Salesforce (CRM) and Adobe (ADBE) are ahead of the curve when it comes to profitability and margin expansion within the software application space. Both companies have embraced Artificial Intelligence (AI) and integrated the technology into their product offerings.

Outside of a pure play on AI such as Nvidia (NVDA), Salesforce and Adobe are stealth AI plays that will enable growth verticals across their respective ecosystems in the years to come.

Each stock offers a unique investing proposition blend that we will explore further below.

Salesforce (CRM)

Salesforce has undergone a massive business transformation to reward shareholders via cost reductions, gross margin expansion, share repurchases and new AI-enabled growth initiatives. Earlier this year the company slashed 10% of its workforce as part of a restructuring plan and reigned in costs to streamline its business. Activist investors jumped into the fray to unlock value via accelerating growth and expanding profit margins. As such, Salesforce reached its goal of 30% adjusted gross margin three quarters earlier than planned.

Salesforce released AI enhancements to its Sales Cloud and Service Cloud applications for $50 per person per month on top of existing costs. The company also announced its AI Cloud that will encompass tools for marketing and data analysis.

The new AI Cloud aims to improve customer experiences and company productivity by bringing together AI, data, analytics, and automation to provide trusted, open, real-time generative AI. AI Cloud comes with Einstein GPT Trust Layer for enterprise AI which offers the benefits of generative AI while providing data privacy and data security.

In its latest earnings, results and guidance came in stronger than expected and the company delivered growth in all five of its product categories and CEO Marc Benioff forecasted expansion ahead through artificial intelligence, “We’re leading our customers into the new AI era”.

Taken together, Salesforce is quickly adopting and integrating AI-enabled functionality across its ecosystem with monetization along the way. The company is growing at a double-digit clip, while reducing costs and expanding gross margins.

Salesforce is rated as an “A” (Strong Buy) by the propriety POWR Rating system based on its Growth and Sentiment attributes.

Adobe (ADBE)

Adobe’s most recent earnings were a beat on earnings and profits while rolling out a slew of AI-enabled products across its platforms. Adobe has been a beneficiary from investor excitement over the AI driven rally in the technology space, specifically Adobe’s exposure to generative AI that will allow the company to raise prices between 6% to 10% by some estimates. Abobe’s AI efforts have the potential to drive revenue growth via new AI-centric monetization strategies.

Adobe has been able to expand margins despite higher investment costs associated with their AI buildout with incremental AI monetization opportunities coming into the fold.

"We are unleashing a new era of AI-enhanced creativity around the world with innovations across our product portfolio," said Shantanu Narayen, chair and CEO, Adobe. "The recent launches of Firefly, Express, Creative Cloud and GenStudio make Adobe magic available to millions of users."

Adobe is already seeing incremental monetization opportunities via generative AI enabled product offerings. Earnings growth and gross margins continue their strong trends as indicated by the latest earnings report with AI tailwinds at the company’s back.

Adobe is rated a “B” (Buy) by the POWR Rating system based on its Quality and Sentiment characteristics.

Summary

Both Salesforce and Adobe have leaned into AI-enabled product offerings across their respective ecosystems to drive new verticals of growth. Salesforce via its AI enhancements to its Sales Cloud and Service Cloud applications with tools for marketing and data analysis. Alongside its AI Cloud is Einstein GPT for enterprise AI with the benefits of generative AI. While Adobe’s exposure to generative AI may allow the company to raise prices and have the potential to drive revenue growth via new AI-centric monetization strategies.

The proprietary POWR Rating system places Salesforce and Adobe as a Strong Buy and Buy, respectively. Salesforce is rated a strong buy by the propriety POWR Rating based on its growth and sentiment attributes while Adobe is rated a buy based on its quality and sentiment characteristics.

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CRM shares . Year-to-date, CRM has gained 55.62%, versus a 14.28% rise in the benchmark S&P 500 index during the same period.

Noah Kiedrowski is the Founder of Stock Options Dad LLC - A Registered Investment Adviser (RIA) firm where he shares his alternative investment approach to growth and long-term capital appreciation via a blended portfolio strategy using risk-defined options, long-term stock holdings and dynamic cash positioning. Learn more about Noah's background along with his most recent articles and stock picks.

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