1 Artificial Intelligence (AI) Stock Down 58% to Buy Hand Over Fist in 2024 | TOP AI Stocks to Buy

Parkev Tatevosian, CFA
28 Dec 202310:08

TLDRThe video discusses Pinterest, an AI-driven platform that uses recommender systems to enhance user engagement and monetize through targeted advertising. Despite a 58% drop from its high, Pinterest's stock is recommended for 2024 due to its growing revenue, positive cash flow, and a pristine balance sheet with $2 billion in cash and no debt. The company benefits from a massive addressable market and is expected to accelerate revenue and earnings per share growth, operating in a proven social media business model.

Takeaways

  • 📉 Pinterest's stock is down 58% from its high, presenting a buying opportunity for 2024.
  • 🤖 AI is being utilized in various ways, with large language models like GPT and recommender systems being prominent.
  • 📌 Pinterest uses AI to enhance user engagement by showing content most likely to be enjoyed.
  • ⏰ Increased user engagement leads to more ad exposure, which is Pinterest's primary revenue source.
  • 💰 The global advertising market is growing, with digital advertising becoming a larger share of the spending.
  • 📈 Pinterest has shown significant revenue growth, from $880 million in 2019 to $2.95 billion in the most recent 12 months.
  • 💹 The company is generating positive cash flow from operations, indicating self-sustaining growth.
  • 💵 Pinterest has a strong balance sheet with $2.3 billion in cash and no long-term debt.
  • 🚀 Analysts forecast Pinterest's revenue growth to accelerate from 16.4% in 2024 to 17.6% in 2025.
  • 📊 Earnings per share growth is expected to increase from 22% in 2024 to 26.6% in 2025.
  • 🏦 Despite not being cheap, Pinterest's stock is recommended due to its strong fundamentals and growth potential.

Q & A

  • Which AI stock is discussed in the video?

    -The AI stock discussed in the video is Pinterest.

  • How has AI helped Pinterest improve its service?

    -AI has helped Pinterest by using recommender systems to suggest products and services that users are likely to engage with, increasing user engagement time on the platform.

  • What is the total addressable market for advertising in 2023 according to Statista?

    -The total addressable market for advertising in 2023 is $874 billion.

  • How much did Pinterest's revenue grow from 2019 to the most recent trailing 12 months?

    -Pinterest's revenue grew from around $880 million in 2019 to $2.95 billion in the most recent trailing 12 months.

  • What is the forecasted revenue growth for Pinterest in 2024 and 2025?

    -The forecasted revenue growth for Pinterest is 16.4% in 2024 and 17.6% in 2025.

  • What is Pinterest's earnings per share (EPS) growth expected to be in 2024 and 2025?

    -Pinterest's EPS growth is expected to be 22% in 2024 and 26.6% in 2025.

  • What is Pinterest's price-to-free cash flow ratio?

    -Pinterest's price-to-free cash flow ratio is 62.1.

  • How much cash and short-term investments does Pinterest have, and does it have any long-term debt?

    -Pinterest has $2.3 billion in cash and short-term investments and zero long-term debt.

  • What is the business model that Pinterest operates in?

    -Pinterest operates in a social media business model where users create content for free, and the company benefits by showing advertisements.

  • Why is the presenter willing to pay a high valuation for Pinterest stock?

    -The presenter is willing to pay a high valuation for Pinterest stock due to its massive total addressable market, increasing cash flow from operations, accelerating revenue and EPS growth, a pristine balance sheet, and its proven business model.

Outlines

00:00

🤖 AI in Business: Pinterest's Success Story

The video introduces an AI stock that has dropped 58% from its peak, highlighting the growing importance of AI in various sectors, particularly in large language models like GPT. The focus shifts to Pinterest, a company leveraging AI's recommender systems to enhance user engagement and increase advertising revenue. The video emphasizes Pinterest's strategic use of AI to curate content, resulting in higher user interaction and potential ad exposure. It also mentions the broader context of the global advertising market, which is projected to grow significantly, with digital advertising becoming a larger share of this market. Companies like Pinterest stand to benefit from this trend, and the video notes Pinterest's impressive revenue growth and positive cash flow, despite the stock not being cheap.

05:00

💼 Financial Health and Growth Prospects of Pinterest

This paragraph delves into Pinterest's financial health, noting its pristine balance sheet with $2.3 billion in cash and no long-term debt. It discusses the company's ability to self-fund growth and its potential to capture a larger market share. The video also forecasts Pinterest's revenue growth, which is expected to accelerate in the coming years, along with an increase in earnings per share. The company's business model is compared to other successful social media platforms, and the video concludes with a recommendation to invest in Pinterest stock, citing its strong growth potential and robust financial position.

