When tech investors look back on 2023, they might see it as a new beginning. After the brutal sell-offs they endured in 2022, many of their stocks recovered as OpenAI's ChatGPT renewed interest in artificial intelligence (AI).
Investors might differ on whether traders are in another bull market. Whatever the answer is to that question, many of these stocks will likely keep moving higher in 2024 as interest rates fall and confidence rises.
To that end, here's why these three Motley Fool contributors think investors might want to consider Twilio (TWLO 1.47%), UiPath (PATH 0.26%), and CrowdStrike Holdings (CRWD 2.03%).
Buy Twilio for its AI innovation and customer growth
Justin Pope (Twilio): Cloud-based communications company Twilio has had an excellent year, up 55% in 2023. That's a step in the right direction, though shares are still down 80% from their former high.
So, what's been the problem? Revenue growth slowed, and Wall Street got fed up with the business losing money.
Management heard the message and began focusing on cutting costs to turn the ship around. You can see below that free cash flow has exploded in the right direction, and now the business is posting an adjusted profit. Wall Street rewarded Twilio's turnaround, but revenue growth must improve for the stock's ascension to continue.
TWLO revenue (quarterly YoY growth); data by YCharts; YoY = year over year.
Fortunately, there are reasons for optimism. Scan the technology sector, and you'll see many companies that saw growth slow over the past two years.
Surging interest rates designed to slow inflation (and corporate spending in the process) are primarily to blame. While revenue growth slowed, Twilio has continued growing its customer base. It had 306,000 active accounts as of the third quarter, up from 250,000 two years ago.
And it recently launched CustomerAI, a service that uses AI and real-time data from Twilio's engagement platforms to personalize insights and marketing for individual customers. Twilio could see growth come back some when corporate spending loosens up again. Analysts see revenue growing to $5 billion by 2025, up from $4.1 billion over the last 12 months.
Analysts believe Twilio's improving profitability will generate annual earnings growth averaging 45% over the next several years. Meanwhile, the stock trades at just 36 times earnings, a favorable price/earnings-to-growth ratio of 0.8. The bottom line is that Twilio's comeback story should stretch beyond 2023.
This robotics stock continues to compute with investors
Will Healy (UiPath): Cathie Wood called robotics one of the 14 transformative technologies that will change the world. Such innovations tend also to benefit investors, and in the robotics realm, the company most likely to drive such returns is UiPath.
UiPath is a software company leading the way in robotic process automation (RPA). Its software bots perform repetitive tasks and serve as virtual assistants, and AI drives many of these processes.
The company stands out from competitors through its UiPath Community, which provides free training, tools, and support to more than 2 million users. This fosters engagement and an exchange of ideas within its ecosystem, which has the effect of reinforcing the company's software as the standard.
To this end, it attracted almost 2,000 customers that spent $100,000 or more on the platform as of the end of the third quarter of fiscal 2024 (ended Oct. 31). Moreover, management reported net dollar retention of 121%, meaning customers on the platform for more than one year increased spending by an average of 21% over the previous year.
That helped increase revenue in the first nine months of fiscal 2024 to $903 million, 20% higher than one year ago. The company also reduced its net loss over the period to $124 million, down from a $301 million loss during the same period in fiscal 2023.
Nonetheless, stock-based compensation led to that loss. With $183 million in adjusted free cash flow over the previous three quarters and around $1 billion in cash, UiPath does not need outside funding.
With that financial stability and its AI-driven niche, the stock has risen by about 95% in 2023. And since analysts predict rising revenue for the foreseeable future, that increase will most likely continue in 2024.
Lastly, its valuation indicates it is not too late to buy the robotics stock. At a price-to-sales (P/S) ratio of 12, the multiple is low by historical standards, likely setting the stage for more AI-driven gains.
Cybercrime is only getting worse
Jake Lerch (CrowdStrike Holdings): It's been a year to remember for CrowdStrike Holdings. Up 144% in 2023, CrowdStrike's stock is the third-best performer within the Nasdaq 100, trailing only Nvidia and Meta Platforms.
The company, which employs AI to thwart cyberattacks, is seeing demand for its products go through the roof. Part of the reason is that cyberattacks themselves are becoming so widespread.
Indeed, in just the past few weeks, MongoDB, VF (the maker of Vans and North Face apparel), and mortgage broker Mr. Cooper Group (formerly known as Nationstar Mortgage Holdings) have all announced cyber breaches that resulted in the exposure of sensitive customer or employee data.
What's more, these are only the attacks the public knows about. It's conceivable that many more ransomware attacks -- hacks where cybercriminals demand payment instead of exposing sensitive data or shutting crucial systems -- fly under the radar.
CrowdStrike's security modules help organizations by securing their network, data, and endpoints to prevent catastrophic breaches before they happen. The company's AI is trained to examine billions of data points -- learning what behaviors are typical and which are potentially malicious. When a potential hostile action is identified, the AI takes preventative action or alerts security personnel accordingly.
Thanks to its cutting-edge technology, CrowdStrike's revenue has soared this year, and the trailing-12-month figure now stands at $2.9 billion. Quarterly revenue is growing at 35% year over year, while free cash flow has a compound annual growth rate of 43% over the last three years.
In short, CrowdStrike is riding a tsunami of growth in the cybersecurity industry that should see it continue its stunning growth well into 2024 and beyond.
