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On Tuesday, Bernstein highlighted potential winners in the software industry resulting from the buzz around Deepseek, a new AI tool with promising performance and cost efficiency. The firm observed a significant increase in engagement following the release of similar AI models in the past, suggesting a surge in demand for AI-enabled services could benefit a range of software vendors. According to InvestingPro data, this trend has already benefited companies like Twilio (NYSE:TWLO), which has seen a remarkable 93% return over the past year and maintains strong financial health with a current ratio of 5.06.
Deepseek, known for its high inferencing performance at a disruptively low price, has sparked discussions about the beneficiaries of more efficient and less expensive AI capabilities. According to Bernstein, the release of OpenAI's 4o-mini model last summer led to a 50% increase in user engagement in just one quarter, indicating that lower costs could drive higher demand for AI applications.
This trend is expected to favor companies providing software infrastructure, such as those in data infrastructure, identity verification, observability, communications tooling, and browser delivery services. Bernstein cites companies like CFLT, OKTA, DDOG, TWLO, and NET, as well as AI-project application platforms like NOW, which may consider consumption pricing models to cover inference costs. For Twilio specifically, InvestingPro analysis reveals 13 analysts have recently revised their earnings upward, suggesting growing confidence in the company's AI-driven growth potential. InvestingPro subscribers can access over 15 additional key insights about Twilio's market position and financial outlook.
The analysis suggests that while computational intensity decreases, the demand for AI services is on the rise, creating a debate over whether providers of inference or training capacity will emerge as net winners. However, Bernstein believes that the infrastructure layer above these services stands to gain the most.
The enterprise adoption of AI-enabled projects has been slow, with many projects lingering in the proof-of-concept stage due to high costs and the challenge of validating benefits. Deepseek's potential to lower model costs could accelerate the production of new projects, benefiting software consumption infrastructure providers above the hyperscaler level.
Bernstein's insights come as the industry anticipates the impact of Deepseek on the AI market, with an expected increase in the number of viable projects and a faster pace of project deployment into production, providing a tailwind for software vendors. For detailed analysis of Twilio and other AI-beneficiary stocks, investors can access comprehensive Pro Research Reports on InvestingPro, which transform complex Wall Street data into actionable intelligence through expert analysis and intuitive visuals.
In other recent news, Twilio has been making significant strides in its financial performance and strategic initiatives. The company's Q3 2024 revenue reported a 10% year-over-year increase, reaching $1.13 billion, largely attributed to its Communications segment. Analysts from firms such as Needham, BofA Securities, Stifel, TD Cowen, and RBC Capital have raised their stock price targets for Twilio, following the company's Investor Day where it presented ambitious financial targets for 2025 and 2027, including a non-GAAP operating margin target of 21–22% and a cumulative free cash flow target exceeding $3 billion.
Recent initiatives such as the integration of Segment with its Communication platform, the addition of more automation, AI enhancements, and an organizational realignment were also highlighted as steps towards realizing the company's vision and driving double-digit revenue growth. Despite these positive developments, analysts have also expressed caution regarding the competitive landscape and the sustainability of growth.
Twilio's strong financial health, indicated by a current ratio of 5.06 and an aggressive share buyback strategy, was acknowledged by analysts. The company's recent focus on AI and automation has led to a series of upgrades from various analyst firms. These are the recent developments for Twilio.
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