Looking back, 2023 could mark a turning point for artificial intelligence (AI). The latest developments in large language models have given birth to next-generation technology, including OpenAI’s ChatGPT, but that’s probably just the beginning. The capabilities of these AI systems have fired the imagination, and the brightest minds in business are looking for ways to use this groundbreaking technology to automate repetitive tasks, improve customer service, and create new opportunities.
The ongoing AI revolution has investors looking high and low to profit from the huge potential offered by this cutting-edge technology. While estimates vary widely, one of the most optimistic predictions comes from Cathie Wood’s Ark Investment Management, which suggests that the global AI software market will grow 42% annually, exceeding $14 trillion by 2030. Although this estimate turns out to be overly bullish, it helps show that the market for AI-enabled software could grow at a breakneck pace in the years to come.
Let’s look at two high-flying stocks that are well positioned to benefit from the AI revolution.
Hub Spot (HUBS -0.14%) made his fortune by discontinuing traditional advertising. He pioneered the concept of inbound marketing, which builds relationships with potential customers with engaging content delivered online, via social media, and in blog posts.
The company has since expanded its empire to encompass the full spectrum of customer relationship management (CRM), with a vast ecosystem of interconnected offerings. These include solutions for marketing, sales, service, content management and operations teams, with tools to help manage data, commerce, reporting, automation, content, messaging and payments.
CEO Yamini Rangan outlined what the latest advances in artificial intelligence mean for HubSpot and its customers in the company’s first quarter earnings call, saying, “HubSpot is [a] powerful, yet easy to use…all-in-one CRM platform powered by artificial intelligence.” He noted that the company is integrating generative AI into all of its offerings, going on to say that the company differs in its “unique data and wide distribution.”
“HubSpot CRM data is unified and consistent, making it easier for the AI to capture and be relevant,” said Rangan. Finally, the CEO points out that HubSpot customers “do not have to become AI experts to reap the transformational benefits” available on its platform.
HubSpot’s first quarter results provide a glimpse into its potential. Even amid a tough economy, revenues grew 27% year over year, while adjusted earnings per share (EPS) of $1.25 more than doubled. The results were fueled by solid customer earnings, which grew 23%. Perhaps even more important is the expansion of existing customer relationships, as 45% of the company’s annual recurring revenue is generated by customers using three or more hubs.
The stock is currently selling for 10 times next year’s sales, so it’s not cheap by traditional valuation measures. That said, in less than nine years, HubSpot stock has gained more than 1,600% and is still well short of its peak. Given its history of strong growth, its valuation seems much more reasonable.
MongoDB (MDB -1.43%) made a name for itself by disrupting the traditional database paradigm. While most databases are limited to rows and columns, MongoDB’s Atlas cloud-native platform can handle this and more, including video and audio files, social media posts, and even entire documents, providing users with solutions of much more robust databases. This provides developers with a much greater degree of flexibility to create software applications.
In announcing Q1 FY2024 results, CEO Dev Ittycheria explained what the shift to AI means for MongoDB, saying, “We believe the recent breakthroughs in AI represent the next frontier in software development. The move to embed AI in applications requires a broad and sophisticated set of capabilities, while enabling developers to move even faster to create competitive advantage.” He went on to say that the company was “well positioned to benefit from the next wave of AI applications in the years to come.”
MongoDB’s Q1 FY2024 results help tell the story. Revenue of $368 million grew 29% year over year, even in the face of economic headwinds, while adjusted EPS of $0.56 increased 180%. Fueling the results were the sharpest new customer additions in more than two years. Results were led by Atlas, the company’s fully managed database services platform-as-a-platform, which grew 40% year-over-year and now accounts for 65% of MongoDB’s total revenue.
The stock might look expensive at 14 times next year’s sales, but consider this: In just over five years, MongoDB stock has gained more than 1,000% — even after its downturn-induced beating — so its valuation shouldn’t. be seen in a vacuum.
As new customers look for platforms that offer the greatest ability to build and run new AI applications, MongoDB Atlas is the best choice.
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