Investors looking back at 2023 may realize the period marked a turning point in the history of artificial intelligence (AI). Progress in large language models led to giant leaps forward in generative AI. These next-generation AI models, which can create original content from scratch, promise once-in-a-generation productivity gains by automating repetitive tasks, freeing up employees for higher-level functions.
The accelerating adoption of AI has investors beating the bushes to find the best opportunities to profit from this groundbreaking technology. While estimates vary wildly, one of the most bullish prognostications comes courtesy of Cathie Wood's Ark Investment Management, which suggests that if vendors capture just 10% of the value created by their products, the AI software market could generate $14 trillion by 2030. Even if this estimate turns out to be overly optimistic, it helps illustrate the fact that the AI market could grow at a blistering pace for years to come.
Let's look at two high-growth stocks that stand to profit from the AI boom.
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1. HubSpot
HubSpot (HUBS -0.78%) made a name for itself by circumventing traditional advertising. It pioneered the concept of inbound marketing by building relationships and attracting potential customers through engaging online content, including on social media and blog posts.
The company has since expanded its offerings, which now run the gamut of customer relationship management (CRM) functions, providing a vast platform of interconnected offerings. These include marketing, sales, service, content management, and operations, with solutions to help manage data, reporting, commerce, automation, messaging, content, and even payments.
Earlier this year, CEO Yamini Rangan explained what the latest advances in generative AI mean for HubSpot and its customers. "HubSpot is powerful, yet easy to use ... all-in-one CRM platform powered by AI," noting that the company is integrating generative AI across its offerings. She says the company is differentiated by its "unique data and broad distribution."
"HubSpot CRM data is unified and cohesive," Rangan said, "making it easier for AI to ingest and drive relevance." Finally, HubSpot customers "don't have to become AI experts to reap the transformational benefits" available on its platform.
HubSpot's second-quarter results provide a glimpse of its potential. Even amid an economic recovery, revenue of $529 million grew 25% year over year, while adjusted earnings per share (EPS) of $1.41 tripled. The results were driven by robust customer additions, which grew 23%. The company's expanding relationships with existing users are also exemplary, as 33% of customers use three or more "Hubs," generating 50% of annual recurring revenue (ARR).
The stock is currently selling for 10 times next year's sales, so it isn't cheap when measured using traditional valuation metrics. However, since its $25 initial public offering (IPO) in 2014, HubSpot stock is up more than 1,900% -- even after its downturn-induced drubbing. Given the company's history of strong growth and the potential presented by AI, its valuation doesn't seem unreasonable.
2. MongoDB
MongoDB (MDB 4.83%) made its fortune by disrupting the traditional database model. While most rivals are limited to rows and columns, MongoDB's cloud-native Atlas platform can handle a host of non-traditional and complex input, including social media posts, audio and video files, and even entire documents -- as well as standard data -- giving users a much more robust database solution. This also results in a much greater degree of flexibility for developers creating software and apps.
CEO Dev Ittycheria recently laid out the case for what the shift to AI means for MongoDB:
We believe the recent breakthroughs in AI represent the next frontier of 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 a competitive advantage.
He went on to suggest the company was "well positioned to benefit from the next wave of AI applications in the years to come."
MongoDB's Q2 results paint a telling picture. Revenue of $424 million grew 40% year over year, even in the face of economic headwinds, while its adjusted EPS of $0.93 soared 304%. Helping drive the results was the addition of 8,000 new customers over the past year, an increase of 22%.
At first glance, the stock might seem expensive at 13 times next year's sales, but consider this: In the roughly six years since its public debut, MongoDB stock has gained more than 1,300%, vastly outperforming its peers.
As businesses look for platforms with the greatest capability to build and integrate new AI software applications, MongoDB's Atlas will remain a top choice.
