Artificial intelligence (AI) has become an invaluable tool for investors seeking an edge in today’s data-driven markets. By analyzing vast amounts of data and identifying patterns and insights that humans cannot, AI empowers investors to make smarter decisions about which stocks to buy, sell, or hold.
As we look ahead to 2024, some of the most promising AI-powered stock-picking platforms use natural language processing to generate actionable predictions. For example, EquBot applies IBM (NYSE:IBM) Watson’s AI to analyze news articles, financial reports, and other unstructured data to forecast returns. It then automatically allocates its AI Powered Equity ETF (NYSEARCA:AIEQ) portfolio based on those predictions.
The key is combining AI with human expertise. Just like humans, even the most advanced AI can make mistakes. However, by acting as a tool rather than a total replacement for human analysis, AI can significantly boost returns.
Today, I’ll be asking Bard for seven stock picks with the prompt, “Hi Bard, I am writing an article about ‘7 Stocks That AI Predicts Will Soar in 2024’. Can you give me some some picks that fit the title?” Then, I will state my opinion on each of these picks. Let’s start!
Twilio (TWLO)
Bard: “Twilio (NYSE:TWLO) is a cloud communications platform that allows businesses to add voice, video, and messaging capabilities to their applications. The company is benefiting from the strong growth of the cloud computing market, as well as the increasing demand for customer engagement solutions.”
In my view, Twilio has certainly faced challenges over the past year, with the stock falling more than 86% from its early 2021 highs. Many shareholders who bought into the pandemic-fueled rally have seen the value of their investment drop dramatically. However, after going through a period of consolidation, Twilio now seems to be positioned for a potential turnaround. The stock has been trading sideways in the $50-60 range for a while, which could signal it is finding a bottom.
While growth has undoubtedly slowed from 2020 and 2021 levels, Twilio remains solidly profitable, with Q2 earnings per share coming in at 54 cents, beating estimates by a sizable margin of 24 cents. Additionally, revenue grew 10% in Q2, ahead of expectations. These beats make me very optimistic that Twilio can very well meet analyst expectations of $13 in 2032 earnings per share, and increase of 650% from today’s metrics.
Datadog (DDOG)
Bard: “Datadog (NASDAQ:DDOG) is a cloud monitoring and analytics platform. The company is benefiting from the increasing demand for cloud-based monitoring and analytics solutions, as well as the growing adoption of DevOps practices.”
Datadog has fallen nearly 55% from all-time highs amid the larger correction in cloud software stocks. However, I believe its premium valuation remains justified given the immense growth potential still ahead. Like Twilio, Datadog is expected to have tremendous earnings growth in the coming years. This appears to be evidenced by the company’s recent revenue growth of 25% in Q2 2023. That’s exceptional growth for a company of its scale.
The company dominates the space alongside Dynatrace (NYSE:DT), but appears to be growing faster due to its comprehensive observability platform. That’s why I think Datadog handily beat estimates in both its top and bottom lines. Still, I would rate this stock as a “hold,” since I believe analysts are being a little too optimistic about data center growth (just like the AI hype trade) right now. If the enthusiasm cools down (as it has been), DDOG stock could be due for a reality check. Thus, I disagree with Bard on this specific stock.
UiPath (PATH)
Bard: “UiPath (NYSE:PATH) is a robotic process automation (RPA) software company. RPA is a type of software that automates repetitive tasks performed by humans. UiPath is benefiting from the growing demand for RPA solutions as businesses seek to improve their efficiency and reduce costs.”
While I did badmouth AI’s trajectory in the segment above, I remain bullish on UiPath. That’s because this AI-related name is more focused on robotics, and less focused on text-based AI generators that have dubious pricing power. Plus, unlike many overvalued software stocks today, UiPath now trades at a reasonable valuation of around 7.4-times sales after its plunge from its peak. Despite the tough macro environment impacting new customer acquisition, growth in the company’s existing customer base has remained resilient, with net retention above 121% in Q2.
UiPath also boasts best-in-class gross margins, above 88%. Looking ahead, I’m bullish on robotic process automation as a way for companies to cut costs and boost efficiency. At only $16 per share, PATH offers substantial upside potential, with estimates projecting revenue growth of around 20% and earnings per share doubling by the end of 2028.
