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Salesforce (CRM) Unveils $50M Fund for AI-Focused Start-Ups

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Making the very first anniversary of Salesforce Einstein special,Salesforce.com Inc.’s (CRM - Free Report) investment arm venture — Salesforce Ventures — announced a $50-million fund to invest in start-ups focused on artificial intelligence (AI). Per the company, Highspot, Squirro and TalkIQ are the first recipients of this funding.

AI: A Hot Trend in Tech Space

AI has become a global rage these days. One huge advantage of AI is its potential to complete dull and mundane tasks through automation that will enhance efficiency and output. Broadly speaking, AI techniques can eliminate boring tasks of humans, and free them up for more innovative and nuanced creations.

Revenue projections from AI are bullish. One estimate from research company Tractica puts revenues from AI at $59.8 billion by 2025. If such an optimistic forecast does come true, it would be a quantum leap over 2016’s level of a mere $1.4 billion.

Therefore, several big technology companies like Facebook (FB - Free Report) , Microsoft (MSFT - Free Report) and Alphabet aka Google (GOOGL - Free Report) are investing in this technology, either through in-house research or start-ups to stay ahead in grabbing this opportunity.

According to the latest data from IDC, worldwide spending on AI systems will touch $12.5 billion in 2017, marking year-over-year surge of nearly 60%. The IDC is also calling for this global spending to achieve a compound annual growth rate (CAGR) of 54.4% through 2020, when total revenues will touch $46 billion.

Citing CB Insights’ report, Reuters reported that, “Venture capital investment in AI start-ups is rising quickly. For 2017, global financing for AI start-ups is projected to surpass $10.8 billion - nearly double the $5.6 billion spent in 2016.”

Salesforce in No Mood to Stay Behind

The leading CRM platform provider is in no mood to stay behind and therefore, has been investing heavily to enhance its AI capabilities for the last three years. The company took a major step in 2014 when it acquired RelateIQ, which specialized in making predictive tools.

Since then, it has made several small start-up acquisitions on this front, with the likes of Tempo, MinHash and PredictionIO. The recent move of Salesforce Venture will help the company expand its use of AI technology.

Furthermore, the company rolled out the Einstein toolkit last year which provides tools to build AI-fueled apps on Salesforce. Einstein is designed to analyze and understand information and data collected from the company’s customers.

Einstein has contributed significantly to Salesforce’s revenues, in a year’s time. According to Matt Garratt, vice president of Salesforce Ventures, over 7,000 developers are currently building AI apps by using its Einstein tools.

Salesforce stock has gained 39.3% year to date, substantially outperforming the 25.7% rally of the industry it belongs to.

Bottom Line

Investments in start-ups have always been one of Salesforce’s key growth strategies. Over the past several years, the company either acquired or partnered with many such companies. Citing John Somorjai, executive vice president of Salesforce Ventures, Reuters noted that Salesforce Ventures has invested over $700 million in more than 250 enterprise start-ups since 2009.

We believe Salesforce’s consistent focus on expanding its business through strategic acquisitions and investments in start-ups will drive growth over the long run.

However, stiff competition, currency fluctuations and stepped-up investments in international expansions and data centers are expected to impact near-term profitability.

Currently, Salesforce carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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