3 Disruptive Stocks Shaping the Future of Technology
The word “disruptive” is thrown around a lot in the tech world. New technologies are considered disruptive when they improve or replace existing concepts to the point they begin snatching market share. Apple‘s (NASDAQ: AAPL) release of the iPhone is a great example — it crushed competing products from dominant incumbents like BlackBerry and Nokia.
But that’s in the past. Our Motley Fool contributors think C3.ai (NYSE: AI), PubMatic (NASDAQ: PUBM), and Joby Aviation (NYSE: JOBY) are delivering the next generation of disruptive technologies, and they could supercharge your portfolio over the long term.
Image source: Getty Images.
Artificial intelligence as a service
Anthony Di Pizio (C3.ai): Investors might be familiar with software as a service (SaaS), where technology companies offer their unique software products in exchange for recurring fees. C3.ai is the first ever company to deliver artificial intelligence (AI) as a service, allowing industries of all kinds to harness its game-changing benefits.
Building AI applications in-house isn’t an option for most companies because it’s expensive and requires specialized talent. Oil companies, for instance, would probably struggle to attract bright, young AI developers from new-age tech firms.
But C3.ai can build AI models to suit any purpose, meaning oil companies can still have a tailored solution to suit their needs without all the baggage — and interestingly, the oil and gas industry now makes up over 35% of the company’s total revenue. In collaboration with oil giant Baker Hughes, C3.ai developed a portfolio of AI applications that can predict equipment failures and reduce carbon emissions by improving efficiency.
While oil and gas is important to the company’s business, C3.ai also serves eight other industries and new customers have been flowing in at a rapid pace.
|Metric||Fiscal 2019||Fiscal 2022 (Current)||Growth|
Data source: C3.ai.
The result is $245 million in expected revenue in fiscal 2022, which represents a compound annual growth rate of 25% since fiscal 2019. But there’s a notable acceleration in C3.ai’s quarterly guidance, with second-quarter revenue growth expected to come in at 37%. Revenue typically lags customer growth because it takes up to six months for C3.ai to complete an AI application for a customer, so investors could see an upside surprise over the next few quarters.
C3.ai’s AI models are making over 1.7 billion predictions per day across all of its customers’ networks right now, but its active collaborations with tech giants like Microsoft and Alphabet‘s Google hint that the fastest growth could be yet to come for this company. One Wall Street firm even thinks C3.ai’s stock could more than double from here.
Image source: Getty Images.
A unique approach to the advertising industry
Jamie Louko (PubMatic): Digital advertising has become the backbone of connected TV and many of the most popular mobile apps. PubMatic is a facilitator that enables the growth of digital advertising by representing customers who are looking for advertisers to buy ad space on their platform. PubMatic uses its AI-based bidding system to find the best buyer, allowing its customer (the company selling ad space) to get the best bang for their buck while placing the advertisers’ ads on the best platform for them — driving up its return on investment.
This AI-based model has attracted customers and suppliers alike. The company has created partnerships with ad suppliers like The Trade Desk while increasing its Q2 2021 revenue from customers by 88% to $50 million from the year-ago quarter. The company’s net retention rate is over 150% — demonstrating how valuable PubMatic’s services are to its customers. The company reported a Q2 2021 net income of $10 million, which grew from $1 million one year ago. For a company worth $1 billion and growing 88%, it is surprising to see profitability, but this is because of its rock-bottom operating costs. Unlike competitors like Magnite, which rely on third-party providers, the company has its own technology infrastructure, meaning it handles its own data received from consumer activity.
The advertising space at large is dealing with risks of large third parties like Apple and Alphabet banning cookies, which would decrease how much information advertising companies get from consumers. PubMatic does, however, have an Identity Hub solution, which is integrated with 13 alternative identifiers in cookie-less environments to derive data. With global ad spend expected to rise to $526 billion by 2024, the company has lots of growth ahead, and its unique AI, cookie-less environments, and tech stack could allow the business to become the face of change in the advertising future.
Image source: Joby Aviation.
A pioneer in urban air mobility
Trevor Jennewine (Joby Aviation): Have you ever been caught in gridlock and thought to yourself, “There’s got to be a better way.” Well, Joby Aviation wants to help. The company is developing electric vertical takeoff and landing (eVTOL) aircraft, a nearly silent aerial transport that can carry four passengers at speeds of up to 200 miles per hour.
Joby has been testing prototypes since 2017, and it plans to launch an aerial ridesharing service in Los Angeles in 2024. Over time, it will expand its network of skyports into other populous cities, offering the convenience of straight-line air travel between locations like Lake Tahoe and San Francisco, or Houston and Austin. And by 2026, Joby believes its service will cost just $3 per passenger mile, helping riders reach their destination up to five times faster than by road.
In short, Joby is pioneering urban air mobility (UAM), an industry that’s expected to reach $74 billion in the U.S. by 2035 — and that just accounts for commercial use cases. Factoring in military applications, the UAM market could surpass $600 billion in 15 years.
To be clear, this is currently a nascent industry, but Joby already has an early lead. In 2020, it received its G-1 certification basis, an agreement with the Federal Aviation Administration that details the safety tests that must be completed before launching commercial operations. Joby is the first eVTOL company to reach this milestone. The next step is passing those tests to achieve type certification, a process management believes will continue through 2023.
By 2031, Joby hopes to have 14,000 eVTOL aircraft in operation, and a skyport presence in over 20 cities worldwide. At those levels, management believes the company would generate roughly $20 billion in annual revenue. Of course, this is all very speculative, but if Joby hits that target, shareholders could see significant returns over the next decade.
Case in point: Joby currently has a market cap of $5.3 billion. By comparison, companies like Delta Air Lines and Boeing are currently valued at one times sales and two times sales, respectively. That would put Joby’s price-to-sales multiple somewhere between $20 billion and $40 billion by 2031, implying 277% to 655% upside from its current share price — or 14% to 22% returns on an annualized basis. However, Joby puts its gross margin at 58% by 2026, a much higher figure than either of those companies have ever achieved, so the returns could be even larger.
As a final caveat, Joby does not currently generate any revenue, and the stock is a very risky investment at this stage in the game. But even if you’re not a shareholder, this disruptive company should be a fun one to follow over the next decade.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Jamie Louko owns shares of Apple and The Trade Desk. Trevor Jennewine owns shares of Joby Aviation, Inc. and The Trade Desk. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, C3.ai, Inc., Magnite, Inc, Microsoft, PubMatic, Inc., and The Trade Desk. The Motley Fool recommends BlackBerry and Delta Air Lines and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.