Why Salesforce is staying in the portfolio despite a harsh analyst downgrade

Breaking news from the markets: Salesforce got hit with yet another analyst downgrade. But Jim Cramer is not ready to cut ties with the enterprise software giant and smallest position in the Club portfolio. Shares of Salesforce slipped over 2% Thursday, trading around $162.

50 apiece, after KeyBanc downgraded the stock to a hold-equivalent rating and removed its $290 price target. The stock was down a lot more in premarket trading when Jim was talking about Key's call on CNBC. Jim read some of the quotes from the note, which were pretty damning.

Economic Details

"The information we're gathering, both financial and anecdotal, is not rebounding or trending in the right direction," analyst Jackson Ader wrote. Not long after talking about it on television, Jim broke back in with reaction from Salesforce CEO Marc Benioff. Jim said Benioff pinged him and argued the KeyBanc note was a "bad call," arguing that it clashes with evidence that shows its Agentforce platform is doing much better than what the firm indicated.

Benioff "deserves some benefit of the doubt," concluded Jim, while acknowledging he respects both the analyst and the CEO. The downgrade comes as Salesforce battles the "SaaSpocalypse" narrative that has clobbered its stock. Salesforce is down roughly 7% over the past month and 38% this year.

After a brief surge in late May and early June back over $200 a share, the sellers returned in full force, pushing the stock down 14 straight days until it reached a multiyear closing low of $150. Investors worry that artificial intelligence will impale Salesforce's seat-based business model and allow customers to more easily replace some of its offerings with bespoke applications built in-house. Those concerns are exemplified in a Bloomberg News report Thursday , which said Starbucks is using AI to develop internal tools that could replace software purchased from Microsoft and IBM.

Analyst Views

Starbucks and Microsoft are both Club names. Defenders of Salesforce and other software vendors argue those concerns are overblown, in part because customers' trusted data is deeply entrenched in legacy applications and it's complicated to rip out systems of record. To fend off the threat, Salesforce and its peers are also working to incorporate AI features and tools into their products.

That reinforces the Club's own past reporting , which indicated Salesforce won't be discarded in the AI era, but customers needs and expectations are evolving. Salesforce has recently made a series of acquisitions to bolster Agentforce, its still-nascent AI platform. The product allows customers to build AI agents, which are capable of autonomously completing tasks, inside Salesforce's applications used by salespeople, marketing professionals and customer service reps.

KeyBanc's Ader said he isn't impressed with the feedback he's gotten on Agentforce.

Economists are analysing what the news means for the markets.