Snowflake (SNOW)
Bard: “Snowflake (NYSE:SNOW) is a cloud-based data warehouse company. The company is benefiting from the increasing demand for data warehousing and analytics solutions, as well as the shift to cloud computing.”
Again, as with DDOG, I’m bearish on Snowflake’s prospects, given its premium valuation. The data warehousing company trades at over 19-times sales despite the speculation around AI’s long-term impact on data center businesses.
I agree, the company is a dominant force in the cloud data warehouse market. But I cannot justify investing in many data center pure plays at today’s prices.
Despite elevated optimism over Snowflake’s growth runway, a lot of risks remain. And if macro conditions deteriorate, businesses may cut spending on data analytics software.
To be fair, Snowflake exhibited resilience in Q2, maintaining strong growth. Plus, secular tailwinds are undeniable, with data becoming increasingly important. However, given its steep valuation, even a slight growth stumble could induce a massive sell-off. Thus, SNOW stock is also a “hold” for me.
Zoom Video Communications (ZM)
Bard: “Zoom (NASDAQ:ZM) is a cloud-based video conferencing platform. The company is benefiting from the strong demand for video conferencing solutions as businesses and individuals transition to remote work and learning.”
Zoom was one of the poster children of the pandemic stock boom, with shares rising over 700% in 2020 alone. But the stock has since fallen below pre-pandemic levels after peaking in late 2020.
In my view, Zoom still presents a compelling risk/reward proposition for long-term investors. At under $65 per share, Zoom trades at just 14-times forward earnings, a reasonable valuation for a company still growing revenue double-digits. Sure, Zoom’s growth slowed to just 3.6% in Q2 2023. But analysts expect ~7.5% annual sales growth this decade as the work-from-home trend is far from over.
Despite the return to office trend, video conferencing is here to stay. Zoom is now woven into the fabric of business communications. Moreover, the company is successfully expanding into adjacent markets like cloud phones, contact centers, and live events.
Critics argue Zoom’s best days are behind it, and that post-pandemic demand is reverting to normal. There may be some truth to that. But with the stock trading near historic lows, much of this negative outlook appears priced in. For a company still generating free cash flow growth at 31%, Zoom looks attractive for long-term investors at current prices.
Roblox (RBLX)
Bard: “Roblox (NYSE:RBLX) is an online gaming platform that allows users to create and play games. The company is benefiting from the strong growth of the gaming industry, as well as the increasing popularity of user-generated content.”
As a gaming platform relying on user-generated content, Roblox occupies a unique niche. The company’s Q2 financials were mixed, with revenue growth coming in at 22% but larger-than-expected losses. While the company could potentially disrupt gaming, and even the metaverse, I’m cautious about RBLX stock at $30.
Given the cash burn and unproven business model, Roblox remains a highly speculative investment. The company is still valued at nearly $20 billion despite minimal progress on profitability. That said, Roblox exhibits impressive engagement metrics, including 65.5 million daily active users in Q2. Plus, the business requires minimal capital, given its user-generated gaming platform. I’d rate RBLX stock as a “hold.”
Block (SQ)
Bard: “Block (NYSE:SQ) is a financial technology company that provides a variety of products and services, including payment processing, point-of-sale systems, and cryptocurrency trading. The company is benefiting from the strong growth of the digital payments market, as well as the increasing adoption of cryptocurrency.”
Trading at 1.3-times forward sales and 26-times forward earnings, Block looks expensive relative to payment peers like PayPal (NASDAQ:PYPL). The company has struggled with macro headwinds yet retains an impressive growth profile. However, the long-term growth prospects here puts this stock firmly ahead of its fintech peers, at least in my book. Revenue is expected to triple by 2033 and EPS could multiply by 9-times over the same timeframe.
With Block, investors gain exposure to some of fintech’s most promising innovations, including cryptocurrency, peer-to-peer payments, BNPL, and more. Yet the stock trades at a sixth of its 2021 highs. I definitely agree with Bard regarding SQ stock, and so do Wall Street analysts, with 73% expected upside in one year.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
