According to analysts at Citi, while Salesforce's (NYSE:CRM) upcoming earnings results may meet expectations, there are signs that growth is likely to slow in the second half of the fiscal year.
Citi maintains a "relatively balanced view" on Salesforce's upcoming results, acknowledging that while the Q2 estimates seem achievable, the second half of the year could present challenges.
"Partner inputs remain cautious, and we see risk of slowing in 2H," the analysts noted, suggesting that Salesforce may struggle with tougher comparisons and less robust demand in some areas.
Specifically, Citi points out that Salesforce's Q3 and FY25 Current Remaining Performance Obligation (cRPO) estimates could be at risk due to "tough comps" from last year's significant Amazon Web Services (AWS) deal and the impact of previous price increases.
Citi's own cRPO estimate is approximately one point below the consensus for Q3, reflecting these concerns.
The analysts also mentioned that recent checks with Salesforce partners revealed a "still tepid and elongated demand environment," with businesses prioritizing budget optimization.
While demand remains strong in the public sector and for specific Salesforce products like Sales Cloud and Service Cloud, interest in newer offerings like Data Cloud and generative AI (GenAI) products has been underwhelming.
"Data Cloud is said to be of lower priority with little interest and complex pricing," Citi remarked.
Despite these concerns, Citi has raised its price target for Salesforce to $290, up from $260, based on an updated valuation framework that considers sector re-rating.
However, they caution that the path forward might involve weaker execution, especially in the latter half of the fiscal year.
While Salesforce's Q2 results may be solid, Citi suggests that investors should be prepared for a potential slowdown in growth as the company navigates the challenges ahead.