Popular AI growth stocks to add to watchlist
Around 50,000 to 60,000 employees in these functions may be affected as the tech industry undergoes changes driven by Artificial Intelligence (AI) and Machine Learning (ML) in tandem with evolving market dynamics.
AI and ML are driving productivity across diverse industries. It’s revolutionising healthcare, finance, agriculture, education, and transportation. This offers investors a wonderful opportunity to benefit from this investing megatrend.
While the list of AI stocks in India may be limited, the industry is experiencing rapid growth. Indian and global tech giants such as Infosys, TCS, and Google are actively involved in this space, showcasing the potential for significant returns on investments.
So, with this in mind, we highlight 5 popular AI growth stocks to add to your watchlist.
At the top of our list, we have HCL Technologies.
HCL Tech is India’s fourth-largest IT company, operating in over 52 countries.
The company has been adapting to new technologies, the latest being the Internet of Things, cloud computing, and cybersecurity. The growth from these segments are increasingly a large source of revenue for IT companies.
And AI is not behind. The IT firm has been working towards developing AI technology, for some time now, especially generative AI.
Generative AI can produce various types of content, including text, imagery, audio, and synthetic data. HCL Tech has been involved in the AI technology stack for the last two decades. It has 140+ projects at various stages of maturity from proof of concept to implementation.
The company’s key focus areas are BFSI, manufacturing, cloud computing, life sciences and healthcare, and media and entertainment. It has an impressive client roster.
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Apart from forging innovations in-house, HCL Tech has been ahead of the technology curve by investing in various partnerships.
This is visible in the business performance. The revenue and net profit have grown at a 5-year CAGR of 12.3% and 9.5%, respectively. This robust growth has led to a strong return of capital employed (RoCE) and return on equity (RoE), averaging 28.9% and 23.5% over the last 5 years.
The stock is trading at a PE of 20.9x, a 10% premium to its 5-year average of 19x.
#2 Affle India
Next on our list is Affle India.
Affle India is a leading mobile marketing and advertising technology company that offers a range of digital solutions to businesses. It helps transforms ads into recommendations, helping marketers to effectively identify, engage, acquire, and drive transactions with their potential and existing users.
The company has recently expanded its services to include AI and ML solutions.
The AI portfolio comprises of developing and implementing AI solutions for businesses to enhance customer engagement, improve advertising effectiveness, and gain insights from data. The company is confident of the increased adoption of AI in the digital advertising space.
Some of the specific AI services offered by Affle India include natural language processing (NLP), computer vision, predictive analytics, and chatbot development.
In the digital advertising space, Affle India competes with InMobi, a global mobile advertising and discovery platform, and other giants in this field, such as Google and Facebook.
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201820The business has been growing, led by several acquisitions and increasing mobile penetration in the country. The company’s customer base has also expanded to include some of the big names such as McDonald’s, Apollo, Byju’s, Swiggy, Zee5, etc.
The revenue and profits have grown substantially, reporting a 3-year CAGR of 66.6% and 63.8%, respectively. The average RoCE and RoE average 39.1% and 89.4%, respectively.
The stock is trading at a PE of 58.2x, a 20% discount to its 5-year average of 69x.
#3 Cyient
Third on our list is Cyient.
Cyient, an IT company, provides a comprehensive range of software services to various sectors such as aerospace, defence, healthcare and energy. It offers a full-scale electronic and mechanical aerospace manufacturing engineering solutions from conceptualisation to design and maintenance.
The company has been actively exploring and integrating AI into its business operations and services. By leveraging AI, Cyient aims to enhance its software solutions and provide more intelligent and efficient services to clients across various sectors.
These clients are in aerospace, defense, healthcare, and energy sectors. The company is integrating AI into its semiconductor offerings. They will be propelled by miniaturisation, next-gen chips, advanced packaging systems, and increased usage of AI in chip design.
Cyient is also working towards cloud-enabled AI-driven analytical tools to detect & predict anomalies within networks.
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The company has done well in the past five years, with sales and net profits growing at a CAGR of 8.4% and 4.2%, respectively. The RoCE and RoE have registered a 5-year average of 19.9% and 15.9%, respectively.
The net profit expansion comes from the numerous acquisitions by the company and the growth in the existing business. The business is a cash cow, and the well-capitalised balance sheet has allowed it to expand inorganically.
The company has been acquiring businesses that have been funded by a mix of debt and internal accruals. Cyient is confident of growth from the acquisitions and the existing business.
The stock is trading at a PE of 30x, a premium of 70% to its 5-year average PE of 17.6.
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Fourth on our list is Zensar Technologies.
Zensar Technologies, a part of the RPG group, is a key player in the digital solutions domain. It operates in two primary segments: application management service and infrastructure management services.
It caters to industry verticals like hi-tech (26.8% of 2023 revenues), manufacturing (12.6%), consumer services (17.8%), banking and insurance (34.7%), and other emerging verticals (8.1%).
Zensar is actively involved in AI projects. The company recently won a project to develop Al-led operations platforms for a leading European utility service provider. It has also partnered with a large gaming and software development services company to optimise its operations, leveraging Al.
In recent quarters, Zensar has increased its investments in AI-led projects and data analytics, garnering positive momentum. The company has identified AI as a core growth strategy for its long-term prospects.
The business has performed well over the past years. The revenue and net profit reported a 5-year CAGR of 9.1% and 5.9%. The RoCE and RoE average of.9% and 14.8%, respectively.
The company is optimistic about expanding its customer base with growth in the medical, semiconductor, hi-tech, and automotive sectors.
The stock is trading at a PE of 30.5x, a premium of 73% to its 5-year average of 17.6.
Last on our list is Kellton Tech Solutions.
Kellton is a leading IT services company offering a comprehensive range of solutions. Their expertise in digital transformation accounts for 79% of their business, while enterprise solutions and consulting make up 15% and 6%, respectively.
Serving clients worldwide, Kellton’s primary focus lies in the USA, constituting 81% of their operations, followed by India & APAC at 12% and Europe at 7%.
Kellton is committed to using generative AI technology like ChatGPT. It has been actively exploring and harnessing the potential of generative AI.
The company has been actively communicating with at least two or three customers to help them identify relevant use cases within their respective domains and is gearing up to approach the market with its AI strategy.
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The business has grown at a 5-year CAGR of 6.4% and 7.3%, respectively. The 5-year average RoCE and RoE stand at 23.9% and 21.9%.
The company is expecting a slowdown in the near term, due to the recession in Germany and its cascading effect.
Nevertheless, it remains optimistic about maintaining an operating margin of 20-23%, even with increased employee salary expenses. While short-term challenges persist, the company holds a positive outlook for its long-term growth prospects.
The stock is trading at a PE of 18.9x, a premium of 273% to its 5-year average of 6.9x.
Conclusion
The IT sector has become an indispensable element of business rather than just a cost-effective source, thanks to the rapid evolution of digital adoption.
Organisations are swiftly embracing futuristic technologies like cloud computing, internet of things (IoT) and AI to enhance customer experiences. The rapid growth of the AI in India is evident, driven by significant investments in research and development from numerous technology companies.
To support the sector’s expansion, the Indian government has introduced various initiatives and policies. However, it remains to be seen when the AI sector will achieve breakthroughs.
In the meantime, keeping an eye on AI stocks can be beneficial.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
