In this piece, we will take a look at 8 Best AdTech Stocks to Buy Now.
It goes without saying that the advertisement technology industry happens to be an exciting and ever-evolving sector, as digital advertising continues to dominate the market trends and remains at the forefront when it comes to strategic marketing. According to industry data by Allied Market Research, the global AdTech market was pegged at $748.2 billion in 2021 and is expected to reach $2.9 trillion by 2031. This demonstrates a CAGR of ~14.7% from 2022 to 2031.
This growth comes off the back of growing digital and internet penetration, increased usage of advanced technology like AI and machine learning, improved prospects for the gaming industry, and growth in social media apps including Facebook, WhatsApp, and others. Some of the top trends dominating the AdTech industry include higher usage of connected TV (CTV) advertising, in-app advertising, and interactive ads.
Growth prospects of the AdTech industry
The AdTech market has been bifurcated into solution, advertising type, size of an enterprise, platform, etc. The AdTech industry includes a wide range of companies and products, such as demand-side platforms (DSPs), supply-side platforms (SSPs), ad exchanges, data management platforms (DMPs), and more. Experts are of the view that the global supply-side platform (SSP) market size should touch ~$117.32 billion by 2033. This means that the industry should compound at ~13.3% from 2023 to 2033. This growth is expected to stem from technological advancements, higher consumer demand, and supportive government policies.
In the same vein, the demand side platform software market size should touch US$120.1 billion by 2033 on the heels of an improved trend of programmatic advertising and, the need for better targeting along with measurement capabilities for online ads. While the AdTech industry seems promising, inclusion of artificial intelligence (AI) makes it even more appealing.
AI’s Role in AdTech – Opportunities and Challenges
Global AdTech industry continues to prepare for the complete deprecation of third-party cookies by Google, which makes up ~65% of the web browser market share. This transition seems to be a critical step for enabling user privacy and data security. Artificial Intelligence, because of its capability to process vast amounts of data, should play a crucial role.
Research suggests that ~54% of businesses believe that AI offers advertising cost savings and efficiencies and ~30% of marketing professionals decided to earmark more than 40% of their marketing budget to campaigns that are AI-executed. The advent of smart speakers, voice search, and podcasting can help advertisers in creating fresh avenues to connect with target audiences with the help of audio and voice technology.
While advertisers can exploit the opportunities available in the AdTech industry, they need to be wary about challenges such as Ad fraud. These frauds are caused mainly because of bot traffic, domain spoofing, or ad stacking. Some other challenges include inventory quality, ad creativity, and brand safety.
AI and ML are revolutionizing digital advertising by enabling advertisers to assess vast amounts of data in real time. As a result, the advertisers can make data-driven decisions for optimizing ad campaigns. Advertisers now use algorithmic advertising, personalization, and performance metrics to maximize ROI.
AI algorithms help in automating media buying, making sure that ads reach the target audience. Personalized ads can be delivered using AI-powered recommendation engines and these engines enable real-time tracking, which can help make quick adjustments to fuel success.
The global AdTech industry is expected to compound in the mid-teens range over the next decade. Given that it’s still early in its growth story, now is the time to look at some of the best AdTech stocks.
8 Best AdTech Stocks to Buy Now
Our Methodology
For this article, we selected the holdings of SmartETFs Advertising & Marketing Technology ETF and ranked them in ascending order of the number of hedge funds holding stakes in them. For the purposes, we sifted through Insider Monkey’s hedge fund data for 1Q 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Best AdTech Stocks to Buy Now
8) Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 48
Baidu, Inc. (NASDAQ:BIDU) is the largest Internet search engine in China, specializing in Internet services and AI (Artificial Intelligence).
At the time of releasing its 1Q 2024 results, the company said that Baidu Core’s online marketing revenue was stable, and its end-to-end optimization of the AI technology stack continued to propel the growth of AI Cloud revenue during the first quarter. The company’s investments in AI are evident after it recently launched its generative AI, Ernie Bot. This focuses on rivaling Open AI’s ChatGPT. With a new era of Gen-AI unfolding in China, foundation models such as ERNIE should be able to serve as the underlying infrastructure. The company focuses on making the ERNIE family of models affordable and efficient, which should result in margin improvement and stable profitability.
In 1Q 2024, Baidu, Inc. (NASDAQ:BIDU) surpassed top- and bottom-line estimates off the back of healthy online marketing revenue and improved sales from its AI Cloud business.
The company had a dismal year up until now, with the stock falling more than ~20% on a YTD basis. That being said, experts opine that the company’s growth trajectory shall now begin. Baidu, Inc. (NASDAQ:BIDU) saw slower growth in its core advertising revenue over recent years. As a result, it searched for new growth drivers.
This led to increased investments in the fields like self-driving cars, cloud computing, and artificial intelligence (AI). Baidu, Inc. (NASDAQ:BIDU) said that Ernie Bot’s users doubled in recent months to over 200 million.
