A wise man once said that there is no new thing under the sun – and that’s true enough lately when it comes to the stock markets. Like last year, tech stocks are leading the gains, and AI stocks are providing the foundation for the tech boom.
Artificial intelligence is not a new technology – its earliest iterations date back to the 1950s – but its latest twist, generative AI, hit the ground running at the end of 2022. Now, companies of all stripes are starting to deploy gen AI in a whole host of new applications. Gen AI represents a new evolution in artificial intelligence technology, the ability to generate new content and materials rather than simply analyzing and synthesizing existing data. Companies that can successfully integrate gen AI, and put it into action on behalf of their customers will have an edge in the current environment.
This perspective aligns with Barclays’ Ryan MacWilliams’ view on AI-related companies. In a recent research report, the analyst wrote: “We view the DevOps market as an attractive investment opportunity. In our view, DevOps is well-positioned to capitalize on near-term AI-driven demand as more enterprises prioritize increasing software development velocity via developer tool spend investments. We note that the IDC expects a broader DevOps market CAGR of ~36% during 2023-2027. Further, we think that front-office developer roles could be among the first to return in an improving macro.”
Against this backdrop, we’ve used the TipRanks database to examine two of MacWilliams’ top AI picks, both of which have received a Strong Buy consensus rating. Let’s take a closer look at these selections.
JFrog (FROG)
The first stock we’ll look at is JFrog, a DevOps software firm dedicated to providing a seamless pathway for both regular and invisible software updates, with the goal of providing a hassle-free, secure workflow directly from the developers to the end-users. JFrog gives its customers a set of DevOps tools that are compatible with all major software technologies. The company’s platform enables users to take advantage of a fully automated DevOps pipeline.
In addition to full automation, JFrog’s DevOps platform provides high levels of security and availability, for the safe creation of robust production pipelines. The company’s tools are scalable, for any number of users or servers, and any size of needed storage. In addition, JFrog is compatible with hybrid systems, giving its customers the flexibility to run varying combinations of cloud, multi-cloud, and on-prem solutions.
Recently, JFrog announced it had entered into an agreement for the acquisition of Qwak AI, a creator of AI and MLOps platforms. The acquisition will allow JFrog to provide a unified platform solution for DevOps, Security, and MLOps stakeholders, an industry-leading unified functionality. For JFrog, the deal will enhance its machine learning capabilities, as well as further streamlining its development models. The acquisition deal has been valued at $230 million.
Many tech companies operate at a loss, but that has not been the case most of the time for JFrog. In its last set of financial results, covering 1Q24, the company’s bottom line came to 16 cents per share by non-GAAP measures. This EPS was derived from a top line total revenue figure of $100.3 million, which was up more than 25% year-over-year, and was more than $1.6 million better than had been estimated.
When we check in with Barclays analyst MacWilliams, we find him upbeat on JFrog for both the near- and long-term, starting out his comments by writing, “We believe FROG can capitalize on near-term improvement in cloud demand for coding workloads (due to generative AI) as the global leader in binary management (MSFT partnership shows strategic importance).”
Looking farther ahead, MacWilliams adds, “Longer term, AI could accelerate cloud adoption and drive additional cloud artifactory spend, which positions FROG well as the leader in software supply chain management. Further, we think FROG’s consumption-based pricing approach could offer additional upside as greater AI-driven software development workflows could accelerate binary demand. Therefore we think FROG’s monetization model could be more closely correlated to heightened software output as a result of AI.”
Quantifying this stance, the analyst goes on to initiate his coverage of FROG with an Overweight (Buy) rating and a $50 price target that implies a one-year gain of 33%. (To watch MacWilliams’ track record, click here)
Overall, the 15 recent analyst reviews, with their 13 Buys and 2 Holds, give FROG shares a Strong Buy consensus rating, while the $46.38 average price target and the $37.55 current trading price together point toward a 23.5% share appreciation for the year ahead. (See JFrog’s stock forecast)
monday.com (MNDY)
Next on our list is monday.com, a cloud-based software firm that develops and markets a line of popular work management software products. The company’s product lines include tools for office system optimization, CRM and project management, marketing, and sales ops tools. The platform is cloud-based and targeted at enterprise clients at a wide range of scales. monday.com’s platform connects people and processes to bring transparency to office workflows.
Some numbers will show just how popular the system is. At the end of 2023, the company had over 225,000 customers on the books, and at the end of Q1 this year, it had 2,491 customers with more than $50,000 in annual recurring revenue each. This customer base is served by over 1,900 employees worldwide, in offices as widespread as New York, Miami, and Chicago; London and Warsaw; Sydney and Melbourne; Sao Paulo, Tokyo and Tel Aviv. Enterprise clients, ranging from blue chips like Coca Cola to leading tech innovators like Uber, all trust monday.com.
Word processes are notoriously boring – but monday.com brings AI into the picture, using the tech to power its automation systems. Data sorting, analysis, and categorization; deriving insights from textual analysis; creating communication summaries; setting up action plans; even translating international communications – the company has integrated AI into its platform to smooth out all of these functions.
On the financial side, monday.com showed earnings of 61 cents per share by non-GAAP measures in 1Q24, beating the forecast by 21 cents. This EPS was up strongly year-over-year; the 1Q23 result was 14 cents per share. At the top line, the company brought in total revenues of $216.9 million, approximately $6.3 million better than had been anticipated – and up more than 33% year-over-year.
Analyst MacWilliams starts up his coverage of MNDY with an upbeat stance, writing,“We believe in MNDY’s greenfield opportunity and new product upsells (like monday Dev) across its existing customer set. This enhanced cross-sell motion, improving GTM efficiency, and pricing benefits could drive upside to CY25 Street estimates.”
He goes on to outline a number of monday’s strengths, adding, “MNDY recently called out that ~1/3 of its customers used a CRM or DevOps template in 2023 and ~10% of the Fortune 500 are using one of those products. Since the wide release of monday Sales CRM and Dev, both products are growing in line to faster than when monday.com first launched. We believe MNDY’s cross sell motion and greenfield opportunity in these markets will continue to supplement its rev. growth LT, and we note that CRM (~$25 mil in ARR as of December 2023) and Dev were only available to net new customers until May 2024.”
These comments, taken all together, fully support MacWilliams’ Overweight (Buy) rating for MNDY shares, and his $275 price target shows his confidence in a one-year upside of 14%.
On Wall Street generally, this stock is getting plenty of love. It has 14 recent analyst reviews with an 11 to 3 split favoring Buy over Hold, for a Strong Buy consensus rating. That said, the $258.33 average price target is somewhat less bullish than the Barclays view and implies a 7% one-year upside potential from the current share price of $240.76. (See MNDY stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
