At this point in the AI cycle I’d like to own shares of companies providing AI solutions in relatively “easy” data universes. (Nothing as complex as voice recognition for an interface with a diverse customer universe under uncontrolled environmental conditions. Like a family in a car Eat a McDonald’s drive-through.) And I’d like to focus on shares of companies with products that provide clear enhancements to customers bottom lines.
Like my Pick #4 Salesforce (CRM). in my Special Report 5 Next Big Things on my JubakAM.com subscription set
Salesforce dominates salesforce automation, which means it has two very valuable features that I’m looking for in my stocks for the next stage in AI. First, this dominant market position gives Salesforce access to heaps of customer data to use in building AI models. According to the company, Salesforce “manages 250 petabytes of customer data and metadata. “And second, those customers, who already use Salesforce cloud software to manage critical function for their company will be working with a clear-profit and loss incentive. They know what they need done and they have a clear sense of what the positive effect will be on their bottom lines. (I also like the fact that while the company controls 30% of the salesforce automation market, the market is highly fragmented so that Salsforce has two pathways to growth: it can pick up market share in a fragmented market growing at double digit rates.I think the recent sell-off–a 20% drop on disappointing revenue growth–creates a buying opportunity for patient investors. Future growth will get a big boost from new AI features being added to the company’s cloud platform but revenue and profit growth from those new AI efforts aren’t likely to fully hit the books this year. In the recent conference call Salesforce CEO Marc Benioff indicated that “generative AI features within Salesforce applications may not significantly impact revenue until 2025 or 2026.”
Einstein AI is the company’s major AI effort with integration on apps that include Sales Cloud, Marketing Cloud, Service Cloud, and Commerce Cloud. It provides automated machine learning, predictive analytics, and generative AI capabilities to help in making intelligent decisions based on organizational data. Einstein Copilot assists users with tasks such as outreach and analysis, creating a smoother user experience. The Einstein GPT Trust Layer addresses security and compliance concerns associated with generative AI. AI for Customer Service is used to automate and enhance customer engagements, improve service team productivity, and personalize support experiences. This includes features like AI-powered chatbots, predictive and generative AI for service replies, and knowledge articles.
Morningstar currently calculates that the stock is 14% undervalued at a closing price of $245.06 on June 21. Fair value, according to Morningstar is $285.The shares trade at a price-to-earnings ratio of 25.26.
I will be adding them to my 12-18 month Jubak’s Picks Portfolio on Monday June 24.
