Salesforce, Inc. (NYSE:CRM) and Adobe Inc. (NASDAQ:ADBE) are two stocks that Jim Cramer frequently discusses. For both, most of his remarks are about AI and the role that the firms are playing in the sector. The CNBC TV host has frequently defended Salesforce CEO Marc Benioff and his artificial intelligence initiatives and discussed the impact of AI on Adobe. In his morning appearance on the 12th, Cramer continued to comment on Adobe’s business model and whether it could withstand the competitive pressures in the age of easy software development fueled by artificial intelligence:
“Now also. We also have a double downgrade of Adobe. That’s Wells Fargo, Salesforce was Bank of America. What I think what’s most interesting, Adobe is easier to copy and I think people have been doing it. You and I discussed that in the break. Adobe’s very expensive. People feel that perhaps it is no longer worth this much. Because of Claude. Because of ChatGPT. . .the 660 dollar. Now this is very interesting David. Salesforce had a fantastic Dreamforce and a great quarter. And people are kind of coming around to think that maybe there’s no disintermediation, that it’s really Monday.com, smaller outfits, Hubspot. What’s interesting is that the guy did wait, the analyst did wait till it came back. So it wasn’t like a, well I bought it at the top situation. A lot of it has to do with what’s sticky. And what’s not. And Salesforce is regarded as very sticky, it gets in the organization, people like it when they use it. And Adobe is regarded as being easy to disrupt, whether it be from Canva, whether it be from Figma, whether it be from, the, I don’t know, I subscribe to Adobe and I just find that, you can kind of fool around with it on an amateur basis and beat it.”
Cramer’s faith in Salesforce has been rewarding. The shares are up by 20% since late August after closing 22% higher on August 27th. Ahead of the gain, the CNBC TV host discussed Salesforce in detail, which we covered as part of Jim Cramer Discussed These 22 Stocks Including A Hidden Oil & Energy Play.
For Salesforce, Cramer built on the earlier comments we’ve linked above. He extended his take to outline that Salesforce was sticky with businesses and was making durable inroads into businesses. The remarks are central to the firm’s hypothesis as for Salesforce, the debate has centered around the durability and popularity of its AI initiatives.
On this front, the firm’s second quarter earnings saw its Agentforce platform’s annual recurring revenue grow by a massive 240% annually to touch $1.5 billion. The Agentforce growth validates what Cramer’s been ‘hearing’ as it indicates that the AI platform is making inroads into the business world. As for the ‘stickiness’, current remaining performance obligations (cRPO), which measures revenue from signed and contracted customer agreements for the next 12 months, grew by 14% annually to touch $33.5 billion. Zooming specifically on AI, during the earnings call, chief revenue officer Miguel Milano outlined that “Customers that start the agentic journey with Salesforce, on average, they are already at double the AOV with a perspective of nearly quadrupling, 3x-4x the AOV.” AOV is annual order value and Milano’s comments indicate that AI is making a real impact on the income statement.
Judging by these metrics, you’d be surprised to know that Salesforce didn’t make it on our list of the 10 Most Promising Technology Stocks to Buy Right Now. The top stock on the list does have billions of dollars in debt.
Speaking of debt, the quarter also saw Salesforce’s noncurrent debt jumped by a whopping 276% to sit at $39.3 billion. The jump was due to financing activities related to share buybacks and the like. Additionally, while earnings per share jumped by 103% to $5.90, $2.53 of the EPS came from investment gains. This indicated that perhaps the AI gains were yet to translate to the bottom line – a fact bolstered by Agentforce ARR being a small portion of Salesforce’s overall revenue of $11.35 billion.
Looking at Adobe, its subscription business has not only been on Jim Cramer’s radar but also in his crosshairs for months now. For instance, in February, Cramer remarked that “Apple put out a very competitive product to Firefly the other day, I think. I may have to cancel my subscription.” For more, check out 15 Stocks on Jim Cramer’s Radar.
While Cramer believes that Adobe is easy to substitute, the firm’s fiscal third quarter saw its monthly active users cross the one billion mark while its annual recurring revenue and remaining performance obligations grew by 11.2% and 8% annually. For Adobe, a major victim of the AI wave, the fact that management also outlined that AI-first ARR grew by 150% indicated that the firm might be improving reslience against the emerging technology.
Looking at the valuation, Salesforce, through its forward P/E ratio of 27.78 is more richly valued than Adobe, which trades at 8.73. With Adobe’s historic range being 25x and 45x, the market appears to be pricing in an extreme disruption. Additionally, while the ratio implies a yield of 11.45%, this could very well be a value trap. For Salesforce, it suggests that the market is quite optimistic. The hedge funds are siding with the market, as 99 had disclosed a stake in Salesforce in Q2 compared to 81 for Adobe, according to Insider Monkey’s data.
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This article is originally published at Insider Monkey.
