Salesforce stock hits a crucial resistance ahead of earnings: what next?

Salesforce shares have extended their rally and are now testing a key resistance zone as traders turn their attention to Wednesday's earnings report. CRM has climbed into the $210 area this week, a level that lines up with the stock's high point back in June, making it a natural spot to watch for how price reacts.

That resistance will face its real test on Wednesday, when Salesforce reports second-quarter earnings after the closing bell.

Salesforce stock hits a crucial resistance level

The daily chart shows that the CRM stock has been in a strong rally in the past few months, moving from a low of $144 to the current $210. It has surged above the 50-day Exponential Moving Average (EMA), which is a bullish sign in technical analysis.

The Average Directional Index (ADX) has jumped to 21, its highest level since March 11 this year. This surge is a sign that it is gaining momentum this year. The Relative Strength Index (RSI) has continued rising.

On the negative side, the stock has formed a rising wedge pattern, a common bearish reversal sign in technical analysis. This pattern often leads to a bearish breakout over time. A break above this resistance will point to more gains, potentially to $242, the 78.6% Fibonacci Retracement level.

CRM stock chart | Source: TradingView

Salesforce earnings to provide hints on growth

CRM stock has been in a strong surge in the past few months, mirroring the performance of most software companies, including popular names like Intuit, Workday, and Autodesk. 

The most recent results showed that Salesforce’s revenue rose by 13% in the first quarter to $11.1 billion, with Informatica contributing $444 million. Its remaining performance obligation rose by 11% to $67.9 billion as more companies embraced its platform. Its guidance, however, was relatively softer than expected.

The upcoming results are expected to show that its revenue rose by 10% in the second quarter to $11.32 billion. As in the first quarter, the numbers will receive a boost from its Informatica buyout. 

Investors will focus on whether the company is growing, which will help to rule out the SaaSpocalypse fears. These are fears that companies in the software industry will be disrupted by artificial intelligence tools.

Analysts have recently boosted their CRM forecasts. For example, BMO Capital Markets analysts boosted the target from $215 to $230, while Guggenheim hiked the target to $228. Cantor Fitzgerald and JPMorgan hiked the target to $250.

Many analysts note that demand for its solutions will continue even with the AI disruption. Also, its AI tools are seeing more demand, with Agentforce and Data 360’s ARR rising to $3.4 billion.

Salesforce has also become highly undervalued, a notable thing for a company seen as a blue-chip name. The forward price-to-earnings ratio stands at 14.80, much lower than the sector median of 23. Its Rule-of-40 multiple on an EBITDA and FCF basis are 40% and 49%, respectively.