TBLA - Generative AI could boost profitability for these sleeper stock picks

2023-06-10 10:39:23 ET

The growth and implementation of generative AI is expected to create some winners and losers across many industries as different aspects of the business world are changed. While Nvidia ( NVDA ), Microsoft ( MSFT ), and Amazon ( AMZN ) have already had a bright spotlight on them for AI potential, Needham is looking further under the digital hood for some potential underappreciated stock plays. In particular, generative AI is seen being much more than just hype for some companies in the online retail and consumer tech sectors.

Needham sees generative AI upside for consumer tech players through new revenue streams and pricing power, as well as market share gains for early adopters as the cost of entry into new product or business lines rises over time. In addition, cost savings from automation efficiencies through AI are expected to take off and impact margins and EPS in the next few years for the companies that get it right. As part of its AI overlook, Needham called out some companies that could make an early push that pay offs in the long term and boosts share prices.

Genius Sports ( NYSE: GENI ) is noted to be using technology from Second Spectrum to augment to perhaps eventually revolutionize how fans engage with sports broadcasts. "We expect this to help push the adoption of in-play betting and drive advertising opportunities." Shares of GENI are up more than 70% year-to-date, but the Seeking Alpha Quant Rating is still flashing Strong Buy.

In the real estate sector, Needham thinks companies like Compass ( COMP ) and Redfin Corporation ( RDFN ) could have an edge in leveraging generative AI to improve agent productivity and drive market share gains, as well as cost-saving opportunities. Both the stocks are well-below their 52-week highs.

Shutterstock ( SSTK ) is said to have the widest risk-reward AI profile in Needham's coverage of the tech through potential opportunities to take share in its stock image marketplace and drive new revenue streams. "However, we also think it could make the company's core stock image marketplace increasingly competitive," warned Needham.

For consumer e-commerce companies, generative AI could help personalize the buyer experience, as well as boost traffic, conversions, and operational efficiencies. Some of the companies called out as being in the early innings of advancing their AI and machine learning initiatives that should see AI benefits over time in terms of profitability include Etsy ( ETSY ), eBay ( EBAY ), Shopify ( SHOP ), and Revolve Group ( RVLV ).

ACV Auctions ( ACVA ) is the top pick selected in the transportation technology sector to see a meaningful AI lift. In the ad technology and streaming space, both FuboTV ( FUBO ) and Taboola ( TBLA ) are said to be significantly ahead of the competition in integrating generative AI in a way that may impact results.

In the week ahead, AI events from Salesforce ( CRM ) and AMD ( AMD ) will ramp up the AI buzz even further.

More on AI investing

• Microsoft 2.0: AI Could Drive Massive Revenue Growth
• Finding Investment Opportunities In Neuroscience And AI
• Google: The Power Of AI - Transforming Advertising Revenue Growth From Zero To Hero
• UBS sees further upside for Amazon shares, helped by expansion of AI-aimed Bedrock

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