The Dow Jones Industrial Average consists of 30 stocks, but one of them stands out from the rest.
The ‘Magnificent Seven’ is a nickname used to collectively describe a market-moving cluster of some of the world’s largest technology companies: Apple, Microsoft, Nvidia, Alphabet, Amazon, MetaplatformsAnd Tesla. They’re all making their own mark on the artificial intelligence (AI) landscape, and they’ve all received a lot of attention from both the media and investors.
But another AI stock that gets less press has handily outperformed five of the Magnificent Seven over the past two years. Leader in enterprise software and Dow Jones Industrial Average (DJIA) component Salesforce (CRM 0.16%) has gained a whopping 98% in just two years.
Even with that impressive run behind it, I think Salesforce’s next phase of growth is just beginning. Given the lucrative opportunities the company has in AI, I think Salesforce could be the best-performing stock in the Dow Jones next year.
What about the rest of the Dow Jones?
Saying that Salesforce could be the top performer in the Dow Jones next year is a bold claim. Finally, what about the other 29 companies?
The Dow is a composite index that includes some of the world’s largest companies from most major industry sectors. In my view, both financial services and consumer goods stocks still carry some risk. Specifically, I view both of these sectors as particularly vulnerable to macroeconomic forces, including inflation and interest rates. While inflation has been cooling for some time and the Federal Reserve has instituted a rate tapering protocol, I don’t think the broader economy is completely out of the woods yet.
Furthermore, I think energy stocks will experience excessive volatility for the foreseeable future. Broadly speaking, energy policy tends to differ between the parties in control of Congress. Even after the results of the 2024 election were announced next month, I could easily see energy stocks moving quite dramatically depending on any policy changes that might take effect.
This leaves the technology sector, where the DJIA includes major technology players including Amazon, Apple, Cisco, IBM, Inteland Microsoft. While I’m bullish on Amazon and Microsoft, I think both companies will face a lot of pressure and criticism to deliver consistently impressive results as they’ve both poured billions into their AI initiatives.
Meanwhile, Apple’s AI roadmap is in its early stages, making it difficult to predict how its decisions will play out. Unfortunately, I think Intel’s best days may be behind it. And IBM and Cisco are stuck competing in saturated markets. For all these reasons, I think Salesforce has the most advantage compared to its competitors.
Image source: Getty Images.
A huge opportunity for Salesforce
If you’ve been paying attention to stories about artificial intelligence in recent years, you’ve heard the term “generative AI” ad nauseam. But what does it actually mean?
Simply put, generative AI is software that can process data sets to answer complex questions extremely quickly. When generative AI tools are at their best, employees across the company perform advanced searches and create robust data-driven dashboards, leading to improved productivity and efficiency. No more spinning your wheels and burning the midnight oil.
One of the most important types of applications in generative AI right now is the virtual agent. Microsoft is a big winner in this regard thanks to its CoPilot assistant, which runs on ChatGPT and is integrated into the company’s entire ecosystem, from cloud computing, productivity tools and software development.
Salesforce has taken note of Microsoft’s success and decided to challenge its large tech cohort. Meet Agentforce, a virtual assistant that can help customers with things like appointment scheduling, billing solutions, cybersecurity threat analysis, and many other use cases. Salesforce’s vision is to remove the friction of human-led customer service and empower AI-powered agents to meet customer needs.
Salesforce already has deep penetration among large-scale companies and small and medium enterprises thanks to its CRM (Customer Relationship Management) platform, data analytics tools powered by Tableau and messenger tool Slack. To me, Agentforce should be an easy cross-selling opportunity for Salesforce’s existing customer base, and the company has a unique opportunity to emerge as a strong pillar supporting digital solutions.
Are Salesforce Stocks a Buy Now?
Currently, Salesforce stock is trading at a price-to-earnings (P/E) ratio of 28.5. This is a healthy premium compared to… S&P500‘s forward price-earnings ratio of 22.9.
CRM PE ratio (forward) data by YCharts.
While Salesforce may be valued as a superior investment compared to the broader market, the company trades at a discount to the majority of its technology industry peers in the DJIA.
I think Agentforce will be a big help to Salesforce as long as the AI story holds up. Investors may want to keep an eye on how Agentforce adoption progresses and what growth it brings to Salesforce in the coming year.
If Microsoft CoPilot serves as any proxy, I think there are much better days ahead for Salesforce, and I expect the stock to rise in the coming year.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Cisco Systems, Meta Platforms, Microsoft, Nvidia, Salesforce, and Tesla. The Motley Fool recommends Intel and International Business Machines and recommends the following options: long January 2026 $395 calls to Microsoft, short January 2026 $405 calls to Microsoft, and short November 2024 $24 calls to Intel. The Motley Fool has a disclosure policy.
