Salesforce: Time to Snap it Up as the Market Buys the Dip?

Shares of Salesforce Inc. NYSE: CRM are down following the Q1 earnings release, but the market is already buying the dip. The news and guidance were better than the analysts' forecasts, but the market secretly hoped for more, so the price moved lower. The new wave of AI enthusiasm should have driven results for the business. It is, but not in the way it did for NVIDIA Co. NASDAQ: NVDA. 

This opened up a buying opportunity that long-term investors will appreciate amid the Salesforce stock forecast because AI is about to take Salesforce's business to the next level. 

Salesforce Has Strong Quarter, Gives Cautious Guidance 

Salesforce had a great quarter, with strength in all segments and regions. The company reported $8.25 billion in revenue for a gain of 11.3%, which beat the consensus by 100 basis points, and the strength carried through to the bottom line. The core subscription and support segment grew by 11.5%, while professional services grew by 9%. Within subscriptions, sales grew by 13%, services by 13%, platforms by 12%, marketing by 10% and data by 20%. On a regional basis, APAC led at 24%, followed by a 17% gain in EMEA and 10% in the Americas. 

The margin news is even more impressive. The gross and operating margins improved year-over-year (YoY), and improvement occurred on a GAAP and adjusted basis, with the adjusted operating margin expanding 1,000 basis points to 27.6%. This left the adjusted EPS at $1.69, up 80% compared to last year and 500 bps above consensus. 

Guidance went up for the second quarter, and the margin outlook for the year improved, but it maintained the financial year revenue target at the prior level, which may be a cautious take. 

The company expects second-quarter revenue and earnings to come within a range well above the consensus at the low end. Coupled with first-quarter strength, this should lead to a better-than-forecast year which is why full-year guidance appears cautious. If the company's momentum continues through the second quarter, the guidance will likely revise later this year. If not, a weakness brewing for the second half may weigh on the entire market, not just Salesforce. 

Analysts Support the Uptrend in Salesforce 

The analysts' chatter has been mixed, but the takeaway from the activity is bullish. The analysts can't decide if the guidance is cautious, and there has been at least one downgrade since the report was released, but the price target increases more than outweigh it. At least 14 of the 39 analysts covering CRM stock have increased their price target, and that has the consensus figure firming after a year of trending lower. 

The consensus is moving past the $220 mark, suggesting a few hundred basis points of upside are possible. Most new targets are well above the consensus, which should help lead the stock higher, but the real takeaway is that a deeper decline in the stock price is unlikely. 

The Technical Outlook: Salesforce Uptrend is Intact 

Salesforce's price was corrected following the second-quarter report due to the run-up before the report. NVIDIA's results drove that run-up, and now the move is over, and the next is ready to begin. The post-release action marks a top, but a near-term top that will lead to a consolidation, not a reversal. The action also shows solid support at the short-term moving average, confirming the uptrend.