While Nvidia remains the focal point for AI investors, the broader AI hardware trade has slowed over the past six months. At Deepwater, our concentrated AI hardware comp group is up just 8% during this period, compared to a 104% increase over the past year. A more widely followed benchmark, the SOXX (iShares Semiconductor ETF), is down 9% over the past six months.

In contrast, software is starting to show outperformance. Deepwater’s concentrated AI software comp group is up 30% over the past six months, compared to 32% over the past year. In other words, the AI software trade began gaining momentum about six months ago. A broader software benchmark, the IGV (iShares Expanded Tech-Software Sector ETF), has risen 37% over the same period.

Shares of CRM rose about 12% the day after Salesforce’s October results. At first glance, the move seemed puzzling. Total revenue exceeded expectations by 1%, but earnings fell about 2% short of Street estimates, billings missed consensus by 0.3%, and January revenue guidance came in 1% below expectations. Additionally, the key metric, cPRO (effectively bookings), grew around 11%, a slowdown compared to the approximately 20% growth seen in late 2023. Management also noted that revenue contribution from the just released Agentforce was not yet meaningful.

These results and guidance highlight that Salesforce is not currently an AI growth story. So why did the stock rise 12% on the report?

The answer lies in investor sentiment. For the first time, investors resonated with comments from CEO Marc Benioff, which provided a clear glimpse into the transformative potential of AI on Salesforce’s business, sparking optimism about its future impact.

During the most recent earnings call, Benioff put on a masterclass for investors, dreaming the dream about how AI can change the company and reaccelerate revenue growth. His central message is Salesforce now understands what the market is demanding: autonomous agent solutions, that do work and reduce dependency on human oversight.

While that sales pitch should be expected from one of the world’s best salesmen, it’s worth noting over the past year his enthusiasm around AI’s potential has steadily increased. We went back through the last year of earnings calls and compared those comments below:

December 2024:

• “We’re really at the edge of a revolutionary transformation. This is really the rise of digital labor.”
• “Now, I would say, for the last 25 years at Salesforce, we’ve been helping companies to manage and share their information, and you can see that across our whole product line, whether it’s in sales or service or marketing or commerce, whether it’s analytics, Slack, across the board. But now, we’ve really created a whole new market, a new TAM, a TAM that is so much bigger and so much more exciting than the data management market that it’s hard to get our head completely around. This is the market for digital labor.”
• “Agentforce, we’re not just imagining this future. We’re already delivering it. And you should know that in the last week of the quarter, Agentforce went production. We delivered 200 deals. And our pipeline is incredible for future transactions. We can talk about that with you on the call, but we’ve never seen anything like it. We don’t know how to characterize it. This is really a moment where productivity is no longer tied to workforce growth, but through this intelligent technology that can be scaled without limits.”
• “On top of this agentic layer, we’ll soon see a robotic layer as well, where these agents will manifest into robots. And how all this is going to change society is only visible today in the movies or in our imaginations, but we can see it unfolding right here through this company, Salesforce. And that is what we are really excited about.”

August 2024:

• “A year ago on this call, we talked about two amazing transformations…really addressing our financials, but really looking at this incredible AI opportunity. And now, we look at a year later, I just couldn’t be more excited about how these two transformations are driving the success of the company.”
• “In just a few weeks, we’re going to kick-off Dreamforce…the largest AI event in the world with more than 5,000 Trailblazers in San Francisco. And this year, Dreamforce is really becoming Agentforce, and I’ll tell you, it’s a funny thing about Agentforce. Even one of our very top executives in engineering sent me a text last week and said, hey, should we be renaming the company from Salesforce to Agentforce because we’re all getting excited about Agentforce.”

May 2024:

• “When you look at the power of AI, you realize the models and the UI are not the critical success factors; it’s not critical where the enterprise will transform. There are thousands of these models, some open-source and some closed-source models, some built with billions, some with just a few dollars. Most of these will not survive. They’re just commodities now, and it’s not where the intelligence lies. And they don’t know anything about a company’s customer relationships.
• “Each day, hundreds of petabytes of data are created that AI models can use for training and generating output. But the one thing that every enterprise needs to make AI work is their customer data, as well as the metadata that describes the data, which provides the attributes and contacts the AI models need to generate accurate, relevant output. And customer data and metadata are the new gold for these enterprises, and Salesforce now manages, as I mentioned, 250 petabytes of this precious material.”

February 2024:

• “Okay, look. It was over a year ago, we said Salesforce had to transform. And you, many of you, came to me, came to our whole team and you said, look, we’re going to transform the whole company. We did it together. We could not have done it without you. We said we would restructure our business for the short- and long-term. We did that. We said we would place a laser focus on increasing productivity and operational excellence from across the board, we’ve done that. We said we were going to double down on innovation to make our core products even better, we’ve done that. And when you see what’s coming in TrailheaDX next week, you’re not going to believe it. Not just our next generation artificial intelligence, not just our prompt builder, not just our Copilot, but this Data Cloud, which I’m going to get to in a second – our fastest, most exciting new product ever. Fastest growing, most customer traction that I have ever seen. That has been incredible.”

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