Artificial Intelligence Revolution: Uncovering Hidden Gems
The artificial intelligence (AI) phenomenon has taken Wall Street by storm, and for good reason. With its ability to learn and evolve without human intervention, AI has the potential to transform industries worldwide. According to PwC, the AI revolution could contribute a staggering $15.7 trillion to global GDP by 2030.
Wall Street’s Mixed Feelings on AI Stocks
Despite the excitement surrounding AI, the smartest and most successful investors on Wall Street have mixed feelings about AI stocks. Form 13F filings reveal that institutional investors with over $100 million in assets under management are cautious in their approach to AI investments. However, some of Wall Street’s most influential businesses have investment arms that provide valuable insights into their investment strategies.
Alphabet’s AI Playbook
Google parent Alphabet recently released its 13F filing, revealing a 42-stock, $1.84 billion portfolio. Two AI-related trades caught our attention. The most striking move was Alphabet’s decision to reduce its stake in Snowflake by 79%, selling 421,050 shares. This significant reduction raises questions about Snowflake’s valuation and growth prospects.
Snowflake’s Competitive Advantages
Snowflake boasts several competitive advantages, including its cloud-based platform built on popular cloud infrastructure services. This allows seamless data sharing across competing platforms. Additionally, Snowflake has incorporated AI and machine learning capabilities into its platform, enabling customers to create generative AI applications and build large language models. Its pay-as-you-go pricing model has also resonated with users.
Freshworks: The AI-Driven SaaS Provider
On the other hand, Alphabet’s investment team purchased shares in Freshworks, an AI-driven SaaS provider. Freshworks is well-positioned to capitalize on growing demand for customer relationship management (CRM) software solutions. Its suite of solutions incorporates AI technology, providing automated yet personalized customer interactions. With sales jumping 22% in the September-ended quarter, Freshworks is poised for sustained double-digit sales growth.
A Shift in Focus
Alphabet’s shift in focus from Snowflake to Freshworks raises questions about the former’s valuation and growth prospects. With revenue growth slowing and economic weakness on the horizon, Snowflake’s forward P/E ratio of 135 and price-to-sales ratio of close to 10 may be difficult to justify. In contrast, Freshworks’ current forward P/E of 32 might prove to be a bargain if it achieves 30%-plus average annual earnings growth through 2028.
Uncovering Hidden Gems
As investors navigate the complex AI landscape, it’s essential to uncover hidden gems like Freshworks. By identifying companies with strong competitive advantages and growth prospects, investors can position themselves for success in the rapidly evolving AI market.
Leave a Reply