The rising global demand for cloud computing is fueled by the advancement of emerging technologies like big data, Artificial Intelligence (AI), and Machine Learning (ML).

Additionally, the increasing emphasis on customer-centric applications aimed at improving consumer satisfaction is further driving the adoption of these technologies. The cloud computing market is estimated to grow at a CAGR of 16.4% by 2029.

According to the latest update to the International Data Corporation (IDC) Worldwide Software and Public Cloud Services Spending Guide, worldwide spending on public cloud services is forecast to reach $805 billion in 2024 and double in size by 2028.

Against this backdrop, let’s compare two cloud stocks, Salesforce, Inc. (CRM) and ServiceNow, Inc. (NOW), to analyze which cloud software stock holds more potential.

The Case for Salesforce, Inc.

Valued at $258.54 billion by market cap, Salesforce, Inc. (CRM) provides Customer Relationship Management technology that brings companies and customers together worldwide. The company's service includes sales to store data, monitor leads and progress, forecast opportunities, contracts, and invoices; and service that enables companies to deliver trusted and highly personalized customer support at scale.

On September 17, 2024, CRM and NVIDIA Corporation (NVDA) announced a strategic collaboration to develop advanced AI capabilities for the enterprise with autonomous agent and interactive avatar experiences.

The companies would work together to deliver optimized predictive and generative AI workflows by bringing together the NVIDIA AI platform, which includes accelerated computing and AI software, with the CRM Platform and Agentforce.

With this collaboration, Agentforce agents would enable new insights and improved productivity across the sales, service, marketing, and IT teams that rely on the industry-leading Salesforce CRM as the one place for all their customer data.

On September 5, CRM announced its acquisition of Own Company, a leading provider of data protection and data management solutions, for $1.90 billion in cash. This acquisition is set to enhance CRM’s ability to offer customers robust data protection and management solutions.

CRM’s stock has gained 1.5% over the past nine months to close the last trading session at $270.44. Over the past month, the stock has surged 2.4%.

CRM’s trailing-12-month gross profit margin of 76.35% is 53.6% higher than the industry average of 49.71%. Further, its trailing-12-month EBIT margin of 19.06% is 292.1% higher than the industry averages of 4.86%.

In the fiscal 2025 second quarter that ended on July 31, 2024, CRM’s total revenue increased 8.4% year-over-year to $9.33 billion. The company reported non-GAAP income from operations of $3.14 billion, indicating a 15.5% growth from the prior year quarter with a non-GAAP operating margin of 33.7% (up 210 bps year-over-year). Its free cash flow increased 20.2% year-over-year to $755 million.

CRM’s non-GAAP net income came in at $2.49 million, up 19.1% year-over-year, while its non-GAAP net income per share grew 20.8% from the year-ago value to $2.56.

Street expects CRM’s revenue for the fiscal fourth quarter (ending October 2024) to increase 7.2% year-over-year to $9.35 billion. Its EPS for the same period is expected to register a 16% growth from the prior year, settling at $2.45. In addition, it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is promising.

CRM’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CRM has a B grade for Sentiment and Quality. It is ranked #15 out of 129 stocks in the Software - Application industry.

Click here for the additional POWR Ratings for CRM (Value, Growth, Stability, and Momentum).

The Case for ServiceNow, Inc.

Valued at $190.13 billion by market cap, ServiceNow, Inc. (NOW) provides end-to-end intelligent workflow automation platform solutions for digital businesses in North America, Europe, the Middle East and Africa, Asia Pacific, and internationally.

NOW’s stock has gained 23.3% over the past three months and 32.4% over the past nine months to close the last trading session at $923.60.

On September 10, 2024, NOW announced the integration of Agentic AI into its platform to enhance 24/7 productivity across IT, customer service, HR, and more. The new AI agents will use advanced reasoning for deep contextual understanding, while the NOW’s Assist Skill Kit will allow organizations to build and deploy custom GenAI skills.

On July 24, 2024, NOW and Boomi announced a partnership to enhance customer experiences through AI-driven self-service solutions. Boomi will use NOW’s platform to streamline support and self-service, while ServiceNow will integrate Boomi’s API Management capabilities for better API visibility and governance.

NOW’s trailing-12-month EBIT and EBITDA margin of 10.78% and 16.46% are 121.7% and 61.7% higher than the industry averages of 4.86% and 10.19%, respectively. However, the stock’s trailing-12-month asset turnover ratio of 0.60x is 3.3% lower than the industry average of 0.62x.

During the second quarter ended June 30, 2024, NOW’s non-GAAP total revenues rose 22.5% year-over-year to $2.64 billion. Its non-GAAP gross profit rose 23.1% from the year-ago quarter to $2.17 billion. Its non-GAAP net income rose 34% year-over-year to $651 million. Also, the company’s non-GAAP earnings per share came in at $3.13, representing an increase of 32.1% year-over-year.

Analysts expect NOW’s EPS for the quarter ending September 30, 2024, to increase 18.2% year-over-year to $3.45. Its revenue for the same quarter is expected to grow 20% year-over-year to $2.75 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters.

NOW’s fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.

The stock has a C grade for Momentum and Stability. NOW is ranked #15 out of 39 stocks in the B-rated Software - Business industry.

In addition to the POWR Ratings I’ve just highlighted, you can see NOW’s ratings for Value, Growth, Sentiment, and Quality here.

Salesforce (CRM) vs. ServiceNow (NOW): Which Cloud Software Stock Holds More Potential?

Cloud computing has completely changed the software business driving its growth by providing scalable and affordable infrastructure. Businesses are increasingly leveraging cloud solutions to enhance efficiency and reduce costs, leading to higher demand for cloud-based services. Both CRM and NOW stand to capitalize on these burgeoning industry trends.

However, CRM’s higher profitability, and strong financials favor it as the better cloud software stock pick.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software - Application industry here and the Software - Business industry here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

CRM shares were trading at $273.37 per share on Wednesday afternoon, up $2.93 (+1.08%). Year-to-date, CRM has gained 4.35%, versus a 21.02% rise in the benchmark S&P 500 index during the same period.

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

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