Salesforce’s AI-fueled stock rally may need to cool — and Morgan Stanley prefers another software play

Salesforce Inc.’s stock has been riding the wave of frenzied interest in artificial intelligence, but perhaps Wall Street is getting too upbeat about the company’s ability to benefit from the hot trend — at least in the near term.

Morgan Stanley’s Keith Weiss downgraded the software stock to equal weight from overweight Monday, writing that while the company has attractive long-term opportunities ahead of it, he’s cautious on the timeline for Salesforce’s
ability to recognize benefits from generative AI.

“With regard to generative AI announcements, limited access to Unlimited tiers in Sales and Service Clouds, as well as, uncertainty on access, capabilities and pricing of consumption credits (which are expected to be the more significant driver on GenAI-related growth vs. seat-based uplifts), keeps us from crediting the company more fully with near-term benefits,” Weiss wrote in his downgrade. even as he boosted his price target on the stock to $278 from $251.

Salesforce shares have gained 70% so far this year, and AI hasn’t been the only driver of that performance. The company’s newfound commitment to profits is sitting well on Wall Street.

See also: Salesforce’s stock gets a lift as company announces rare price increases

But Weiss said he thinks “near-term catalysts” for Salesforce’s stock are “in the rear-view mirror.” He said he’s concerned that it will take time both for Salesforce to reflect improved core demand within its subscription model and for it to see clear revenue tailwinds related to generative AI.

Read: Microsoft and Google can’t stop talking about AI, and this chart proves it

Weiss said he is more upbeat about shares of Adobe Inc.
lifting his rating on them to overweight from equal-weight and upping his price target to $660 from $510.

“Importantly, GenAI products like Firefly coupled with enhancements to flagship applications renew our confidence in a robust product innovation engine at Adobe,” he wrote. “Supported by one of the strongest franchises in software, Adobe’s Creative Cloud is well positioned to integrate Generative AI functionality into existing workflows of a broad base of subscribers, enabling stickier customer engagement and opportunity to monetize incremental productivity provided to users.”

Weiss joined BMO Capital Markets analyst Keith Bachman, who turned bullish on Adobe shares in June.

Adobe’s shares were up 3% in Monday trading, extending their year-to-date gains to 62%. Salesforce’s stock was off 0.3% on the day.

Salesforce’s AI-fueled stock rally may need to cool — and Morgan Stanley prefers another software play

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