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Portfolio manager Andrew Graham appeared on CNBC’s “Ask an Advisor” editorial segment in mid-April. The founder and managing partner of Jackson Square Capital provided clues as to where investors should look for his AI opportunities.
[T]A safer bet is [artificial intelligence] Reality regardless of who wins in the AI arms race. At the same time, those tackling AI head-on will pay a high price, so it’s probably best to wait for a better opportunity to jump in.
This is great advice because the companies we think have the best AI applications and solutions today may not even exist 3-5 years from now. As a result, successful AI investments require considerable investor due diligence and patience.
Conservative investors may want to cast a broader net in the form of exchange-traded funds (ETFs) or mutual funds rather than investing in one or two major AI companies. But if what you’re looking for is an individual AI opportunity, the following three First Trust Nasdaq Artificial Intelligence and Robotics ETF (Nasdaq:Robert), which has interesting AI applications that are expected to grow in the coming years.
| Professional | Pros Holdings | $27.96 |
| now | Service Now | $442.28 |
| answer | Ansis | $312.70 |
Pros Holdings (PRO)
Source: Natee Photo/Shutterstock
Pros Holdings (New York Stock Exchange:Professional) provides an AI-based platform that collects and analyzes data, enabling businesses to offer personalized pricing and product recommendations to end-user customers.
CEO Andres Reiner provided examples of how customers are using the platform during the Q4 2022 conference call.
Signature Aviation, a B2B aviation services company, selected PROS in the fourth quarter to leverage the latest 4th generation AI advancements to drive its profitable growth strategy. In travel, the turmoil experienced by airlines over the last few years has fueled interest in extreme automation and full digitalization of the customer experience. Our digital offer marketing and dynamic offer solutions help airlines engage customers with relevant offers, engage them in direct and digital channels, and increase conversion rates through channels with lower selling costs.
In 2018, the company launched its Gen III platform, which includes dynamic pricing. If you frequent Uber, you know about dynamic pricing. You can see it everywhere today. It then launched Gen IV, a “deep neural network” in 2022 to improve the platform’s ability to accurately predict how much a customer would pay for a particular item.
PROS Holdings will generate $276.1 million in revenue in 2022, up 10% from 2021. Subscription and maintenance revenue accounted for 84% of total revenue. More importantly, subscription annual recurring revenue (ARR) was his $229 million (excluding currency), up 17% from the previous year. The company is not yet profitable, but losses are narrowing.
Retail is a tough game. However, using the PROS platform makes things a little easier.
ServiceNow (current)
Source: Sundries Photo/Shutterstock.com
Now Platform from Service Now (New York Stock Exchange:now) helps companies digitize their entire business by optimizing processes and connecting silos, eliminating the friction that exists in traditional computer systems.
In 2022, ServiceNow will generate $6.9 billion in subscription revenue from over 7,700 customers, including 85% of the Fortune 500. As a result, its free cash flow reached a whopping $2.18 billion, or 30% of total revenue of $7.25 billion. This is a very healthy free cash flow margin.
Based on this free cash flow and a market capitalization of $90.1 billion, ServiceNow’s free cash flow yield is 2.4%. This is outside my fair value zone of between 4% and 8%. However, this is for a company whose subscription revenue is growing nearly 30% annually.
It is estimated that between now and 2028, the largest increase in AI for project management will occur in large enterprises. This is where ServiceNow excels, because its Now Platform uses AI search for help desk personnel to speed up finding the documents they need to solve their problems.
ServiceNow also updated its document intelligence AI tools in March. This enables businesses to pull information from documents and put it into business apps without manually entering data, saving time and money.
Ansis (ANSS)
Source: Monticello/Shutterstock.com
Ansis (Nasdaq:answer) uses AI and machine learning to help engineers and designers create better simulations to improve and accelerate the product development process. The company has been designing engineering simulation software for over 50 years and has driven some of the world’s greatest innovations.
“At Ansys, AI/[machine learnings] How to automatically find the parameters of your simulation to improve speed and accuracy at the same time. Augmented Simulation can be used to speed up simulations by 100x by training neural networks in a data-driven or physics-based manner. Advanced AI/ML-enhanced simulation technology underpins the engineering design process,” he said on the company’s website.
In 2022, the company posted revenue of $2.07 billion, up 8%, and operating profit of $592.7 million, up 15.5% from 2021. $2.03 billion, 14% higher than in 2021 excluding currency fluctuations. Management expects ACV to grow between 9.9% and 13.4% in 2023 on a constant currency basis.
Ansys had just $275 million in net debt in 2022, or just 1% of its market capitalization. That makes it a solid long term purchase.
As of the date of publication, Will Ashworth did not have any positions (directly or indirectly) in the securities referenced in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has been writing about investing full-time since 2008. Publications in which he has appeared include several in both the United States and Canada, including InvestorPlace, The Motley Fool Canada, Investopedia, and Kiplinger. He especially enjoys creating his portfolio of models that stand the test of time. He lives in Halifax, Nova Scotia.
Our post on the three most profitable AI applications for investors to consider first appeared on InvestorPlace.
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
