Wall Street can't stop talking about artificial intelligence (AI), and it's easy to see why. The launch of ChatGPT has set off a race to tap into the power of generative AI and other forms of the technology like machine learning.
Stocks like Nvidia and C3.ai have soared this year on excitement over AI, but there are still some investment opportunities that the market hasn't tapped into yet.
One of those is Perion Network (PERI 0.76%), a small-cap adtech that has outperformed its peers and built a competitive advantage through its AI-based intelligent hub. Perion is also a strategic partner of Microsoft's Bing search engine, meaning it's positioned to benefit if the new ChatGPT-powered Bing picks up market share from Google.
Image source: Getty Images.
How Perion uses AI
Perion's business revolves around its intelligent hub, which functions as a marketplace connecting ad buyers and sellers, creating efficiencies in the ad-buying process and helping to optimize ad campaigns and placements. That makes Perion different from most adtechs, which operate either as demand-side platforms (DSP) serving advertisers, or as supply-side platforms serving those that have ad space to sell.
The intelligent hub combines an ad server, a real-time bidding engine, and a reporting mechanism to deliver operational savings.
Artificial intelligence is at the technological heart of the intelligent hub. Its so-called "decisioning engine" takes three layers of data to produce thousands of permutations for ad placements that benefit both ad buyers and sellers.
The engine can adapt to changing circumstances, such as weather, to serve up different ads. A coffee chain, for example, could automatically advertise iced coffee on a hot day in one market, and hot beverages in a market with cold weather.
Its cookie-less technology also uses AI to help target ads without third-party cookies.
The company is investing in generative AI to create images as well, and CEO Tal Jacobson teased some other generative AI applications on the recent earnings call. Management continues to invest in research and development in AI on both the supply and demand sides.
The growth story
In a challenging ad market, Perion continues to deliver strong growth, especially in areas like connected TV and retail media, or serving ads from major retailers.
Its retail media product, which it calls a digital circular, saw 63% growth, well ahead of the expected industrywide growth rate of 19.7%, and connected TV saw 104% growth in the second quarter.
Perion reported 22% overall revenue growth in the second quarter and a 54% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
The company has consistently delivered strong growth during the pandemic as digital advertising boomed and then slowed. Its investments in AI and diversification across multiple ad channels set it up for continued growth as it takes advantage of the massive digital ad market.
Why it could take off
Perion has a solid track record over the last few years of delivering growth and beating estimates, but the stock is surprisingly cheap for a company growing as fast as it is.
The stock currently trades at a price-to-earnings ratio of 15.6, making it cheaper than the S&P 500, and the company is in a strong cash position, setting it up to make acquisitions to drive further growth.
In an interview with The Motley Fool, Jacobson said:
I think our aim is to become one of the biggest companies in that space. To do that, we need to buy more technologies and more companies. I don't think there's any other way. That's the main goal.
With its investments in AI, strong growth rate, and cheap valuation, Perion looks well positioned to deliver superior growth in the years to come.
