Is Salesforce Inc. (NYSE:CRM) the Best AI Stock to Diversify Your Portfolio?
We recently published a list titled Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. Since Salesforce Inc. (NYSE:CRM) ranks 1st in the list, it deserves a deeper look.
Venu Krishna, Head of U.S. Equity Strategy & Global Equity Linked Strategies at Barclays, recently shared a basket of stocks he recommends offsetting the risks that come from market concentration in big tech stocks. In an interview with CNBC, Krishna emphasized that he remains inclined towards big tech stocks, but the important question he addressed is which stocks offer more value outside of the tech sector in the long term.
Krishna’s methodology to find some of the best stocks outside of the tech sector is simple: find out at what “core fundamental” metrics big tech stocks are “excelling” at and then “try to come close to that and create a portfolio which can give us that kind of exposure.” Through this methodology, Krishna says, he came up with a well-diversified portfolio of stocks that could act as a “hedge” against market concertation in big tech.
Krishna said he applied “liquidity filters” on the whole market to remove a “bunch of companies” and narrow down to stocks with strong growth and FCF multiples.
Despite him pointing out the concentration of gains problem, Venu Krishna believes the rise of big tech stocks is a “healthy trend” and some of the gains are now bifurcating to other sectors, too.
However Krishna said that over the past 18 months his portfolio of stocks has lagged behind the Big Tech, but outperformed equal-weighted S&P 500 and market cap-weighted S&P 500.
For this article, we took a look at Krishna’s latest basket of stocks to offset concentration in big tech risks and picked 10 stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Copyright: drserg / 123RF Stock Photo
Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 154
Barclays believes Salesforce Inc. (NYSE:CRM) is one of the stocks to offset tech concentration risks.
Mizuho Securities analyst Gregg Moskowitz thinks the company is still “well situated” to help customers in digital transformation. However, the analyst thinks Salesforce Inc. (NYSE:CRM) would do so prioritizing profitable growth. The analyst reiterated his Buy rating on the stock but cut his price target to $300 from $345.
Morgan Stanley analyst Keith Weiss, who has an Overweight rating and a $320 price target on Salesforce Inc. (NYSE:CRM), said that Salesforce’s PEG ratio of 1.2 shows the market is not pricing in operational discipline and earnings growth sustainability.
“We continue to view GenAI as a tailwind for Salesforce, with benefits likely coming in CY25, but at these levels, GenAI represents a call option.”
Salesforce Inc. (NYSE:CRM) is trading at 22x its fiscal 2026 earnings estimate of $10.99, which makes the stock attractively valued given the sector median P/E ratio of 23.85 and Salesforce’s AI growth catalysts. Salesforce Inc.’s (NYSE:CRM) revenue in fiscal 2026 is expected to grow at 9.10% while earnings are forecasted to rise by 11.00%.
Harding Loevner Global Equity Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its first quarter 2024 investor letter:
“Leading software companies have the advantage of high switching costs and the ability to incorporate new features into products customers already use. For example, Microsoft has added its Copilot chatbot functionality to everything from search (Bing Chat, recently renamed to just Copilot) to coding (GitHub Copilot) and workplace applications (Copilot for Microsoft 365). Software sold by Microsoft and other companies such as Salesforce, Inc. (NYSE:CRM), SAP, and ServiceNow are also already deeply integrated into their customers’ operations and workflow.
As large enterprises search for the right balance, Salesforce’s Data Cloud, a flagship offering, is designed to address a critical issue for them so they can make better use of AI tools. After a hectic buildout over the last few years of “data warehouses” and “data lakes”—two types of repositories for storing and processing data—across the various business units of large companies, many companies are left with what feels like islands of trapped data. Data Cloud solves this by creating a single platform to access and leverage all of an enterprise’s data, eliminating the need to constantly duplicate large amounts of information across different platforms. Users are then able to apply generative-AI technology, such as Salesforce’s Einstein tool, to a more comprehensive dataset, which enables them to better glean customers’ intentions, personalize marketing messages, and automate the processing of customer-service requests. As users build these systems, Einstein’s copiloting functionality helps their programmers work more efficiently so that IT departments with limited budgets and manpower can still develop the necessary tools. Salesforce’s management projects that revenue and earnings will climb about 9% and 45%, respectively, in fiscal 2025, citing the company’s operating leverage and cost discipline. We think these figures are achievable given the renewed focus on profitable growth, and so we added to the stock during the quarter.”
Overall, Salesforce Inc. (NYSE:CRM) ranks 1st on Insider Monkey’s list titled Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. While we acknowledge the potential of Salesforce Inc. (NYSE:CRM), our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Salesforce Inc. (NYSE:CRM) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
