JPMorgan appears to be getting a little nervous about Salesforce ahead of earnings

Published Tue, Aug 29 20238:23 AM EDTUpdated Tue, Aug 29 202311:27 AM EDT

J.P. Morgan is removing Salesforce from its list of top stock picks after the stock's AI-driven boom so far this year. The move comes before the Dow Jones Industrial Average member reports earnings after the bell Wednesday. Analyst Mark Murphy wrote in a Tuesday note to clients that although J.P. Morgan still sees valuation upside, the firm views its outperformance and other sluggish metrics as a potential near-term drag on the stock. "Some of the catalysts we anticipated have played out during this period of outperformance, including the massive margin expansion framework and buildup of generative AI excitement," wrote Murphy. "While we still see valuation upside based upon our forecast of $10 [free cash flow per share], we are removing CRM shares from the J.P. Morgan Analyst Focus List to reflect outperformance and realization of certain catalysts." He pointed to sequential degradation in the company's software-as-a-service earnings and muted second-quarter bookings expectations, based on a proprietary vendor survey by J.P. Morgan. Risks to its current price target include potential continued deceleration in billings growth and future competition from legacy vendors, although Salesforce has already proven it can grow partially at the expense of companies such as Oracle and Microsoft. Murphy maintained his buy rating on the cloud-based software company and the firm's price target of $230, which implies shares stand to gain 8.6% from Monday's close over the next 12 months. Salesforce's stock price has skyrocketed this year, gaining nearly 60%. Shares are down 1.7% in Tuesday's premarket session. Analysts surveyed by FactSet are calling for earnings per share of $1.90 and revenue of $8.53 billion when the company reports quarterly figures Wednesday. Meanwhile, the company's guidance suggests its revenue will range between $8.51 billion and $8.53 billion, and that its earnings per share will come out between $1.89 and $1.90. — CNBC's Michael Bloom contributed reporting. Correction: This story has been updated to reflect that Salesforce's guidance suggests its revenue will range between $8.51 billion and $8.53 billion. A previous version misstated the range.