A wise man once said that there is nothing new under the sun, and that is very true of late when it comes to the stock markets. Just 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 iteration, generative AI, only went live in late 2022. Now, companies of all kinds are beginning to deploy generative AI in a host of new applications. Generative AI represents a new evolution in AI technology: the ability to generate new content and materials rather than simply analyze and synthesize existing data. Companies that can successfully integrate generative AI and put it to work on behalf of their clients will have an advantage in today’s environment.
This outlook 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 through investments in developer tools. We note that IDC expects a broader DevOps market CAGR of ~36% over 2023-2027. Additionally, we believe front-office developer roles could be among the first to return in a macro upturn.”
In this context, we have used the TipRanks database to examine two of MacWilliams’ top AI picks, both of which received a Strong Buy consensus rating. Let’s take a closer look at these picks.
JFrog (FROG)
The first stock we will look at is JFrog, a DevOps software company dedicated to providing a seamless path for regular and invisible software updates, with the goal of providing a secure and hassle-free workflow directly from developers to end users. . JFrog offers its customers a set of DevOps tools that support major software technologies. The company’s platform allows users to take advantage of a fully automated DevOps process.
In addition to full automation, JFrog’s DevOps platform offers high levels of security and availability for the secure creation of robust production pipelines. The company’s tools are scalable for any number of users or servers and any storage size needed. Additionally, JFrog supports hybrid systems, giving its customers the flexibility to run different combinations of cloud, multicloud, and on-premises solutions.
Recently, JFrog announced that it had signed an agreement to acquire Qwak AI, a creator of AI and MLOps platforms. The acquisition will enable JFrog to provide a unified platform solution for stakeholders in DevOps, Security, and MLOps, providing industry-leading unified functionality. For JFrog, the deal will enhance its machine learning capabilities, as well as further optimize its development models. The acquisition agreement has been valued at $230 million.
Many tech companies operate at a loss, but that hasn’t been the case most of the time for JFrog. In its latest set of financial results, for the first quarter of 2024, the company’s bottom line was 16 cents per share on a non-GAAP basis. This EPS was derived from a total top line figure of $100.3 million, which was up more than 25% year-on-year and was more than $1.6 million better than previously estimated.
When we spoke to Barclays analyst MacWilliams, we found him bullish on JFrog in both the short and long term, beginning his comments by writing: “We believe FROG can capitalize on the near-term improvement in cloud demand for coding workloads.” (due to generative AI) as a global leader in binary management (partnership with MSFT shows strategic importance).”
Looking ahead, MacWilliams adds, “In the long term, AI could accelerate cloud adoption and drive additional spending on cloud artifacts, positioning FROG as a leader in software supply chain management. Additionally, we believe FROG’s consumption-based pricing approach could offer additional advantages, as increased AI-driven software development workflows could accelerate binary demand. Therefore, we believe FROG’s monetization model could be more closely correlated with increased software production as a result of AI.”
Quantifying this stance, the analyst initiates 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 stock a Strong Buy consensus rating, while the average price target of $46.38 and current trading price of $37 .55 together point to a 23.5% stock appreciation next year. (See JFrog Stock Forecast)
Monday.com (MNDÍ)
Next on our list is monday.com, a cloud-based software company 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 operations tools. The platform is cloud-based and targets enterprise customers at a wide range of scales. monday.com’s platform connects people and processes to bring transparency to office workflows.
Some numbers show just how popular the system is. By the end of 2023, the company had over 225,000 registered customers, and by the end of the first quarter of this year, it had 2,491 customers with over $50,000 in annual recurring revenue each. This customer base is served by over 1,900 employees worldwide, in offices as far apart as New York, Miami, and Chicago; London and Warsaw; Sydney and Melbourne; Sao Paulo, Tokyo, and Tel Aviv. Enterprise customers ranging from large companies like Coca Cola to leading tech innovators like Uber all rely on monday.com.
Text processes are notoriously boring, but monday.com incorporates AI into the process and uses the technology to power its automation systems. Sorting, analyzing and categorizing data, obtaining information from text analysis, creating communication summaries, establishing action plans and even translating international communications: the company has integrated AI into its platform to facilitate all these functions .
On the financial side, monday.com reported non-GAAP earnings of 61 cents per share in the first quarter of 2024, beating the forecast by 21 cents. This EPS increased significantly compared to the previous year; the first quarter 2023 result was 14 cents per share. Overall, the company generated total revenue of $216.9 million, approximately $6.3 million more than anticipated, and an increase of more than 33% compared to the previous year.
Analyst MacWilliams begins his coverage of MNDY with an optimistic stance, writing: “We believe in MNDY’s greenfield opportunity and additional sales from new products (such as Monday Dev) across its existing customer set. This enhanced cross-selling movement, improved GTM efficiency and pricing benefits could boost CY25 Street estimates.”
He goes on to outline a number of Monday’s strengths, adding: “MNDY recently noted that ~1/3 of its customers used a CRM or DevOps template in 2023 and ~10% of Fortune 500 companies are using one of those products. Since the widespread launch of Monday Sales CRM and Dev, both products are growing at a faster rate than when monday.com first launched. We believe MNDY’s cross-sell movement and greenfield opportunity in these markets will continue to complement its rev. LT growth, and we note that CRM (~$25M in ARR as of Dec 2023) and Dev were only available to net new customers through May 2024.”
These comments, taken together, fully support MacWilliams’ Overweight (Buy) rating on MNDY shares, and his $275 price target shows his confidence in a 14% one-year upside.
Overall on Wall Street, this stock is getting a lot of love. It has 14 recent analyst reviews with an 11-3 split in favor of Buy over Hold, for a Strong Buy consensus rating. That said, the average price target of $258.33 is slightly less bullish than Barclays’ view and implies a one-year upside potential of 7% from the current share price of $240.76. (See MNDY Stock Forecast)
To find good ideas for stock 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.