Salesforce could spark a broader rally in the tech sector after better-than-feared earnings results, Wedbush says

Salesforce could spark a broader rally in the tech sector after better-than-feared earnings results, Wedbush says
Marc BenioffNICHOLAS KAMM/AFP via Getty Images
  • Salesforce surged 10% on Wednesday after its first-quarter earnings results were better than feared.
  • The company gave mixed guidance but CEO Marc Benioff said the last few months had been a "whirlwind" of business activity.
  • Wedbush views the results from Salesforce as a much needed confidence boost for the tech sector that could push stock prices higher.

Salesforce soared 10% on Wednesday after it reported better-than-feared first-quarter earnings, and those results could lend confidence to tech investors and spark a rally in the sector, according to Wedbush.

Salesforce reported first-quarter adjusted earnings per share of $0.98, beating estimates by $0.04. The cloud operator reported first-quarter revenue of $7.4 billion, representing year-over-year growth of 24% and besting analyst estimates by $30 million.

The strong first-quarter results were driven by what Salesforce co-CEO Marc Benioff called a "whirlwind" of business activity over the past few months. That's despite the ongoing macroeconomic weakness, driven by higher interest rates, soaring inflation, and geopolitical uncertainty related to Russia's invasion of Ukraine.

Looking forward, Salesforce expects second-quarter revenue of as much as $7.7 billion, which would represent 21% year-over-year growth but would be behind analyst estimates of $7.8 billion. The company's full-year adjusted EPS guidance of up to $4.76 is higher than analyst estimates of $4.66. Finally, the company raised its full-year adjusted operating margin guidance to 20.4%.

Likely giving investors confidence in the Salesforce business is its $42 billion in remaining performance obligations, which is essentially a backlog of business Salesforce has to fulfill. That backlog shows that "there is no greater measure of our resilience and the momentum of our business," Benioff said.


"We see strong demand across our clouds and industry. Our products are more relevant than ever. The digital transformation trends that accelerated during the pandemic are moving full steam ahead," Salesforce co-CEO Bret Taylor said.

Those comments likely gave Wedbush analyst Dan Ives confidence in his view that the earnings from Salesforce could be extrapolated to the broader tech sector. In a Wednesday note, Ives argued that the results represent big relief for tech investors, as it shows that core enterprise demand is holding up well.

"As a major bellwether for tech... the Street was laser focused on Salesforce numbers and comments from Benioff to see any major hints of enterprise spend weakness. Instead, the company delivered slight top-line upside in the quarter and gave mixed guidance that was much better than the Street was fearing and will be a key shot in the arm for the tech bulls," Ives said.

Ives continues to see strong demand for the cloud, of which Salesforce should be a prime beneficiary. "Our unwavering view is that the shift to the cloud is only ~40% complete with a massive digital growth wave ahead," Ives said.

Ives reiterated its "Outperform" rating for Salesforce and maintained its $225 price target, which represents potential upside of 27% from current levels.