Investors are eagerly embracing artificial intelligence (AI) as a transformative force with tangible real-world implications that are reshaping various aspects of our lives, from shopping to business operations and beyond.
There are diverse avenues for investing in the AI landscape. One approach is to invest in established AI leaders such as Amazon or Nvidia, or opt for AI-focused exchange-traded funds (ETFs) like the Global X Robotics & Artificial Intelligence ETF. Alternatively, investors can seek out emerging AI stocks with niche potential that could experience exponential growth. Notable examples include Oddity Tech (NASDAQ: ODD), Pagaya Technologies (NASDAQ: PGY), and The Trade Desk (NASDAQ: TTD).
1. Oddity: AI in an unexpected industry
Oddity, despite its enigmatic name, operates in the makeup and skincare industry, retailing products under the brands Il Makiage and SpoiledChild. Leveraging advanced technology, including artificial intelligence (AI), the company has revolutionized the traditional makeup and skincare purchasing experience.
At the forefront of its technological innovation is the PowerMatch system, driven by machine learning, enabling shoppers to pinpoint precise colors and skincare formulas using their smartphone cameras. Additionally, Oddity Labs, responsible for skincare creation, employs AI for molecular discovery, crafting formulas tailored to meet customer needs.
This tech-driven approach sets Oddity apart from competitors entrenched in conventional selling methods. Its all-digital, direct-to-consumer, and data-centric model, coupled with vertical integration, contrasts starkly with competitors relying on wholesale distribution and offline sales with horizontal structures. With a global market opportunity estimated at $600 billion in beauty and wellness, Oddity is outpacing other industry players in growth.
The company has demonstrated impressive financial performance, with a remarkable 57% year-over-year revenue surge in 2023, surpassing guidance. Even more compelling, it has maintained profitability since its initial public offering. Reporting a gross margin of 70.4% in 2023, along with earnings per share (EPS) of $1.31 exceeding expectations, Oddity has established a solid financial footing. Management projects revenue growth of 23% in 2024, with EPS expected to reach approximately $1.52.
As consumer confidence in digital shopping continues to rise, Oddity is well-positioned to capture additional market share. Furthermore, its plans to launch new brands in other beauty and wellness segments signal potential for further expansion. Given these factors, Oddity appears poised for substantial growth in the coming years.
2. Pagaya: AI for a better financial future
Pagaya operates a sophisticated double-sided platform leveraging AI to facilitate loan approvals and enhance credit decisions for financial institutions. Partnering with industry leaders such as Visa, SoFi Technologies, and Ally Financial, Pagaya recently sealed a significant deal with U.S. Bancorp.
Despite the challenging backdrop of high interest rates, Pagaya’s business is thriving. While creditors exercise caution amid rising default rates and tightened loan approval criteria, Pagaya continues to experience growth.
On one front, Pagaya sells its loans to institutional investors as asset-backed securities (ABS), emerging as the top personal loan ABS issuer in the U.S. in 2023. Collaborating with over 100 funding partners, Pagaya secures all funding upfront, having raised an impressive $6.6 billion last year alone.
In the 2023 fourth quarter, network volume surged 33% year over year, surpassing expectations, while revenue climbed 13% to $218 million. Notably, revenue from fees less production costs (FRLPC), Pagaya’s preferred profitability metric, soared 42% to $76 million.
With a model poised to revolutionize the industry, Pagaya anticipates attracting more partners to its platform in the coming years. Management underscores a robust pipeline of potential clients, aiming to secure two to four major lending partners annually.
As a recent IPO entrant, Pagaya is just beginning to make waves in the market. With its innovative approach and disruptive potential in a massive industry, Pagaya holds the promise of significant growth in the foreseeable future.
3. The Trade Desk: AI for one of the hottest growth industries
The Trade Desk specializes in assisting advertisers in placing ads, with AI playing a crucial role in ensuring ads reach the right audience. Previously, advertisers relied on limited metrics to identify ideal viewers and customers, but The Trade Desk’s data-centric approach offers instant results with unparalleled accuracy.
Despite its establishment and IPO in 2016, The Trade Desk is still in its nascent stages in many respects. The advertising industry, particularly AI-driven advertising, is experiencing remarkable growth. With advertisers rebounding from the impact of inflation, the sector’s prospects are exceptionally bright.
As advertising transitions predominantly to digital platforms, encompassing various content formats such as social media, periodicals, and ad-supported streaming networks, The Trade Desk stands poised to capitalize on this digital shift. Positioned to seize opportunities in a global ad spend market estimated at $830 billion, The Trade Desk is primed for success in the current landscape.
In 2023, The Trade Desk reported a 23% year-over-year revenue increase, accompanied by a notable rise in earnings per share from $0.11 to $0.32. Remarkably, the company has maintained an impressive customer retention rate of 95% for the past decade, underscoring its ability to adapt and thrive in evolving advertising dynamics. With its strategic positioning and potential to leverage advertising trends in the years ahead, The Trade Desk is poised to generate significant value for shareholders.
