Salesforce (CRM) and Microsoft (MSFT) Rally 46% and 37% as AI Fears Ease in Q3

TLDR

• Enterprise software stocks surged in Q3 as concerns about AI disruption turned into optimism about AI-driven growth opportunities.
• CNBC’s Jim Cramer believes Salesforce and Microsoft have further upside potential despite looming interest rate concerns.
• Salesforce posted a 46% gain and introduced Claudeforce, a new integration with Anthropic’s AI assistant Claude.
• Semiconductor stocks retreated after a robust first-half performance, while industrial names like Corning and Caterpillar declined.
• Oppenheimer highlighted Microsoft, ServiceNow, and Braze as leading AI beneficiaries within the software industry.

The third quarter marked a dramatic reversal for software stocks. Earlier concerns that artificial intelligence might disrupt traditional enterprise software business models dissipated as summer progressed.

CNBC personality Jim Cramer characterized this shift as the quarter’s most significant market narrative. He emphasized that software firms demonstrated their ability to leverage AI for expansion rather than face obsolescence.

Performance data supports this observation. The iShares Expanded Tech-Software Sector ETF advanced 17% through the quarter. Meanwhile, the iShares Semiconductor ETF declined 11% during the identical timeframe.

Software Leaders Post Big Gains

Salesforce topped sector performance with a remarkable 46% surge. The enterprise software giant unveiled Claudeforce, a new AI-powered offering, during this period.

Salesforce, Inc., CRM

Claudeforce enables Salesforce users to tap into Anthropic’s Claude AI assistant for extracting information from their existing systems. The platform facilitates email composition and record management through natural language commands.

Beyond product innovation, Salesforce delivered robust quarterly results and executed share repurchases during price weakness. Cramer maintains an optimistic outlook for continued appreciation.

Microsoft posted a 37% quarterly advance. Cramer suggests this upward momentum has more runway ahead.

He highlighted strong adoption of Copilot AI tools and expanding Azure cloud services. Microsoft’s substantial capital investments in data center infrastructure are beginning to yield returns, he noted.

Workday surged 55% throughout the quarter. Veeva Systems jumped 60% during the same window.

Cybersecurity names demonstrated resilience as well. CrowdStrike appreciated 39% amid heightened enterprise spending on AI-related security vulnerabilities.

Chip Stocks Cool Off as Rates Loom

The quarter wasn’t universally positive across technology. Corning shares tumbled nearly 40% following an extended appreciation period.

Cramer attributed the decline to profit-taking behavior. He indicated willingness to accumulate shares at lower valuations.

Caterpillar decreased 24% over the same interval. Cramer observed that the industrial manufacturer’s engines have found growing application in powering data center operations.

For the period ahead, Cramer identified interest rates as his primary concern. The Federal Reserve implemented a 25-basis-point increase to its target rate in September.

Elevated borrowing costs have already weighed on rate-sensitive equities like Home Depot. Cramer expects the forthcoming earnings season will reveal the extent to which financing expenses are impacting corporate performance.

In a separate analysis, Oppenheimer researchers published their software sector outlook last week. They projected AI-driven revenue acceleration could provide tailwinds for select companies.

The investment bank highlighted Microsoft, ServiceNow, and Braze as preferred investment candidates. These firms function as systems of record for customer information and employ consumption-based pricing structures, according to the report.

Oppenheimer credited Microsoft with unparalleled distribution across its massive installed base. ServiceNow received recognition for rapid expansion fueled by automation and security solution demand.

Braze has surrendered nearly one-third of its market value year-to-date. Oppenheimer analysts view the stock as presenting an attractive risk-reward profile relative to sector peers.

ServiceNow shares have declined approximately 15% in 2024. Microsoft stock has appreciated roughly 6%, underperforming the S&P 500’s 13% year-to-date advance.

Cramer suggested that fourth-quarter market performance will largely depend on Federal Reserve policy decisions and forthcoming software company earnings announcements.

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