We recently compiled a list of the 12 Best Artificial Intelligence Stocks Under $50 According to Analysts. In this article, we are going to take a look at where Five9 Inc. (NASDAQ:FIVN) stands against the other AI stocks under $50.
Franklin Mutual’s Katrina Dudley appeared on CNBC on December 31 to discuss whether the sectors that powered the market’s gains in 2024 will continue to lead the way in 2025, particularly AI within the tech and communications sectors. Companies in these sectors, especially the MAG7 stocks, have experienced remarkable performance over the past year. She pointed out that alongside traditional tech stocks, companies providing essential infrastructure are crucial for supporting the rapid expansion of AI technologies. She expressed strong optimism about AI’s continued influence, stating that it represents a secular theme likely to propel the tech sector forward in the coming year.
When addressing concerns about market valuations, Dudley reiterated that high valuations, such as the S&P 500 trading at ~22 times earnings, should not deter investors. Instead, she argued that these valuations reflect robust earnings growth among technology companies, distinguishing this phase from past market bubbles. The network effects inherent in AI-driven companies contribute to their returns, suggesting that if these firms can exceed earnings expectations, their valuations could become more favorable over time. However, she cautioned that consistent performance is critical. Any failure to deliver on earnings growth could pose risks in a high-valuation environment.
Turning her attention to lagging sectors, Dudley discussed healthcare as an area ripe for AI-driven transformation. She noted that while healthcare has significant upside potential due to demographic trends, some healthcare service providers faced challenges in 2024 due to rising costs and consumer pushback against high pricing. The increased focus on transparency in healthcare pricing may benefit consumers but could complicate profitability for companies. She suggested that advancements in AI technology are enhancing productivity within pharmaceutical research and development. Although immediate benefits may not be visible, she believes that AI’s long-term impact on productivity will make healthcare an increasingly attractive sector for investment.
Dudley’s insights underscore the transformative potential of AI across both tech and healthcare sectors.
Methodology
We first sifted through internet lists to compile a list of the top AI stocks under $50. We then selected the 12 stocks with high analysts’ upside potential and that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of analysts’ upside potential (at least 10%), as of January 2. We’ve also added the hedge fund sentiment for each stock which was sourced from Insider Monkey’s database.
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).
An IT engineer working on a laptop as planograms for a cloud-based virtual contact center platform appear on the monitor.
Five9 Inc. (NASDAQ:FIVN)
Share Price as of January 5: $41.04
Average Upside Potential as of January 5: 21.83%
Number of Hedge Fund Holders: 29
Five9 Inc. (NASDAQ:FIVN) provides cloud contact center software (CCaaS) and improves customer engagement through its Intelligent CX Platform. This platform supports seamless communication across various channels, including phone, email, and social media. The company serves 2,500+ customers and collaborates with 1,400+ partners worldwide.
Its core growth engine is its AI-powered CX platform called the Five9 Genius AI, which transforms how businesses interact with customers. In Q3 2024, AI products contributed to over 20% of enterprise new logo ACV bookings, which represent the total annual contract value of new business deals signed with new enterprise customers. Furthermore, the ARR of new logo deals incorporating AI surpassed those without AI by 5x. Overall, AI bookings surged over 50% year-over-year.
Five9 Inc. (NASDAQ:FIVN) has introduced its AI Blueprint program. This program provides a framework for businesses to utilize AI effectively within their CX strategies. By working closely with customers, its AI experts develop customized roadmaps for specific needs and objectives. Additionally, its consumption-based pricing model allows experimentation and innovation, where customers can scale their AI investments based on their needs.
Despite near-term challenges, including macroeconomic headwinds and potential AI disruption, Brown Capital Management Mid Company Fund believes Five9’s leadership in cloud-based contact center software, strong AI product suite, and long-term growth potential make it a promising investment. Here’s what the Fund stated in its first quarter 2024 investor letter:
“Five9, Inc. (NASDAQ:FIVN) is a leader in cloud-based contact center software, offering a comprehensive omnichannel solution that seamlessly incorporates inbound and outbound calling with email, chat, SMS and social media. With the growth of e-commerce, consumers are increasingly opting for digital interactions over physical visits, driving the need for world-class contact-center software solutions. These systems effectively become a virtual front door for customers, serving as indispensable, mission-critical gateways for customer engagement and support. Five9’s cloud-native platform is superior to traditional, on-premise legacy systems, offering lower costs, faster innovation and support for remote-working needs. These advantages are expected to significantly increase cloud adoption in the future, pushing it well above the current level of approximately 20%.
The company reported fourth quarter revenue results that were only modestly ahead of consensus expectations, with disappointing revenue-growth guidance for the first quarter of 2024. Management cited the macroeconomic impact of lower demand for services from the installed base, driven by headwinds within the consumer discretionary vertical, which is the company’s third-largest customer segment. In addition, there are ongoing concerns that new artificial intelligence (AI) technologies could disintermediate contact-center software and shrink the market for the company’s offering. However, AI also offers a significant opportunity for the company, a leader with eight currently marketed AI products that are providing a pricing uplift of as much as 2-3x. In addition, to fully leverage AI’s advantages, customers must first adopt cloud-based solutions, which should accelerate the shift to the cloud, benefiting Five9. The company has seen particularly strong adoption of AI solutions with larger enterprises, helping it expand beyond its earlier success with small and medium-sized customers. Despite the near-term headwinds, Five9 should have a healthy runway for durable double-digit long-term growth driven by industry-leading technology and market-share gains from legacy incumbents.”
Overall FIVN ranks 4th on our list of the best AI stocks under $50 according to analysts. While we acknowledge the potential of FIVN as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FIVN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.