It's been more than a year since OpenAI launched ChatGPT, and there's still no shortage of hype around artificial intelligence (AI). Big tech companies are racing to deploy their latest foundation models and cloud infrastructure services, and others are scrambling to acquire graphics processing units (GPUs) to scale up to meet demand.
Investors have bid up nearly every stock associated with AI, making it harder to find AI stocks worth buying. However, one small-cap company that is rapidly embracing AI has traveled largely under the radar thus far. That's Perion Network (PERI 0.76%), an adtech company that connects ad buyers and sellers across all major digital channels. The company is best known for its intelligent hub, which facilitates both ends of the ad transaction, helping to optimize ad buys and seller inventory, and increase advertisers' return on investment.
Here's a breakdown of what Perion is doing with AI. From there we can determine how the stock could deliver big returns for you. Could it, for example, turn a $100,000 investment into $1 million over time? Here's a closer look.
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Perion and AI
As is common in the adtech sector, Perion's technology is built on machine learning algorithms and other forms of AI; the company says it uses advanced AI, neural networks, and machine learning to optimize yield for its users.
Advertising is a natural use case for AI as there are millions of data points generated by ad impressions, clicks, and purchases, and AI systems can process those massive volumes of data and make connections in a way that a human never could. Perion's partnership with Microsoft Bing gives it additional exposure to AI as Microsoft has integrated a number of ChatGPT's capabilities into Bing over the past year.
The adtech company has also developed new generative AI technologies. For example, it recently launched WAVE (Waveform Audio Voice Engine), a new generative AI audio technology that is able to generate hundreds of thousands of highly targeted audio ads using retail data about products and promotions.
With WAVE, retailers don't need to use a human actor to record a radio or podcast spot, and they can rapidly deploy and customize ads according to changing conditions like weather or the time of day, or adapt them to the listener.
Supermarket chain giant Albertson's, the first adopter of the new technology, said it was "blown away" by how real the AI voice sounded. WAVE could help Perion win a significant piece of the digital audio ad market, which is valued at close to $7 billion and expected to grow to nearly $10 billion by 2027.
How Perion could make you a millionaire
Perion is growing rapidly, with revenue up 17% in its most recent quarter to $185.3 million. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 29% year over year to $42.7 million.
Perion's growth has outpaced that of its industry over the last few years as it has invested in new solutions like SORT, its cookieless tracking solution, and it has grown both organically and through acquisitions.
In fact, the company just bought Hivestack, a digital out-of-home (DOOH) advertising platform, for $100 million. DOOH refers to digital billboards and other digitally enabled outdoor media such as ads on bus stop shelters or on top of taxis. That market is just beginning to see significant growth, and the Hivestack acquisition will help Perion diversify its offerings.
Perion is still small, with a market cap of $1.5 billion, giving it significant growth potential, and the stock is cheap, trading at a price-to-earnings ratio of 14. Wall Street seems skeptical that Perion will be able to maintain its recent growth rates, but that gives the stock more upside potential as it benefits from multiple expansion as well as growth. With new AI products like WAVE and a proven acquisition strategy, Perion could evolve into a much bigger company than it is today.
For Perion to become a ten-bagger, its market cap would have to grow from $1.5 billion to $15 billion, which seems achievable, considering the growth in digital advertising, emerging markets and ad surfaces, and the company's track record of growing organically and through acquisitions. By comparison, The Trade Desk, which is the most valuable pure-play adtech stock, is currently worth $37 billion and has a P/E ratio around 60, yet its revenue growth has been similar to Perion over the last three years as the chart below shows.
PERI Revenue (Quarterly YoY Growth) data by YCharts
Given the factors above, it seems within reach for Perion's revenue and profits to 5x over the next decade, which would imply a compound annual growth rate of 18%, and for Perion's earnings multiple to double from 14 as it shows its staying power. That would make the stock a ten-bagger in the next decade, turning $100,000 into $1 million.
You're better off diversifying your portfolio across multiple stocks than investing $100,000 in a single stock, but if you're looking for an AI stock that can help make you a millionaire and offers growth, innovation, and profits, all at a great price, Perion should be at the top of your list.
