Wall Street hits Salesforce with a downgrade. Here's why Cramer disagrees
Enterprise software giant Salesforce (CRM) has been trudging through a challenged stretch of trading lately — but it's certainly no justification for a Wall Street downgrade, Jim Cramer said Monday. Piper Sandler in a research note Sunday lowered its rating on Salesforce to the equivalent of hold from buy, while cutting its price target on the stock by 13%, to $232 per share. The firm still sees Salesforce trading at a "reasonable" valuation, but is worried about increased execution risk following the stock's 56% year-to-date ascent. Investors also are firmly aware that Salesforce has become a more profitable company since implementing cost cuts at the start of the year, Piper Sandler said. Now, the analysts argued, revenue growth "is the bigger question." Less than two months ago , Salesforce issued strong quarterly results and upbeat full-year guidance, followed by a September conference that showcased its budding artificial intelligence offerings . "And now it's hated?" Jim asked rhetorically Monday, as he reacted to Piper's research note. "I just think this is completely overdone," he added. Shares of Salesforce fell more than 1.5% Monday, to around $200 each. The weakness to start the week put Salesforce's declines over the past three months at roughly 12%. The S & P 500 , meanwhile, has fallen about 6.5% over the same stretch. "I recognize a bad [stock] chart," Jim acknowledged, but it doesn't change the Club's long-term belief in Salesforce as an investment opportunity. CRM YTD mountain Salesforce's year-to-date stock performance. Salesforce appears well-positioned on both sales growth and profitability, even if some on Wall Street question its ability to deliver a growth mix on par with its software peers. That's despite easing activist-investor pressure after CEO Marc Benioff demonstrated improved profitability in recent quarters. Alongside its fiscal 2024 second-quarter results in late August, Salesforce tweaked its full-year revenue guidance to a level slightly above Wall Street consensus estimates at the time, implying nearly 11% year-over-year growth. Salesforce's price hikes announced in July and the continued rollout of new AI tools for customers should help the company sustain top-line growth at scale going forward. Salesforce does not even need to return to mid-to-upper 20% sales growth again — like it has in years past when it was a smaller company — for its recent cost-structure improvements to show up in the bottom line. Even a modest pickup in revenue growth would highlight Salesforce's improved operating leverage. Indeed, Salesforce in August raised its fiscal year 2024 adjusted operating margin forecast to 30%, up from 28% — further evidence Benioff's expense controls are working. In fiscal 2023, Salesforce's adjusted operating margin came in at 22.5% . In addition to Salesforce, Piper Sandler downgraded a few other software stocks including Unity (U) and Asana (ASAN), arguing Wall Street is too optimistic about the broader sector's ability to deliver accelerated sales growth next year. However, the firm said Club holding Microsoft (MSFT) is still its favorite large-cap software stock to own into year-end, citing AI catalysts. (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. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

An employee works on a laptop computer at the Salesforce Tower in San Francisco, which opened in 2018. It is among companies that have focused on office air quality as part of building design standards. Bloomberg | Bloomberg | Getty Images