On Monday, May 22, I listed NVIDIA as one of the stocks to watch this week. If you decided to pick it up then – congratulations, because you just made 25% gains on a mega-cap stock in a few short days.
But if you didn’t get in on NVIDIA then, you might be feeling the all-too familiar feeling of FOMO – the fear of missing out. You may be tempted to jump into NVIDIA stock now, but are fearful that it has become too expensive – that everybody else is already jumping in and you’ve missed the bandwagon.
While I can’t say whether it’s too late to get in on NVIDIA now (I believe it’s still a solid long-term pick), today’s daily stock pick is an overlooked alternative that could also benefit from the AI revolution.
Other plus points – it’s not overly expensive and it has a rock-solid balance sheet that could help it weather any economic storms on the horizon.
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Twilio Inc. (TWLO)
Twilio is a customer engagement platform that enables businesses to build unique, personalized experiences for their customers. Businesses can use its platform to send SMSes, WhatsApp messages, voice, video, and email to their customers, all customized according to their individual customer journeys. In industry parlance, Twilio is a Cloud communication Platform as a Service (CPaaS).
First, let’s get the negatives out of the way. After Twilio released earnings a couple weeks ago, its shares took a dive. The primary reason was lackluster forward guidance for Q2 revenue – which the company expects to be just about 5% higher compared to a year ago.
Now, let’s look at the positives. First is AI. One big use of generative AI language models is chatbots. And Twilio has already integrated ChatGPT and GPT-4 into its platform, allowing it to provide contextual responses. This is a significant growth catalyst.
Second is its bottom-line earnings. Sure, analysts may have been unimpressed by the immediate forward guidance. Adjusted earnings per share now stand at $0.47 compared to nil a year ago. And consensus estimates point to the company’s earnings doubling every year for the next 5 years.
Third is its balance sheet. Currently, Twilio has $4.2 billion in cash and other short-term investments compared to just $1.2 billion in total debt. It is extraordinarily well-capitalized, giving it a strong buffer to survive any economic headwinds.
Finally, is its price and valuation. For context, NVIDIA now trades at about 26x sales, while Twilio trades at just over 2x. And should Twilio’s Q2 earnings surprise to the upside, its stock could see a big bump.
In sum, if you missed out on NVIDIA, be sure to pay close attention to this overlooked AI stock. It may just surprise you.
To your wealth,
Felix @ Ace of Investing