Following a 40% Drop, This Affordable AI Stock May Experience a Surge Post-May 1
Twilio, a leading provider of cloud communications services, saw significant stock movement during the last quarter of 2024. As 2025 began, it reached a high point, but soon afterward, shares saw a steep decline, dropping 40% from their peak on January 31. This downturn can be attributed to various factors, including the uncertainty in the market stemming from the former Trump administration’s tariff policies and a mixed quarterly report released in February.
Even with these challenges, Twilio’s recent decline might be considered a good opportunity for investors. The company is at the forefront of integrating artificial intelligence (AI) in the cloud communication sector, and its upcoming quarterly results on May 1 could reveal a positive turnaround.
Twilio’s Advances in AI Tools
In February, Twilio reported impressive results for the fourth quarter of 2024. Their revenue rose by 11% compared to the previous year, while their non-GAAP earnings grew by 16% to $1.00 per share. Although Twilio performed better than some expectations in terms of revenue, earnings fell slightly short of the anticipated $1.03 per share. This disappointing guidance triggered investor anxiety.
Twilio’s forecast for the first quarter of 2025 suggests an 8% to 9% increase in revenue year over year, which is a slight decline from the previous quarter’s performance. Earnings are expected to reach $0.90 per share, below the consensus estimate of $0.98. Despite these initial concerns, the demand for Twilio’s AI-focused communication tools presents a potential for better-than-expected performance.
The appeal of Twilio’s AI solutions is seen through the growing demand from its customer base. During an investor presentation in January, Twilio’s management highlighted a 16% year-over-year increase in the number of customers purchasing add-on products. Importantly, there is still a vast potential market for Twilio’s AI offerings, which include AI assistants, enhanced customer engagement tools, and predictive analytics.
Twilio’s existing customer base numbers over 325,000 accounts, with around 9,000 already utilizing AI-focused solutions. This indicates that a large segment of their clients has yet to fully tap into the capabilities of Twilio’s AI tools, which could significantly drive revenue growth in the upcoming years.
Market Expectations and Revenue Opportunities
Twilio’s strategy anticipates an increase in the market for cloud communications and customer data platforms (CDP). By 2028, the addressable revenue opportunity for Twilio’s current markets is projected to grow to $119 billion, with conversational AI potentially adding another $39 billion over the next three years.
Having ended 2024 with nearly $4.5 billion in revenue, Twilio is well-positioned to capitalize on the anticipated demand for its AI solutions. This could lead to substantial growth in both revenue and profits, and the results scheduled for release on May 1 may beat market expectations.
Valuation and Growth Potential
As of 2024, Twilio’s non-GAAP operating margin was at 16%, with forecasts suggesting an increase to 21% to 22% by 2027. This margin expansion is achievable based on the factors previously discussed, contributing to a positive outlook for the company’s profitability.
Twilio’s earnings are projected to grow by 17% in 2026 and nearly 22% in 2027. For instance, by 2027, if earnings reach $6.22 per share and Twilio trades in line with the Nasdaq-100 index’s anticipated earnings multiple of 24, the stock could rise to $149. This potential reflects a significant increase of 69% over the next three years.
Currently, Twilio is valued at 20 times its forward earnings, signaling a potential buying opportunity for investors. A good performance in the upcoming reports could propel a bullish trend for this cloud communications stock.
