This is the commentary Cramer wants to hear most when Salesforce reports

Published Wed, Nov 29 20238:00 AM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Salesforce (CRM) has for months touted plans to ride the wave of generative artificial intelligence with software that incorporates the nascent technology. Now, with the Club holding set to report earnings, Jim Cramer wants to hear whether its AI endeavors are really on track to boost its financials. When Salesforce releases its fiscal 2024 third-quarter earnings report on Wednesday after the closing bell, it's the right moment for CEO Marc Benioff to provide a clear update on the enterprise-software giant's suite of Einstein-branded AI tools, according to Jim. "We want to hear that numbers must be raised next year because of the new business that [Salesforce is] getting now" as a result of AI, Jim said Tuesday. "That's what must happen, and they have to be substantial," he added. It's been a year since OpenAI's ChatGPT went viral and accelerated investment into generative AI applications, which can create human-like text sentences and images in response to user queries. Since then, Salesforce and other software companies have raced to incorporate generative AI capabilities into their existing products or launch new ones all together. In June, Salesforce held what it called "AI Day" to detail its plans around generative AI-enhanced applications that can boost the productivity of the customer-service and marketing professionals who use them. The emergent technology also was a prominent theme at the company's much-anticipated annual conference in September, known as Dreamforce . At this point, investors targeting companies on the belief their business will see an AI-linked lift increasingly want to know when and if that will happen, Jim suggested. "I want Marc Benioff to talk about it because I think that if you're going to pay high multiples for stocks that have AI, you better say, 'Numbers [are] going higher because of AI.'" While the software industry's monetization of generative AI tools is in the early innings, Jim has viewed Photoshop maker Adobe (ADBE) as among the best-positioned companies across those efforts. Meanwhile, Club holding Microsoft (MSFT) gained a new edge in the AI race in November when its 365 Copilot — an add-on AI tool for its Office applications — went on sale for $30 per person per month. Microsoft could generate $10 billion in annual revenue from the AI tool by 2026, analysts at Piper Sandler have estimated . To be sure, the nearly 70% year-to-date surge in Salesforce's stock price is tied to far more than just AI excitement. Faced with mounting activist-investor pressure , Salesforce has tightened its belt to become a more-more profitable company now than it was at the same time a year ago – a development that's pleased shareholders, including us at the Club. CRM YTD mountain Salesforce's year-to-date stock performance. In addition to improved profit margins, investors in recent quarters also have been closely watching Salesforce's top-line growth rate amid an industrywide slowdown in spending on enterprise software. That will remain the case again Wednesday. For the three months ended in Oct. 31, analysts expect Salesforce to earn an adjusted $2.06 per share on revenues of $8.72 billion, according to estimates compiled by LSEG, formerly known as Refinitiv. In the year-ago period, Salesforce reported adjusted earnings per share of $1.40 on sales of $7.84 billion. That implies analysts expect Salesforce's third-quarter revenue to have jumped 11.2% on an annual basis – a growth rate roughly in line with what the company reported in its previous two earnings reports, in May and August, respectively. Salesforce in August raised its full-year revenue outlook range to $34.7 billion to $34.8 billion, which at the midpoint would represent about 11% year-over-year growth. Its previous sales outlook – ranging between $34.5 billion and $34.7 billion – implied roughly 10% growth at the midpoint. Another key line item to watch for in Salesforce's report Wednesday is its current remaining performance obligation, or cRPO, which is expected to total $23.23 billion, according to FactSet. Investors look to cRPO as a measure of business strength because the metric represents future revenue under contract that is set to be booked over the next 12 months. On Wall Street, investor sentiment toward Salesforce is low right now, according to analysts at Oppenheimer. In a note to clients Tuesday, the firm said it sees mixed business trends for Salesforce, but expects quarterly results to moderately exceed the "low bar" set by the company's own guidance. Still, the analysts reiterated their buy-equivalent rating on Salesforce stock and a $250-per-share price target. The stock closed closed up slightly Tuesday, at $224.84 a share. For the Club, our hope is Salesforce on Wednesday demonstrates improved profitability and free cash flow, which should help support additional stock buybacks. The company commenced its first-ever share-repurchase program last year. Additionally, Salesforce will hopefully offer assurances to investors that no large-scale acquisitions loom on the horizon, which would counter growing concern on Wall Street that Salesforce is eyeing a pricey deal. (Jim Cramer's Charitable Trust is long CRM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Marc Benioff, co-founder and CEO of Salesforce, speaks at the World Economic Forum in Davos, Switzerland, on Jan. 18, 2023.

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