Artificial Intelligence: An Enormous Opportunity for Salesforce and Others

Artificial intelligence (AI) is being hailed as a key technological advance similar to the internet, with many companies poised to benefit from this megatrend. Jeff Smith, the CEO of Starboard Value, expressed his optimism about the potential of AI during an interview on CNBC’s “Squawk on the Street.” He noted that there have been several significant technological advancements in the past two decades, such as the internet, cryptocurrencies like blockchain, and now AI.

In recent months, AI has dominated headlines and triggered a buying frenzy on Wall Street, as seen in the rise of chipmaker Nvidia, which surpassed a $1 trillion market cap. The emergence of chatbot ChatGPT, known for its human-like responses to written inputs, has also demonstrated the rapid growth of AI software.

Smith believes that AI will continue to advance and have a dual impact on companies. Firstly, it will enhance their efficiency, resulting in increased productivity. Secondly, it will create greater demand for products and services provided by companies that successfully harness AI.

One company that stands to greatly benefit from AI is Salesforce, a software company in which Smith recently acquired an activist stake. He highlighted Salesforce’s impressive achievements, such as an 800 basis points increase in margins. Although revenue growth has slowed, Smith sees room for further expansion and predicts a potential 30% rally in the company’s stock. He estimates that Salesforce could generate $15 per share in free cash flow within the next few years, indicating that the stock is currently undervalued.

Smith also expressed his bullish outlook on Splunk, another software company. He believes that Splunk, with its focus on revenue growth and profitability, has the potential to almost double its free cash flow per share in the coming years. Splunk’s stock has already risen by more than 20% this year.

Jeff Smith’s perspectives on AI’s transformative potential align with the growing interest and investments in this technology sector. As AI continues to evolve and permeate various industries, its impact on companies’ operations and growth prospects will be closely watched.