1 Ridiculously Cheap Artificial Intelligence (AI) Growth Stock to Buy Now

Artificial intelligence (AI) is the hottest topic in technology right now. Indeed, megacap giants like the Magnificent Seven are innovating at breakneck speed, and investors can’t seem to get enough.

Beyond the biggest tech players, many other enterprise software businesses have attracted Wall Street’s interest. Salesforce.com (NYSE: CRM) constitutes one of the most interesting case studies as it relates to AI software.

With shares down roughly 12% year-to-date, Salesforce is drastically underperforming Nasdaq Composite AND S&P 500 indexes. However, I see the company as a compelling investment opportunity and think the stock is cheap.

Reviewing Salesforce

Since 2018, Salesforce has spent nearly $50 billion to acquire three companies: MuleSoft, Tableau, and Slack.

To put that in perspective, Salesforce only generated about $35.7 billion in revenue over the past 12 months. Considering that the three companies mentioned above have been part of the Salesforce ecosystem for several years now, it’s reasonable to conclude that the company may not be monetizing these assets as well as it could.

Moreover, given that artificial intelligence (AI) is the bedrock of the tech world right now, investors seem uninspired by Salesforce’s meager 11% revenue growth for its most recent fiscal quarter, the which ended on April 30.

On the surface, I’d say these concerns are valid. However, a deeper dive into the company’s latest earnings report sheds light on where Salesforce is witnessing impressive growth, and more importantly, how the operational efficiencies management has been pursuing are finally starting to materialize.

Looking beyond income

Although the headline numbers on an income statement are useful for understanding a company’s sales and profitability profiles, getting too caught up in these metrics alone can cause investors to miss the bigger picture.

The chart below presents some other financial indicators that I would encourage investors to analyze.

There are several important topics to discuss here. First, Salesforce’s gross margin profile has improved dramatically over the past few years. So is its cash flow situation.

This dynamic is very much by design. “We’ve more than tripled the cash we generated just four years ago,” Chief Financial Officer Amy Weaver said during the company’s most recent earnings call. Basically, even though Salesforce is only growing revenue by 11% per year, its free cash flow is growing by more than 40% per year.

The story continues

To me, that strong growth in cash flow generation is far more important than trends in the top line.

Salesforce stock is a bargain among AI software opportunities

The chart below compares Salesforce against a group of other leading AI enterprise software businesses on a free cash flow (P/FCF) basis.

Among these peers, Salesforce has the lowest P/FCF multiple — and it’s not even close. I think investors are missing the forest for the trees when it comes to Salesforce and its potential as a leading AI opportunity.

It’s important to keep in mind that revenue will ebb and flow from quarter to quarter. Moreover, at the macroeconomic level, the last two years first saw a sharp increase in inflation and then, even after it receded, the continuing effects of this increase. With that in mind, it’s only natural that businesses of all sizes have reined in spending and are operating on tighter budgets — a dynamic that will directly impact Salesforce’s ability to grow its revenue.

Additionally, I’d be remiss not to note that the company’s integration and analytics business — which includes Tableau and MuleSoft — was Salesforce’s best-performing operation during the first quarter, growing 25% year-over-year.

I think Wall Street was right to start looking for more upside from Salesforce’s acquired assets. But as the AI ​​narrative continues to unfold, I think the company is just scratching the surface of its potential.

As Tableau, MuleSoft and other services begin to make up a more significant part of Salesforce’s overall business, I think the prospects for revenue acceleration are very poised. They should contribute even more to improving the company’s profit margin and cash flow positions.

I think investing in Salesforce is a no-brainer right now. With the stock trading at such a marked discount to its peers and underperforming the broader market, I think Salesforce looks dirt cheap.

Should you invest $1,000 in Salesforce right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet, Microsoft, Oracle, Salesforce, ServiceNow and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.

1 Ridiculously Cheap Artificial Intelligence (AI) Growth Stock to Buy Right Now was originally published by The Motley Fool