Artificial intelligence (AI) has opened up terrific growth opportunities for companies in several industries. That's not surprising given the rapid adoption of AI in hopes of capturing long-term productivity gains. Ernst & Young's global strategy consulting arm estimates that generative AI could lift the global gross domestic product (GDP) by as much as $2.4 trillion over the next decade thanks to stronger productivity. As a result, it is not surprising to see why companies and governments across the globe have been pouring a lot of money into bolstering their AI infrastructure.
That's why now might be a good time to take a look at two companies that already benefit from this growing AI-related demand. ASML Holding (ASML 0.60%) and Twilio (TWLO 0.80%) both got a nice boost thanks to their AI prospects, but their stock prices are seeing some short-term pressure. However, don't be surprised to see these AI stocks make a sharp move higher and go parabolic. A parabolic move refers to the rapid jump in the stock price of a company in a short period, identical to the right side of a parabolic curve.
Twilio and ASML have enough catalysts in the bag that could send them soaring, both in the short and the long run. Let's take a closer look at why these two stocks are built for impressive upside.
1. ASML Holding
ASML manufactures and supplies chipmaking equipment to the leading foundries and chipmakers across the globe, and it plays a central role in the proliferation of AI. ASML is the only manufacturer of extreme ultraviolet (EUV) lithography machines. The strong demand for AI-related semiconductor chips created a strong demand for these machines capable of making chips based on advanced process nodes.
NASDAQ: ASML
Key Data Points
These advanced chips use process nodes measuring 7-nanometer (nm), 5nm, 3nm, and lower. The small size of these nodes allows chipmakers and foundries to pack more transistors into a smaller area, which eventually leads to better performance and lower power consumption and also reduces the cost of manufacturing chips.
Not surprisingly, advanced process nodes are being used by multiple companies, ranging from Nvidia to Apple to Qualcomm to Taiwan Semiconductor Manufacturing, to manufacture AI chips. For instance, Apple's latest iPhones that support AI features are powered by the A18 chip, which is manufactured using a 3nm process node. These new chips are reportedly 15% faster than the previous generation processor and consume 20% less power.
AI chip giant Nvidia, on the other hand, has moved to a 4nm process for its latest generation of Blackwell processors from the 5nm process that was used for manufacturing its popular Hopper generation processors. All this explains why ASML saw a significant increase in orders for its machines.
The company's net bookings jumped by a whopping 170% sequentially in the fourth quarter of 2024 to 7.1 billion euros. ASML points out that 42% of its bookings last quarter were for EUV machines. The Dutch giant says that the strong demand for EUV machines, thanks to AI, could help it achieve the higher end of its 2025 revenue guidance of 30 billion euros to 35 billion euros.
Another thing worth noting here is that chipmakers, foundries, and cloud computing giants have all said they plan to ramp up their spending on AI infrastructure in 2025. For example, tech giants Meta Platforms, Microsoft, Alphabet, and Amazon are set to raise their combined capital spending by an impressive 46% this year to $325 billion. Foundry giant TSMC said it is going to raise its capital spending in 2025 by 33% to $40 billion (at the midpoint of its guidance range). The company is going to spend 70% of its capital expenditure on advanced processes. These developments suggest that ASML could end up delivering stronger-than-expected growth in 2025.
Analysts expect ASML's earnings growth to pick up the pace from 2025 following a small decline of 3.3% last year to $20.82 per share.
Data by YCharts.
Even better, the company should be able to sustain such impressive growth for a much longer time as the demand for AI chips is likely to increase thanks to the growing application of this technology in multiple areas such as data centers, smartphones, automotive, and other edge applications. It may not be long before ASML stock starts flying higher, which is why it may be a good idea to buy this semiconductor stock while it trades at an attractive 27 times forward earnings.
2. Twilio
One of the industries where AI technology is set to gain rapid adoption is cloud-based contact centers. Twilio is a leading player in this market. The company's application programming interfaces (APIs) enable businesses to remain in touch with customers through various channels such as voice, text, email, and others.
NYSE: TWLO
Key Data Points
Future Market Insights estimates that the AI-based cloud contact center market could generate nearly $20 billion in revenue in 2034 as compared to $3.7 billion last year. This lucrative opportunity is already having a positive impact on Twilio's performance.
The company reported 7% revenue growth in 2024 to $4.5 billion, but its top line jumped at a more impressive pace of 11% in the final quarter of the year. Twilio's improved growth can be attributed to the growing demand for its AI-focused tools. Management pointed out on the February earnings conference call that 90% of the Forbes 50 AI start-ups are building applications using Twilio's solutions. Meanwhile, the company saw 9,000 customers using its services to build AI communications tools last year.
Twilio has been pushing the envelope in the cloud communications market by partnering with the likes of OpenAI to bring AI tools to customers. The good part is that its AI communications solutions are gaining traction among clients. This is evident from the impressive 47% year-over-year increase in the number of deals worth at least half a million dollars that Twilio signed in the communications business last quarter.
With the adoption of AI in the contact center market still in its early phases, Twilio has a huge growth opportunity ahead of itself, considering that it has built a strong active customer base of 325,000. The majority of these customers have not yet adopted its AI solutions, opening up cross-sale potential.
Analysts expect a 19% increase in Twilio's earnings this year, followed by healthy growth in the next two years as well.
Data by YCharts.
What's more, the stock's 12-month median analyst price target of $160 points toward potential gains of 61%. As such, this cloud stock seems well-placed to make a parabolic move in the coming year due to the improving adoption of its AI tools. Twilio trades at an attractive 23 times forward earnings right now.
