Artificial intelligence has been a rising tide that lifts all boats in the tech sector in 2023.
Investors excited about what AI could possibly do for their tech companies has them paying a premium to load up on the shares of their favorite tech plays.
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But AI isn't the only story driving the sector, as evidenced by Salesforce (CRM) -), the data collection company that is set to report earnings after the bell Wednesday.
Investors looking for a big boost from AI when the company reports may be disappointed, but there is still plenty to love about the companies story, according to Paul Meeks of Independent Solutions Wealth Management.
"I think it might be overplayed, as you mentioned the stock is up over 60%, and at least for the near-term to medium-term, Salesforce is a cost-cutting story. It's not a revenue acceleration story," Meeks told CNBC Wednesday.
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"Now what I need to see is 10% revenue growth... I would like to see more details about their AI offerings, but I don't think they're going to be significant revenue contributors for some time."
So investors looking for a big bump, or big guidance, based on technology like OpenAI's ChatGPT might be disappointed, but that doesn't mean that Salesforce doesn't have tremendous upside, according to Meeks.
At the start of the year, Salesforce announced that it is looking to cut costs by between $3 billion and $5 billion and that it plans to cut jobs by 10% and close some of its offices.
"So the key is do they continue to rationalize costs? Because when they reported their last quarter, their operating margin year-over-year went up 900 basis points to the high 20% range. And in the past they were lucky to be plus or minus break even. So that's what I need to see," Meeks said.
"So this story is somewhat driven by AI, like others, but it's more driven by continued cost rationalization.
Check out the full CNBC interview below.
"$CRM is a cost-cutting story, it's not a revenue acceleration story. It's somewhat driven by AI, but is more driven by continued cost rationalization," says Paul Meeks. "They won't be benefitting from either the semiconductor theme or the hyperscaler theme for the time being." pic.twitter.com/keBja6Ry5B
— Squawk Box (@SquawkCNBC) August 30, 2023
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