Palantir Technologies (PLTR +1.49%) is likely one of the first names that comes to mind when investors are looking for a company that's capitalizing on the proliferation of artificial intelligence (AI). The company's expertise in the generative AI software market is a big reason why that's likely to be the case. After all, Palantir's Artificial Intelligence Platform (AIP) has been a massive hit among customers looking to integrate generative AI technology into their operations, helping them achieve significant productivity gains.
Unsurprisingly, Palantir's growth has accelerated remarkably this year, leading to a 156% surge in its stock price. However, concerns about Palantir's expensive valuation have weighed on the stock of late. This is evident from a 6% increase in its stock price over the past three months, despite the company delivering a solid set of results just last month.
However, shares of Twilio (TWLO 0.46%) have surged in the past three months. The stock has appreciated an impressive 36% during this period, significantly outpacing Palantir's gains. Let's examine why that has been the case and why it may be a good idea to buy this stock right away.
Image source: Getty Images.
AI is boosting Twilio's growth
Twilio is a cloud communications specialist that offers application programming interfaces (APIs), allowing its clients to communicate with their customers across various channels, including text, email, voice, chat, and others. The company's solutions have helped replace traditional contact centers. Its clients simply need the internet and a computer or smartphone to get in touch with their customers, rather than setting up physical contact centers that are more costly to establish and maintain.
NYSE: TWLO
Key Data Points
Apart from APIs, Twilio's cloud platform also offers AI-driven insights to its clients. For instance, Twilio customers can improve engagement and drive stronger sales with the help of AI-driven predictive analytics and recommendations. The company enables its clients to make personalized large language models (LLMs) based on customer data to gain a better understanding of customer habits and deploy marketing campaigns accordingly.
Importantly, Twilio's customer base is growing at a faster pace thanks to the adoption of its AI offerings. The company's active customer accounts increased by 22% year over year in the third quarter to 392,000. That was much better than the 4% increase in its active customer accounts in the same quarter last year.
An improvement in the spending of existing customers also accompanies this healthy increase in Twilio's active customer base. The company reported an increase of 4 percentage points in its dollar-based net expansion rate in Q3 to 109%. This metric compares the spending by Twilio's customers at the end of a quarter to the spending by that same customer cohort in the year-ago period. A reading of more than 100% means that existing customers purchased more of Twilio's offerings, and the good part is that this metric expanded at a healthy pace.
Twilio believes it can continue to win a bigger share of its customers' wallets through the cross-selling opportunities that its AI products are creating. Management remarked on the October earnings call that the number of customers using multiple products crossed 20% thanks to the growing adoption of its agentic AI and conversational AI solutions. So, Twilio still has a lot of room to push more cross-sales, and that should help the company clock robust earnings growth.
It reported a 22.5% year-over-year increase in its earnings in Q3 to $1.25 per share on a 15% year-over-year jump in revenue. Investors will do well to note that Twilio's growth trajectory has improved in recent quarters.
TWLO Revenue (Quarterly) data by YCharts.
The stock can turn out to be a long-term winner
The communications platform-as-a-service (CPaaS) market, which Twilio serves, is forecast to grow at an annual rate of 19% through 2034, according to Precedence Research. The market's revenue is anticipated to increase from $23 billion in 2025 to $108 billion in 2034, with AI playing an important role in fueling this growth.
Twilio is on track to end 2025 with just over $5 billion in revenue, indicating that it has a share of almost 22% in this space. That share could improve in the future as AI drives stronger adoption of Twilio's solutions across its customer base. Even if Twilio manages to increase its market share to 25% by 2034, its top line could reach $27 billion by the end of the forecast period.
Twilio is trading at an attractive 4.5 times sales right now, much lower than Palantir's sales multiple of 126. Assuming Twilio trades at even 5.5 times sales in 2034 (in line with the Nasdaq Composite index's sales multiple), its market cap could jump to $148 billion. Twilio currently has a market cap of $22 billion, indicating that this stock has the potential to become a multibagger pick in the long run.
