Salesforce Inc

Salesforce was a detractor from performance during the quarter as investor sentiment remained cautious following another quarter that merely met its guidance targets. Current remaining performance obligations (cRPO) growth were in line at roughly 9% rather than the historical pattern of beating by about a point, and the forward quarter guide was modest. Management acknowledged continued weakness in Marketing, Commerce, and Tableau (roughly 20% of revenue), partially offset by strength in Sales Cloud, Service Cloud, Slack, and Data Cloud (roughly 75% to 80% of revenue). Despite concerns around AI-driven competition, we believe Salesforce’s integration into customer business processes, large installed base, and wide product set position it well to compete effectively in the Agentic AI era, supporting low-teens earnings growth over the next three years.

Salesforce was a detractor from performance during the quarter as investor sentiment remained cautious following another quarter that merely met its guidance targets. Current remaining performance obligations (cRPO) growth were in line at roughly 9% rather than the historical pattern of beating by about a point, and the forward quarter guide was modest. Management acknowledged continued weakness in Marketing, Commerce, and Tableau, partially offset by strength in Sales Cloud, Service Cloud, Slack, and Data Cloud. Despite concerns around AI-driven competition, we believe Salesforce’s integration into customer business processes, large installed base, and wide product set position it well to compete effectively in the Agentic AI era, supporting low-teens earnings growth over the next three years.

Salesforce, Inc. has shown resilience and growth potential, which is reflected in our decision to increase our position. The company is well-positioned to capitalize on the ongoing AI-related spending, which is projected to reach $700 billion. This positions Salesforce favorably within the tech landscape, especially as we adjust for the impacts of stock option issuance and other costs that can obscure profitability. Our confidence in Salesforce is bolstered by its strong free cash flow yield and competitive valuation metrics compared to peers.

Salesforce, Inc. has been a significant contributor to our portfolio, reflecting our belief in its strong market position and growth potential. We have increased our position in Salesforce, Inc. from 1.7% to 2.2%, indicating our confidence in its ability to capitalize on the ongoing AI-related spending and its robust free cash flow generation. The company is well-positioned within the technology sector, and we see it as a key player benefiting from the broader trends in digital transformation and enterprise software.

Salesforce is well-positioned to help its customers deploy and achieve the benefits of AI. Despite market concerns about how AI will affect the software industry, we believe the market is painting the software industry with too broad of a brush. Revenue continues to grow and margins expand, indicating resilience. Additionally, Salesforce is in the process of repurchasing $25 billion of its shares, which we view as a great use of capital at today’s prices, further enhancing its value proposition.

Salesforce has demonstrated strong performance, with a notable increase of 17.5% in the recent period, contributing positively to the Fund's overall results. This outperformance is indicative of the company's resilience and growth potential within the software industry, which has shown continued strength. The Fund's strategy of focusing on high-quality software companies like Salesforce aligns well with the ongoing trends in AI and technology, suggesting a robust investment case moving forward.

Salesforce (CRM) is experiencing significant growth in its AI products, with Agentforce and Data 360 achieving an annualized revenue run-rate (ARR) increase of 225% to $3.4 billion in Q1, reflecting a 119% organic growth. This positions Salesforce favorably in the market as it embraces AI, which is expected to fortify its competitive advantages. The manager believes that Salesforce is well-aligned with an AI future, indicating confidence in its business model and growth potential.

Salesforce is our clearest expression of the system-of-record thesis. It holds the customer relationships of a large slice of the corporate world. That data is the fuel for every AI sales and service agent a company might want to deploy, and the natural place to deploy them is inside the platform that already holds the data. When the software selloff was at its most indiscriminate, we added to our position. We were, in effect, buying the fear.

Despite being a top detractor in the quarter, we continue to believe Salesforce offers attractive upside from current prices. The potential impact of AI on business models has created volatility, but we see this as a temporary challenge for quality companies like Salesforce. Our philosophy of owning quality companies at discounts to their worth remains steadfast, and we expect that executing this approach will yield improved results over time.

Salesforce is the clear leader in its software sub-segment, and is well-managed with strong business economics and financial position. However, the manager notes that AI has significant implications for Salesforce, leading them to sell into a bounce in their share price. Despite this action, the overall sentiment remains positive regarding Salesforce's leadership and management in the evolving market landscape.