Investor enthusiasm for artificial intelligence (AI) has sent stock prices soaring for many AI-focused companies. Fortunately, you can still find some great AI stocks with over 20% upside over the next twelve months.
Wall Street analysts are tasked with tracking the ride-hailing champion Uber Technologies (NYSE:UBER) And PubMatic (NASDAQ: PUBM)an ad tech specialist, thinks these stocks could rise more than 20% from their recent closing prices.
Price targets can be exciting, but it’s important to remember that they are based on assumptions that may not turn out as planned. Analysts can easily adjust their price targets downwards if their predictions do not turn out as expected. Unfortunately, this will not help you recover any losses.
Here’s a closer look at whether these AI stocks are smart buys.
1. Uber Technologies
Shares of Uber are down about 15% from their recent peak in March. Tigress Financial analyst Ivan Feinseth thinks the economy can bounce back. On April 19, Feinseth raised his price target for Uber to $96 per share, implying a gain of about 39% from recent prices.
Uber has been using rules-based machine learning models to manage pricing and match drivers to passengers for eight years. The company also uses its own DeepETA AI to predict arrival times.
This is just the tip of the iceberg. In the not-so-distant future, AI could play a much more important role for Uber by helping it manage a fleet of self-driving robotaxis. Currently, however, it appears that the company’s network effect is driving profitability.
Uber’s size is its main advantage. Drivers stay active on Uber because it has the most potential customers, and vice versa. In the fourth quarter of 2023, Uber registered 2.6 billion rides. That’s about 2.4 billion more trips than its biggest American rival. Lyftreported in the same period.
2. PubMatic
PubMatic is an ad tech company that uses AI to optimize the bidding process. It’s not the largest ad tech company, but its AI-based bidding platform is becoming increasingly popular among publishers demanding big bucks for their available ad inventory.
B. Riley, an investment bank, recently resumed coverage of PubMatic with a buy rating. Analyst Daniel Day set a $27 price target on the stock. The new target implies a gain of approximately 24% over recent prices over the next twelve months.
In addition to an industry-leading AI-based bidding platform that publishers love, PubMatic offers a supply path optimization (SPO) service that continues to attract ad buyers. Today, agencies representing major brands typically deal with more than a dozen different sales platforms.
Ad buyers are increasingly turning to PubMatic to assess which supply-side platforms will use their available budget most effectively. Supply path optimization represented 45% of PubMatic’s total activity at the end of 2023, compared to 34% at the end of 2022.
Time to buy?
Last year was not a great year for the advertising industry. Despite the challenge, PubMatic reported free cash flow that grew 38% to $52.8 million in 2023, which was an impressive 20% of total revenue.
Despite the rapid earnings growth and strong profitability that PubMatic has shown, expectations are surprisingly low. The stock has traded at about 23.7 times its free cash flow. At these prices, growth-hungry investors want to hit the buy button.
Uber reported free cash flow that rose from $390 million in 2022 to $3.3 billion last year. The mobility and delivery leader has been trading at a deficit in free cash flow for about 43 times.
Uber is trading at a high price, but its profit margins are growing rapidly. For growth-seeking investors with significant risk tolerance, adding a few stocks to a diversified portfolio isn’t a bad idea.
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Cory Renauer has positions in PubMatic. The Motley Fool holds and recommends positions in PubMatic and Uber Technologies. The Motley Fool has a disclosure policy.
2 Best Artificial Intelligence (AI) Growth Stocks With More Than 20% Gains, According to Wall Street, originally published by The Motley Fool
