Betting on the AI Revolution: These Stocks Could Deliver Massive Returns

05/06/2023

Investors have recently shown a deeper curiosity about the potential of artificial intelligence (AI). This interest intensified after Nvidia reported earnings on May 23. Its stock surged 25% higher in the next trading session, resulting in a one-day market cap gain of $180 billion.

Fortunately for investors, AI will probably also help draw interest to other tech stocks. Two AI stocks that might warrant more attention are Twilio (NYSE: TWLO) and Zoom Video Communications (NASDAQ: ZM).

Twilio

Twilio is a communications platform-as-a-service company. It provides email, voice, text, and video communications through apps. While the public may not know Twilio’s name well, its technology supports the apps of companies like Domino’s Pizza, Airbnb, and numerous others.

Nonetheless, the stock had suffered as investors grew weary of mounting losses. And even amid a restructuring plan to cut those losses, the stock failed to gain traction. As recently as its May 9 earnings report, investors sold it off amid weak guidance.

However, AI may have inspired a dramatic reversal. As investors discovered that AI could support communication with customers and create code, they bid the stock higher. Since May 12, Twilio stock is up more than 45%.

Still, despite that run-up, Twilio sells at a discount of over 80% compared with its summer 2021 high. Moreover, the stock now trades at a reasonable price thanks to its decline. At a price-to-sales (P/S) ratio of 3, its valuation is near record lows.

Admittedly, the massive gain in May could bring a near-term pullback. Also, Twilio forecasted a 4% to 5% revenue growth rate for 2023, well under the 61% increase reported in 2021. Such a decline could foster doubts in the near term.

But amid the growing need for AI and Twilio’s data platform, revenue growth could reaccelerate. Between that potential for recovery and its moves to reduce losses, Twilio stock could again accelerate higher.

Zoom Video Communications

Zoom may seem like a weak AI stock at first glance. The stock is down by almost 90% from its 2020 pandemic high as a return to normalcy slowed demand growth for its videoconferencing software. Moreover, competition, especially from Microsoft’s Teams, calls its competitive moat into question.

However, Zoom has ventured beyond videoconferencing, building an ecosystem that makes it a one-stop shop for corporate communications. That ecosystem includes a VoIP phone system, whiteboard, contact center, virtual agent, and other features that eliminate the need to deal with multiple vendors to meet communication needs.

Moreover, AI plays a central role in powering that ecosystem. The virtual agent relies on an AI chatbot to communicate with customers and manage customer service workflows.

Additionally, AI contributes to improving productivity through Zoom IQ. Zoom IQ can analyze a meeting, breaking recordings into multiple parts while identifying highlights and action items. It can also organize ideas and draft content for emails, whiteboards, and meeting agendas.

In the first quarter of fiscal 2024 (ended April 30), that ecosystem led to Zoom reporting 13% revenue growth in its enterprise segment. Zoom Phone also claimed over 10% of revenue, reducing its dependence on the meetings platform.

Still, the recovery could take time. Overall Q1 revenue growth was just 3%, and Zoom forecasts fiscal 2024 revenue of just under $4.5 billion, a 2% yearly increase. This is far below the 55% revenue increase in fiscal 2022.

Still, Zoom sells for around 5 times sales as the stock recovers from all-time lows. As AI gives the Zoom ecosystem a competitive advantage, revenue growth could again increase.

Twilio

Zoom Video Communications

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