Beyond Big Tech: 3 Industries to Invest In AI-Fueled Gains
Last June, Visual Capitalist published a visual industries ranking by their potential for artificial intelligence (AI) automation. There are AI industries where employees should benefit from the secular trend and those that won’t.
At the top of the list of employment exposed to AI automation is office and administrative support at 46%. Many companies will fully automate everyday tasks such as scheduling meetings, writing reports, and data input in the next few years. At the bottom was building, grounds cleaning, and maintenance at 1%.
The MSCI ACWI IMI Robotics & AI Index is a thematic index that tracks the performance of a collection of companies associated with the increased adoption and utilization of AI, robots and automation. Since 2016, the index has had a positive year in the markets; it has significantly outperformed the MSCI ACWI IMI Index, the parent index from which names are selected for inclusion.
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While I’d like to select names from MSCI’s thematic index, I can’t find the constituent list. So, instead, I’ll choose names from the iShares Exponential Technologies ETF (NASDAQ:XT), which has exposure to AI technology.
I’ll select three stocks from the 11th through 40th holdings in XT.
Adyen (ADYEY)
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Adyen (OTCMKTS:ADYEY) is one of the world’s leading payments processors. Its financial technology platform enables businesses of all sizes to accept payments, protect revenue, and control their finances all in one place.
In the second half of 2023, Adyen processed a volume of 544 billion euros ($588.42 billion), 29% higher than the second half of 2022. That produced 887.0 million in revenue ($959.4 million), 23% higher year-over-year (YOY), and 423 million euros ($457.5 million) of EBITDA, 14% higher, with a 48% EBITDA margin.
For 2023, it processed a volume of 970.1 billion euros ($1.05 trillion), generating net revenue of 1.63 billion euros ($1.76 billion) and EBITDA of 743.0 million euros ($803.7 million). That’s an EBITDA margin of 46%, suggesting its profitability is stronger.
Adyen finished the second half with 320 unified commerce customers, up 68 from last year. Unified commerce customers process sales both online and in-store.
One of the ways Adyen uses AI is through Large Language Models (LLMs) and Natural Language Processing (NLPs).
“We aim to use Natural Language Processing to quickly route support cases to the right specialist, accelerating resolution times. Similarly, we use generative AI and LLMs to provide answer suggestions to empower our operations teams, much like having the correct diagnosis and treatment readily available bolsters efficiency in solving problems,” states the company’s Nov. 27, 2023, blog post about driving operational efficiencies.
AI will help Adyen’s employees better flag fraudulent buyers and sellers.
Veeva Systems (VEEV)
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Veeva Systems (NYSE:VEEV) is a Public Benefit Corporation (PBC) providing a cloud-based software platform for the life sciences and other industries. Its two primary solutions for the life sciences industry are Veeva Development Cloud and Veeva Commercial Cloud.
The former provides application suites for life sciences companies’ clinical, regulatory, quality, and safety functions, all built on its proprietary Veeva Vault platform. The latter is software and data solutions built specifically for life sciences companies to commercialize their products more efficiently and effectively. They include solutions for sales, medical affairs, and marketing functions.
In 2024, the company will take its traditional CRM (customer relationship management) and put it on the Veeva Vault platform, attaching customized ChatGPT-like tools through its CRM Bot to provide answers for sales reps about their customers.
“CRM Bot will have the ability to compose highly-tailored content in real-time. So users aren’t limited to a small collection of predetermined keywords to source the answers; they’re tailored completely to the datasets of the platform and the individuals using it daily,” states a recent article from the Assemble digital production studio.
AI will make Veeva an even wider-moat company than it already is.
Hubspot (HUBS)
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Hubspot (NYSE:HUBS) is a marketing and CRM platform that enables more than 205,000 customers in more than 120 countries to attract, engage, and delight their small- and medium-sized customers.
As of Dec. 31, 2023, HubSpot had $2.2 billion in revenue, 25% higher than in 2022. Its free cash flow (FCF) was $292 million, 13% of its revenue, and growing. Its price-to-cash flow ratio as of Q4 2023 was 86.9, 29% less than its five-year average. At the same time, its FCF is still relatively small; however, if it maintains a 13% FCF margin while growing revenues by 25% annually, it will double over the next four years.
At present, Hubspot estimates its TAM (total addressable market) is $51 billion. It expects it to grow to $77 billion by 2028. AI will undoubtedly help it get a large piece of an expanded pie. Founded in 2006, it hit $250 million in revenue a decade later. Seven years later, it generated annual revenues nearly 9x its 2016 results. It moved from a single application in its Marketing Hub to a complete platform today.
Since Q1 2017 through Q4 2023, its revenues have grown an average of 21% per quarter, while the number of customers has grown by 23%. At the same time, its operating profit margin has grown from non-existent to 17% in Q4 2023.
As far as AI, it launched Hubspot AI last September. The comprehensive plan uses customer data to train language learning models about their businesses. Its ChatSpot AI bot will allow marketing and salespeople to ask it questions as part of developing marketing and sales plans, etc.
I’d continue to watch HUBS stock closely. For me, anyway, it managed to fly under the radar. However, you can’t deny the 249% return over the past five years.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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