The allure of stocks that ascend in a parabolic trajectory is indisputable. These stocks have experienced rapid price increases in a short amount of time. These, of course, aren’t always obvious in advance.
Even more crucial is figuring out if a business has what it takes to be successful in the long run. That any one stock will follow this trajectory is beyond the expertise of any one analyst. In the previous bear market, a number of artificial intelligence (AI) stocks that had experienced parabolic growth at the beginning of the decade weakened.
It is more likely that companies like Zoom Video Communication and Upstart Holdings will return to their previous glory since they have reinforced their businesses since the last stock spike. Let’s examine this more closely.
Upstart
In an industry that could need a revolution, Upstart plans to use AI to make it happen. It uses an AI-driven algorithm to assess borrowers’ creditworthiness more accurately, with the goal of replacing Fair Isaac Corporation’s score.
Its internal reports have shown that its approach can increase loan approvals by 44% without raising banks’ default risks. Banks might benefit greatly from such an upgrade. During the bull market of 2021, the stock price surged to just over $400 per share thanks to investor enthusiasm for this technology. But then interest rates started to rise, and the stock’s quick rise turned into losses, and it lost up to 97% of its value all at once.
Revenue for 2023 was $514 million, a 38% year-over-year decline, so the suffering is far from finished. Losses increased from $109 million in 2022 to $240 million in 2023 year during this period. Still, there are indications that things are looking up for the business. Sales for the fourth quarter increased to $147 million from $135 million the prior quarter. Automatic loan approvals increased to 89% in Q4 from 82% a year ago, demonstrating the company’s progress in artificial intelligence.
A more accommodating lending environment, coupled with the Federal Reserve’s intention to cut interest rates this year, should lead to a rise in the quantity of loans. It is true that Upstart still needs to put in more time and effort to stage a recovery. However, considering the current state of affairs, its rational valuation of $4 (p/sales) could potentially appear to be an enormous bargain in the future! The stock might start its long-awaited return in full force as it keeps shaking up the loan evaluation industry with AI.
Zoom Video Communications
The epidemic was a boon for Zoom Video Communications. Tens of millions of users flocked to the site, sending the stock soaring, as lockdowns along with social distancing strategies restricted the in-person contact options for individuals and businesses.
Unfortunately, Zoom’s platform became far less necessary as users resumed their pre-pandemic habits, as was widely known. Another factor that hurt the company’s bottom line and stock price was competition from industry giants like Microsoft. From its peak in late 2020, it is now selling at a discount of about 90%.
An expansion of Zoom’s capabilities into a comprehensive communications ecosystem is good news for investors. Zoom AI Companion and other AI-enabled capabilities, as well as Zoom phone, might attract additional business clients.
Considering this, Ark Invest, run by Cathie Wood, projects that Zoom’s share price will reach $1,500 in 2026, representing a gain of 23 times the current price. Additionally, Ark Invest is hopeful that its conversational AI product, Zoom IQ, and its webinar/events business will continue to thrive. Wood predicts that Zoom IQ will generate half of Zoom’s ARPU from its main offerings.
According to Ark Invest, there is a growing webinar/events company that has the potential to enhance ARPU by 18%. A further 50% of ARPU on Zoom’s main products might come from Zoom IQ, its interactive AI technology.
While that prediction may seem ambitious, investors shouldn’t rule out the chance that Ark Invest could be correct; after all, Ark’s earlier lavish predictions for Tesla did materialize. Zoom still has a ways to go before its results are adequate to warrant anywhere close to that level of increase. Revenue increased by a meagre 3% to $4.5 billion in fiscal 2024, which concluded on January 31. Zoom’s net income increased sixfold to $637 million during that period, but because of factors such as decreasing operational expenses and new revenue streams, profits are projected to level out soon.
Although Zoom has made some changes, the stock price has not increased in the past several months. Given the company’s profit projection, investors may view its price-to-earnings ratio of 32 as pricey. The stock price of Zoom could experience a significant upswing if the company’s webinar segment, along with AI-enabled capabilities, results in significant gains to its ARPU.
