Why AI Stocks See Powerful Results: The Efficiency Advantage
For the past several months, talk of an ‘AI bubble’ has been a media mainstay. I’m sure you’ve seen the headlines – ‘Will AI Be a Bust? A Wall Street Skeptic Rings the Alarm,’ ‘The Thrill of AI Is Fading,’ ‘Wall Street Sounds AI Bubble Alarm.’
But the truth is, the AI Boom remains alive and well. Indeed, the Global X Artificial Intelligence ETF (AIQ) is up about 20% since early August. And AI stocks are now broadly up about 40% over the past year and 90% since late 2022.
AI stocks have been, still are, and will likely remain on fire.
But… even amidst all the AI fervor on Wall Street… friends and family are constantly asking:
What even is AI? And why is it such a big deal?
Well, by definition, AI refers to the machines or computer systems that can perform tasks that typically require human intelligence. These systems have a wide range of capabilities, such as learning from experience (machine learning), understanding and processing language (natural language processing), recognizing patterns (vision and speech recognition), problem-solving and, in some cases, decision-making.
In short, artificial intelligence is a bunch of computer programs doing things by themselves.
But… why does it matter? That is the far more interesting question.
And, for that, there is a far more interesting answer:
Because it can allow us to do much more with much less.
In our view, AI allows us to become hyper-efficient. We can use such programs to autonomously complete tasks that we previously had to handle ourselves. That means we can use AI to achieve just as much output without as much input.
This is more than some futuristic concept.
Companies across the world are already using AI to do more with less – and in many cases, it is translating to increased profits and soaring stock prices.
Driving Stock Gains With AI
Consider the tiny fintech firm, Dave (DAVE). The company operates a mobile fintech app geared at providing a range of financial services for those underserved by the traditional banking industry. And it’s recently tapped into the power of AI to help it do just that.
Last year, the company launched its proprietary Cash AI engine – a cash-flow-based underwriting system that leverages artificial intelligence to analyze incomes, spending habits, and job prospects to determine loan readiness.
Forget traditional credit scores, which research suggests disproportionately punish lower-income consumers. Dave developed a new system, using AI, to help folks land loans. And originations through the Cash AI engine have been surging.
Moreover, in 2023, Dave launched an AI chatbot – DaveGPT – to automate customer service requests. This has allowed Dave to improve customer satisfaction by handling more customer service requests without needing additional payroll to handle those requests.
The proof of these new AI products is in the numbers – and the stock price.
Over the past two years, Dave has been able to cut operating expenses by 25%, yet still grow revenues by about 70%.
And in response, DAVE stock has been soaring. It has increased more than 1,000% off its summer 2023 lows.
That is the power of AI at work: allowing a small company to do more with less, thereby driving up revenues without increasing expenses – and pushing the stock price way higher in turn.
Following the Formula to Profits
Of course, Dave isn’t alone here.
Consider another small firm called AppLovin (APP). It focuses on mobile marketing. Specifically, it helps app developers monetize their apps, mostly with advertisements. And it, too, has figured out how to use the power of AI to juice its business.
Last year, AppLovin launched its Axon advertising platform, which leverages artificial intelligence to make smart marketing placement decisions for advertisers. Results have been strong, and consequently, advertisers are heavily increasing spend on the platform.
This increased spend has allowed AppLovin to grow revenues by about 40% over the last two years. Operating expenses, meanwhile, have dropped 3%.
Clearly, AI is allowing AppLovin to do more with less.
And Wall Street is rewarding those efforts, with APP stock up about 1,600% off its late 2022 lows.
Or how about Axon (AXON), a company that supplies technology solutions to law enforcement agencies?
The firm got started by selling tasers to police, then body cameras, cloud solutions, so on and so forth. Now, of course, it’s selling AI products to police – and they’ve been a huge hit so far.
Earlier this year, the company launched Draft One, which takes visual data from body cameras to autonomously create the first draft of a police report. And this product has been a huge hit.
In its first three months, Draft One racked up over $100 million in orders – Axon’s best product launch ever.
And how is AXON stock doing? Fabulously, as you might’ve guessed. The stock is up 425% from its summer 2022 lows.
The Final Word on Today’s AI Boom
The list of AI-driven success stories goes on and on.
Popular language-learning app Duolingo (DUOL) is using artificial intelligence to help users learn foreign languages more intuitively by conversing with chatbots. Tech firm Monday.com (MNDY) is using AI to create chatbots that automate customer service requests. Fintech company MoneyLion (ML) leverages artificial intelligence to pair consumers searching for financial services with product partners. And banking solutions provider Q2 (QTWO) has created a complete AI banking platform to help bankers automate time-consuming tasks.
Every one of those companies is using artificial intelligence in innovative ways. All are seeing their revenues increase, while keeping expenses relatively low.
All are using AI to do more with less. And all are being rewarded with soaring stock prices.
That’s the formula on Wall Street right now.
DUOL stock has risen about 350% off its summer 2022 lows. MNDY stock is up 280% off its summer 2022 lows. ML stock has surged 420% off its early 2023 lows. And QTWO stock is up 300% off its early 2023 lows.
So – what does that mean for us?
We’ve got to find the companies using AI to do more with less. Those are the stocks that should keep winning in this environment.
And we’ve already got a few potential winners in mind.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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