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Artificial intelligence (AI) stocks have been on an absolute tear in 2023, fueled by the widespread usage of tools like ChatGPT, paired with ambitious industry forecasts. AI is expected to be a megatrend, according to Statista, as the total addressable market is forecast to increase from less than $100 billion in 2021 to $1.75 trillion in 2030.
Familiar big-cap tech names like Nvidia (NVDA), Microsoft (MSFT), and Meta Platforms (META) are among the more high-profile stocks that have dominated the AI story in 2023. But there are many smaller companies still flying under the radar - and some of them are worth a closer look for investors who are looking to add exposure to this disruptive industry.
Here are the key stats on three lesser-known AI stocks you can add to your watchlist.
Sprinklr
Sprinklr (CXM) provides an AI-powered platform that enables enterprises to engage with their customers across 30 digital channels. Its portfolio of tools and services allows companies to efficiently make data-driven decisions, personalize marketing and advertisements, and manage social media and other sales channels. Around 115 customers spend more than $1 million on the Sprinklr platform.
Valued at a market cap of $3.74 billion, Sprinklr increased sales from $324 million in fiscal year 2020 to $618 million in FY 2023 (ended in January). The company also reported a net expansion rate of 122%, which suggests existing customers increased spending by 22% in the last 12 months.
During the first quarter, revenues at Sprinklr rose more than 20% year-over-year, and the company ended the quarter with remaining performance obligations (RPO) of $708 million - an indication of how much revenue the company has contracted for, but not yet invoiced.
Priced at 5.8 times forward sales, Sprinklr's own guidance calls for adjusted earnings per share of $0.19-$0.21 in fiscal 2024. Analysts, meanwhile, are looking for 105% earnings growth in 2024.
Of the 13 analysts covering CXM, seven have a “strong buy” recommendation, and six recommend a “hold.” The average price target for Sprinklr stock is $16.40, about 19% above its current price.
Sprout Social
Sprout Social (SPT) offers cloud software that integrates social content, messaging, data, and workflows into a unified system, so enterprises can easily operate across social media and business channels.
With 4.5 billion people active on social media globally, businesses must continue to find ways to acquire, engage and monetize customers, boosting demand for Sprout Social’s AI-based solutions. Sprout Social generates 99% of sales via subscriptions, providing it with a steady stream of cash flows across market cycles.
Valued at a market cap of $2.91 billion, Sprout Social ended 2022 with sales of $253.8 million, up from $102.7 million in 2019. The company wrapped up the first quarter of 2023 with $310 million in annual recurring revenue, a gross profit margin of 78%, and revenue growth of 31% year-over-year.
Priced at nine times forward sales, SPT shares trade at a discount of 11.7% to the consensus price target of $60.55. Out of the 12 analysts covering Sprout Social stock, nine recommend a “strong buy,” one maintains a “moderate buy,” and two recommend a “hold.”
Sprout Social emphasizes its platform is mission-critical for more than 30,000 customers as it continues to expand its capabilities to handle new use cases. Its ARR, or the annualized revenue run-rate of subscription agreements from all customers, rose 35% in the first quarter, driven by steady customer growth and widening deal sizes. That follows 32% annual growth in ARR for 2022, highlighted by a 59% expansion in the number of customers contributing over $50,000 to ARR during the fiscal year.
EPAM Systems
The final stock on my list is EPAM Systems (EPAM), a company valued at $13 billion by market cap. EPAM has over 30 decades of software and digital platform expertise, serving companies across 11 industries and 50 countries, and offers a suite of generative and operational AI tools targeted to enterprise customers.
Annual sales at EPAM were $4.82 million in 2022, more than doubling 2019 revenues. With an operating margin of 17%, EPAM is forecast to end 2023 with earnings of $9.92 per share, indicating a forward price-to-earnings multiple of 25x, which is quite reasonable.
Out of the 14 analysts tracking EPAM stock, six recommend a “strong buy,” one recommends a “moderate buy,” 6 recommend a “hold,” and one has a “moderate sell” rating. Wall Street has an average price target of $248.15, which is now below the stock's current price.
In fact, EPAM is up more than 4% this afternoon after a second-quarter earnings and revenue beat, as investors appear to be shaking off the company's relatively soft third-quarter guidance. This positive reaction in the share price seems to confirm there are still some AI-related stocks flying under the radar with valuations that haven't been overly stretched by optimistic forecasts.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
