- a clear theme in the recent earnings season.

Wedbush analyst Dan Ives told Barron's that Salesforce is "now seeing AI monetization on the software front along with core players like Palantir Technologies. This is very bullish for CRM and the broader software sector." Ives rates Salesforce as Outperform with a $375 price target.

Palantir reported better-than-expected third-quarter financials and increased its guidance for the year on Nov. 4. Chief Executive Alexander Karp said in a letter to shareholders that there is an "unwavering demand for the most advanced artificial intelligence technologies."

The theme continued with companies like ServiceNow, which beat and raised estimates on Oct. 23, with new and existing customers "doubling down on their investments," in the company's AI offerings, according to ServiceNow executives. Cisco Systems also had positive updates to share on customer interest in AI on Nov. 13, as CEO Chuck Robbins said that "customers are investing in critical infrastructure to prepare for AI."

The boost in demand for AI may be expensive to some, but it's clear that software companies are reaping the benefits.

The Technology Select Sector SPDR ETF has risen 25% this year and 8.2% since the end of October, when software earnings started to roll in.

Write to Angela Palumbo at angela.palumbo@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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December 04, 2024 14:02 ET (19:02 GMT)

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