Nvidia (NVDA 4.74%) has been a top performer on the stock market over the past decade, with share prices of the graphics card specialist rising more than 7,500% and easily crushing the S&P 500's gains of 223%.
The chipmaker's outstanding rally results from its dominance in the GPU (graphics processing unit) market, which has helped it clock terrific top- and bottom-line growth over the years. After all, Nvidia controls more than 80% of the market for discrete graphics cards used in personal computers and data centers and are increasingly being deployed in more applications such as automotive and the metaverse.
Image source: Getty Images.
But investors who have missed the Nvidia gravy train will have to pay a rich multiple to buy it now. That's because Nvidia trades at 72 times trailing earnings and 26 times sales. However, investors on the hunt for a stock that could deliver Nvidia-like returns over the long run should take a closer look at Twilio (TWLO 1.82%), a cloud communications specialist that can be bought at an attractive valuation and has the potential to clock impressive upside in the long run.
Let's look at the reasons why Twilio has the potential to beat the broader market like Nvidia.
Twilio leads the cloud communications market
Twilio leads the communications platform-as-a-service (CPaaS) market with a share of 38%, according to third-party estimates. That's significantly higher than its nearest rival, which controls just 11.8% of the CPaaS market.
Twilio's dominant position in this space should pave the way for long-term growth, as the CPaaS market is expected to clock a compound annual growth rate of 34% through 2026. The CPaaS market is expected to generate $26 billion in revenue at the end of 2026 as compared to $4.54 billion in 2020. This leaves a lot of room for growth at Twilio as it reported $2.84 billion in revenue in 2021, an increase of 61% over the prior year.
It is worth noting that Twilio has been enjoying such impressive growth for a long time, thanks to the growing adoption of cloud-enabled contact centers. As it turns out, Twilio's revenue has grown at a faster pace than Nvidia's so far.
TWLO Revenue (TTM) data by YCharts.
Gartner estimates that 50% of contact centers will move to the cloud this year, and the technology will gain mainstream adoption in 2023. That's not surprising, as cloud-based contact centers enjoy several advantages over physical ones. For instance, cloud-enabled call centers are 27% cheaper to operate and are more reliable as they experience 35% lower downtime compared to physical contact centers.
Additionally, organizations using cloud-based contact centers have reported 18% higher customer satisfaction when compared to physical contact centers. Moreover, cloud contact centers are cheaper and faster to set up as the customer service associate simply needs a laptop, an internet connection, and the APIs (application programming interfaces) that the likes of Twilio provide. As a result, they eliminate the need for office space and equipment.
Cloud-based contact centers are much more versatile as well since they allow customer service agents to interact with customers through different channels such as text messages, video, social media, phone, and email. Traditional contact centers are limited to the voice channel, and they are difficult to scale since they require expensive hardware upgrades to serve more customers.
All of this indicates that the transition to cloud-enabled contact centers is here to stay, and that should continue to expand Twilio's addressable opportunity in the long run. As it turns out, a third-party estimate forecasts that the cloud-based contact center space could generate $45 billion in revenue by 2030, which means that Twilio is scratching the surface of a massive opportunity.
Nvidia-like gains could be in the cards
Two factors have played a critical role in Nvidia's eye-popping growth over the years -- a fast-growing end market for graphics cards and the company's solid market share. A similar scenario has emerged at Twilio over the years as the cloud communications specialist has made the most of a lucrative opportunity by carving out a nice position for itself.
These factors are expected to help Twilio maintain its growth momentum. The company's top line is expected to increase 35% in 2022 and 30% in 2023, hitting $5 billion by the end of next year. What's more, Twilio is expected to post an adjusted profit of $0.26 per share in 2023 as compared to an estimated loss of $0.44 per share this year.
It won't be surprising to see Twilio stock regain its mojo and start flying once again. The stock has delivered terrific returns since going public, but it has taken a big beating since the beginning of 2021 despite reporting solid growth quarter after quarter.
TWLO data by YCharts.
The pullback has made Twilio stock cheaper than before, as it is trading at 9.5 times sales compared to its five-year average price-to-sales ratio of 16.9. What's more, the stock is way cheaper than Nvidia, which trades at nearly three times Twilio's sales multiple. So, investors looking to buy a stock that could deliver Nvidia-like gains, in the long run, should take a closer look at Twilio. The cloud player is not just cheap but is also operating solidly in a lucrative market that could help it deliver big gains.
