3 Stocks That Will Be Worth More Than Salesforce in 3 Years

Sales Force (NYSE:CRM) went public at a split-adjusted $2.75 per share in 2004. A $10,000 investment in the IPO would be worth about $930,000 today. The cloud software giant has dazzled investors with its rapid growth and inorganic expansion of its ecosystem across sales, marketing, e-commerce and analytics markets.

However, the stock has only risen about 6% over the past three years as Nasdaq up 23%. The cloud leader lost its luster as revenue growth cooled. Salesforce still has a market capitalization of about $250 billion and will likely remain one of the world’s largest cloud companies, but three of its industry rivals could surpass its valuation in the next three years.

Why has Salesforce growth slowed?

Before we focus on the new contenders, it’s worth reviewing Salesforce’s problems. It’s the largest cloud-based customer relationship management (CRM) provider, and it’s leveraged that dominance to launch more marketing, e-commerce, analytics, data visualization, and enterprise collaboration services. Much of that growth has been fueled by major acquisitions.

Salesforce revenue had a compound annual growth rate (CAGR) of 34% from fiscal 2004 through fiscal 2024 (which ended in January). However, revenue grew only 11% in fiscal 2024, and analysts expect a CAGR of just 9% through fiscal 2027.

Its growth slowed for three reasons: Macroeconomic headwinds forced many companies to cut back on cloud spending, and the company faced stiff competition from other tech giants such as Microsoft AND Adobe (NASDAQ: ADBE); and activist investors forced the company to put major acquisitions on hold and focus on cutting costs, buying back more shares and initiating a dividend.

Which three cloud companies could surpass Salesforce?

Service, immediately (NYSE:NOW)Adobe and Alibaba Group (NYSE: BABA) are less valuable than Salesforce. However, analysts expect all three to grow at comparable or faster rates than Salesforce over the next three years.

Data source: Marketscreener; CAGR = compound annual growth rate.

ServiceNow provides cloud-based digital workflow services to orchestrate, optimize, and automate unstructured tasks. The new Now Assist AI platform accelerates this process even further with generative artificial intelligence (AI). It operates in an evergreen business model, as economic crises tend to prompt more companies to cut costs and streamline workflows.

The story continues

Adobe locks its customers into industry-leading digital media tools (including Photoshop, Illustrator, and Premiere Pro) with ongoing subscriptions. These high switching costs keep competitors at bay while insulating them from macro adversity. They’ve also expanded their generative AI ecosystem to include content creation tools like Firefly.

Alibaba is China’s largest e-commerce and cloud infrastructure company, but its growth has been limited by macro, competitive and regulatory headwinds in recent years. Its e-commerce business, which has been hit by tougher antitrust restrictions over the past three years, faces stiff competition from PDD. Its cloud business is also restricted by Huawei and Tencent. Despite these challenges, Alibaba could see a resurgence as the odds ease.

How much might these companies be worth in three years?

Assuming all four companies meet analyst estimates and their price-to-sales (P/S) multiples remain stable, only Adobe will be worth more than Salesforce in three years:

Data Source: Marketscreener. *Assuming price-to-sales ratio remains the same.

But if Salesforce loses its luster and trades at just five times sales by fiscal 2027, its market cap would fall to $227 billion. At that level, ServiceNow — which is expected to grow more than twice as fast — could eclipse Salesforce’s market cap.

When it comes to Alibaba, we should remember that its valuations are being compressed by trade, technology, and military tensions between the US and China. If those tensions finally subside, we could easily see Alibaba’s P/S double or triple. If it trades at just twice its sales by fiscal 2027, its market cap could rise to $325 billion.

Are these three cloud companies worth buying?

We should take all of these estimates with a grain of salt, but I believe ServiceNow, Adobe, and Alibaba could generate more profits than Salesforce over the next three years.

Salesforce was once a high-growth stock, but its business is maturing and its value could change as it reins in spending and exhausts new avenues to expand its cloud ecosystem.

Is it worth investing $1,000 in Salesforce now?

Before you buy Salesforce stock, consider the following:

This Motley Fool Stock Advisor a team of analysts have just identified what they believe is Top 10 Stocks for investors to buy now… and Salesforce wasn’t one of them. The 10 stocks that made the cut could deliver monster gains in the years to come.

Consider when Nvidia We created this list on April 15, 2005. If you invested $1,000 at the time of our recommendation, you would have $692,784!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio-building tips, regular analyst updates, and two new stock picks each month. Stock Advisor the service has more than four times S&P 500 return since 2002*.

See 10 actions »

*Stock Advisor Returns as of July 22, 2024

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Microsoft, Salesforce, ServiceNow, and Tencent. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 call options on Microsoft and short January 2026 $405 call options on Microsoft. The Motley Fool has a disclosure policy.

Prediction: 3 Stocks That Will Be Worth More Than Salesforce in 3 Years was originally published by The Motley Fool