Salesforce, Inc. (NYSE:CRM) shares are trading lower Tuesday in sympathy with International Business Machines Corp (NYSE:IBM), which posted disappointing preliminary second-quarter earnings.
- Salesforce stock is showing notable weakness. What’s pressuring CRM stock?
IBM’s Preliminary Results Drive Software Slide
IBM reported preliminary second-quarter revenue of $17.2 billion, up 1% year-over-year, but below the $17.86 billion consensus estimate, with CEO Arvind Krishna calling the results “disappointing” in a letter to investors. Adjusted EPS came in at $2.93, versus the $3.02 estimate, while GAAP EPS was down 2% year-over-year.
According to Krishna, the shortfall was driven primarily by weaker-than-expected performance in IBM’s Z mainframe business and its associated software stack. Clients shifted capital expenditure toward servers, storage and memory purchases in the final weeks of June to secure supply-constrained infrastructure ahead of expected price increases — a dynamic that contributed to numerous large deals failing to close on IBM’s expected timelines.
The report sent shares of software stocks tumbling on Tuesday as concerns mounted regarding the commentary around the weakness in the company’s software and infrastructure business.
IBM’s preliminary results added to fears that AI tools could disrupt big software, which explains the weakness in Salesforce stock. Salesforce provides enterprise cloud computing solutions. The company’s Customer 360 platform helps connect customer data across systems, apps and devices to help companies sell, service, market and conduct commerce.
Salesforce and IBM have maintained a close partnership for more than 24 years, spanning joint AI initiatives including the integration of Salesforce’s Einstein platform with IBM’s watsonx AI capabilities and a Zero Copy integration that connects IBM Z mainframe data with Salesforce Data Cloud. That relationship makes Salesforce’s stock more sensitive to shifts in sentiment around IBM’s business performance.
Evercore ISI Group analyst Kirk Materne maintained Salesforce with an Outperform on Tuesday, but lowered the price target from $260 to $250, which may be adding to the weakness. The price target adjustment comes after Keybanc downgraded the stock to Sector Weight last week.
Salesforce carries a consensus Buy rating with an average price target of $243.21.
Salesforce Shares Drop Tuesday
CRM Price Action: At the time of writing, Salesforce shares are trading 2.85% lower at $166.34, according to data from Benzinga Pro.
Image via Shutterstock
Login to comment