10:01

📈 Investing in Pinterest: A Valuable Opportunity

The video concludes by reiterating the positive aspects of investing in Pinterest, including its massive addressable market, strong cash flow, accelerating revenue and earnings growth, and a clean balance sheet. The presenter expresses willingness to pay a higher valuation for Pinterest's stock due to these characteristics and encourages viewers to subscribe for more content like this.

Mindmap

Keywords

💡Artificial Intelligence (AI)

Artificial Intelligence refers to the simulation of human intelligence in machines that are programmed to think, learn, and make decisions like humans. In the context of the video, AI is being used to enhance recommender systems, which suggest products and services to customers based on their preferences. An example from the script is Pinterest using AI to curate content that users are likely to engage with, thereby increasing user engagement and advertising opportunities.

💡Large Language Models

Large Language Models are a type of AI model designed to process and generate human-like text based on the input they receive. They are a subset of AI applications, and the video mentions GPT (Generative Pre-trained Transformer) as a prominent example. These models have been instrumental in bringing AI to the forefront, particularly in the field of natural language processing.

💡Recommender System

A recommender system is a subset of information filtering systems that suggests items to users based on their past preferences and behavior. In the video, it's mentioned that businesses, like Pinterest, use AI-powered recommender systems to suggest content that users are likely to enjoy, enhancing user experience and engagement.

💡Pinterest

Pinterest is a visual discovery tool used by millions of people to find ideas like recipes, home and style inspiration. It's highlighted in the video as a company that leverages AI to improve its service by curating personalized content for users, which in turn increases user engagement and advertising revenue.

💡Advertising

Advertising is a marketing communication used to promote or sell something, usually a business's product or service. The video discusses the global advertising market and how digital advertising, which includes platforms like Pinterest, is growing and becoming more targeted and measurable.

💡Total Addressable Market (TAM)

Total Addressable Market refers to the total market demand for a product or service. In the context of the video, it's used to describe the potential size of the advertising market that Pinterest can tap into, indicating the company's growth potential.

💡Cash Flow

Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. The video praises Pinterest for generating positive cash flow from operations, which indicates the company's financial health and self-sustaining ability.

💡Balance Sheet

A balance sheet is a financial statement that gives a snapshot of a company's financial position at a particular moment. The video mentions Pinterest's 'pristine balance sheet' with a significant amount of cash and no long-term debt, which is a positive financial indicator.

💡Earnings Per Share (EPS)

Earnings Per Share is a measure of a company's profitability, calculated by dividing the net earnings by the number of outstanding shares. The video highlights Pinterest's expected EPS growth, which is a key metric for investors as it reflects the company's profitability and potential for stock appreciation.

💡Price-to-Free Cash Flow

Price-to-Free Cash Flow is a valuation ratio that compares a company's market price to its free cash flow per share. The video mentions Pinterest's stock trading at a high price-to-free cash flow ratio, which is a measure of the stock's valuation.

💡Social Media Business Model

The social media business model involves creating a platform where users generate content, and the company monetizes this content by displaying advertisements. The video notes that Pinterest operates on this model, similar to other platforms like Facebook, YouTube, and Twitter, which has proven to be lucrative.

Highlights

Artificial intelligence stock down 58% off its high.

AI's role in large language models like GPT brought AI to the forefront in 2023.

AI is also aiding businesses through recommender systems.

The discussed stock is Pinterest, which uses AI to enhance user engagement.

Pinterest's AI curates content to increase user interaction time.

The company's revenue has grown from $880 million in 2019 to $2.95 billion in recent months.

Pinterest's total addressable market for advertising is significant, with global advertising expected to surpass $1.1 trillion by 2028.

Digital advertising is becoming a larger share of the market, with a focus on targeted ads.

Pinterest has a pristine balance sheet with $2.3 billion in cash and no long-term debt.

The company is self-sustaining, generating positive cash flow from operations.

Analysts forecast Pinterest's revenue growth to accelerate from 16.4% in 2024 to 17.6% in 2025.

Pinterest's earnings per share growth is expected to be 22% in 2024 and 26.6% in 2025.

The stock is not cheap, trading at a price-to-free cash flow of 62.1.

Despite the high valuation, the stock is recommended due to Pinterest's strong fundamentals and growth potential.

Pinterest operates in a proven social media business model, benefiting from user-generated content and ad revenue.

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