Notably, 3 investment analysts gave a “Hold” rating on the company’s shares and 14 analysts have given a “Buy” rating. At the time of writing, the stock has an average rating of “Moderate Buy,” with an average price target of $146.60. Baidu, Inc. (NASDAQ:BIDU) was held by 48 hedge funds in the first quarter of 2014, and the stakes amounted to $1.42 billion.
Ariel Investments, an investment management company, released its first-quarter 2024 investor letter and mentioned Baidu, Inc. (NASDAQ:BIDU). Here is what the fund said:
“Alternatively, several positions weighed on performance. China’s internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
7) Atlassian Corporation (NASDAQ:TEAM)
Number of Hedge Fund Holders: 51
Atlassian Corporation (NASDAQ:TEAM) is engaged in producing software that helps teams work together more efficiently and effectively. It offers project planning and management software, collaboration tools, and IT help desk solutions.
The company’s 4Q 2024 was a difficult one, as its R&D expenses went up by 24% YoY. This increase was because of investments in AI. This growth in expenses was even higher than its revenue growth of 20% YoY in 4Q 2024, and this made investors worry about its future. After all, demand for AI is not slowing anytime soon. Nonetheless, the company is one of the largest players in the enterprise productivity space.
Earlier, it was just like other software companies. It licensed its software which can be used by businesses. Now, the company is focused on getting more customers for subscription services on the cloud. Atlassian Corporation (NASDAQ:TEAM)’s cloud revenues continue to increase, which can act as an actual growth catalyst for the company. In 4Q 2024, the company saw its cloud revenues increase by ~31%. The higher cloud revenues might result in increased margins, higher efficiency, and a predictable income stream (i.e., subscription).
The number of customers spending over $1 million annually saw an increase of 48% YoY, reflecting momentum in serving enterprise customers and maintaining an efficient go-to-market model.
Analysts at The Goldman Sachs Group initiated the coverage on shares of Atlassian Corporation (NASDAQ:TEAM). They raised their rating from “Neutral” to “Buy,” increasing the price target from $200.00 to $230.00 on 2nd August 2024.
A total of 51 hedge funds tracked by the Insider Money database held stakes in the company as of Q1 2024.
Artisan Partners, an investment management company, released a 1Q 2024 investor letter and mentioned Atlassian Corporation (NASDAQ:TEAM). Here is what the fund said:
“Among our top detractors were Atlassian Corporation (NASDAQ:TEAM), ON Semiconductor and Exact Sciences. Atlassian’s earnings results met expectations for cloud revenue growth. However, this was insufficient for investors to support the stock’s momentum after strong recent performance. While parts of its cloud business, such as enterprise, are exceeding expectations, there are signs of weakness among small- and medium-sized companies, where pressures persist in paid seat expansions. We trimmed the position due to valuation concerns; however, we remain bullish in the longer term and are building conviction around its ability to leverage generative AI to drive accelerated cloud revenue growth.”
6) HubSpot, Inc. (NYSE:HUBS)
Number of Hedge Fund Holders: 55
HubSpot, Inc. (N5YSE:HUBS) offers a cloud-based marketing, sales, and customer service software platform. The applications provided by the company are available separately or packaged together.
Experts believe that the company’s stock trades at reasonable levels, given the company’s long-term growth and recent earnings. HubSpot, Inc. (NYSE:HUBS) released its 2Q 2024 earnings print, beating the analysts’ top-line and bottom-line estimates. Its revenue came in at $637.2 million in 2Q 2024, exhibiting a rise from $529.1 million reported in the year-ago quarter. The analysts were expecting $619 million. Top-line growth was aided by higher revenues from subscription and professional services.
Non-GAAP net income stood at $103.5 million or $1.94 per share. This compares to $71.8 million or $1.38 per share in the previous-year quarter. Analysts were expecting $1.63. Earnings were supported by innovation, consistent execution, higher average subscription, and an increase in total customers.
While the stock was having a decent run, the recent headlines weighed over the company’s stock price.
For several months, there was buzz on the street that Alphabet Inc. (NASDAQ:600G) is exploring an acquisition of HubSpot, Inc. (NYSE:HUBS). When the news broke in April 2024, the stock traded higher as the talks suggested a genuine interest from both parties. However, in July 2024, reports indicated that both companies were abandoning their efforts. Post this news, shares of HubSpot, Inc. (NYSE:HUBS) fell sharply, pulling the valuation below the levels before the news. Reuters reported that the US regulatory body indicated an increased aversion to large technology conglomerates getting bigger by taking an inorganic route.
However, experts believe that this news was a potential speed breaker and HubSpot, Inc. (NYSE:HUBS) is well-placed to take off. This is evident from the company’s 2Q 2024 results; where it gave strong full-year guidance. For FY24, it expects total revenue of between $2.567 billion – $2.573 billion.
Analysts at Piper Sandler covered the shares of HubSpot, Inc. (NYSE:HUBS), and reaffirmed their “Overweight” rating. The brokerage gave the price objective of $570.00 on 8th August 2024.
As of the end of the first quarter, 55 out of 920 hedge funds tracked by Insider Monkey held stakes in HubSpot, Inc. (NYSE:HUBS).
Hedge Fund Resource Center