The rapid adoption of artificial intelligence (AI) has given technology stocks a big boost in the past couple of years, which is evident from the 77% gains clocked by the Nasdaq-100 Technology Sector index during this period. But not all tech stocks have benefited from the AI-powered surge in the tech sector.
Zoom Video Communications (ZM -1.90%) and Twilio (TWLO -1.97%) are two such names. While Zoom stock is down 8% over the past couple of years, Twilio has gained a paltry 13%. Both companies have seen a significant slowdown in their businesses in the aftermath of the pandemic, but now, both of them are looking to reignite their growth with the help of AI.
Let's take a closer look at the AI-related prospects of both Zoom and Twilio and check which one could be a better AI stock to buy right now.
The case for Zoom Video Communications
Zoom is known for its communications platform that allows users to connect with each other using various modes such as video, audio, chat, and voice. The company's video conferencing platform gained immense traction during the pandemic when work-from-home and online education gained tremendous popularity.
However, as the following chart shows, the company's recent growth hasn't been as rapid as it was during the pandemic.
ZM Revenue (Annual) data by YCharts
For instance, the company's revenue in the second quarter of fiscal 2025 (which ended on July 31) increased just 2.4% year over year to $1.16 billion. Non-GAAP net income increased just 3.7% on a year-over-year basis to $1.39 per share. Consensus estimates aren't too optimistic about Zoom's growth either. Its top line is expected to improve just 2.5% in the current fiscal year to $4.64 billion.
Even the long-term outlook doesn't look all that bright as analysts expect the company's bottom line to increase at a compound annual growth rate of just 1.5%. However, it is worth noting that the integration of AI tools within Zoom's platform could lead to improved customer spending as well as growth in its customer base.
The company introduced an AI assistant known as Zoom AI Companion in September last year, and it has been making improvements to this platform since then. From allowing users to compose responses to chats to catching up on meetings that are already in progress to generating summaries of meetings, Zoom has introduced a number of AI-driven features to improve the utility of its offerings.
Zoom recently introduced the 2.0 version of its AI Companion, which will help users summarize and access information from multiple workplace collaboration apps such as Microsoft Outlook, Google Calendar, Gmail, and others. The updated AI assistant will also help users in deciding their next steps following meetings, along with multiple other features such as generating new content.
Zoom's AI features are gaining traction among customers, as management pointed out on its August earnings conference call. This probably explains why customers are spending more money on its platform now. The number of customers contributing more than $100,000 in trailing-12-month revenue in the previous quarter increased 7% year over year.
As a result, the company's remaining performance obligations (RPO), which refers to the total value of a company's future contracts that are yet to be fulfilled, increased 8% year over year to $3.78 billion. The faster increase in the RPO as compared to the growth in Zoom's revenue is a sign that its growth rate is likely to improve in the future.
Not surprisingly, Zoom raised its full-year revenue guidance when it released its earnings in August. Analysts have also raised their earnings growth expectations from Zoom recently.
ZM EPS Estimates for Current Fiscal Year data by YCharts
Given that the global market for workplace collaboration applications is forecast to double in size by 2027 to $71.6 billion, according to market research firm IDC, Zoom is sitting on a solid incremental growth opportunity that it could tap with the help of AI.
The case for Twilio
Twilio made its name helping customers move their contact centers to the cloud, and the company enjoyed incredible growth after it went public in June 2016. However, Twilio has seen a stark slowdown in its growth lately, though it cannot be denied that things have started looking up.
The company's revenue in the third quarter of 2024 was up 10% year over year to $1.13 billion. Twilio forecast its organic revenue growth to land between 7% and 8% for the full year. Analysts, on the other hand, expect overall revenue to increase just 6% to $4.42 billion. The forecast for the next couple of years, however, points toward a slight acceleration in growth.
TWLO Revenue Estimates for Current Fiscal Year data by YCharts
Twilio's AI offerings are helping its clients reduce their customer acquisition costs and improve customer lifetime value. Given that Twilio already has a huge active base of 320,000 customers, it is in a nice position to cross-sell its new AI offerings to them and win a greater share of their wallets.
The company's AI-focused offerings such as CustomerAI are helping its clients use its customer data platform to gain better insights into customer behavior, thereby leading to an improvement in engagement and sales. Twilio's dollar-based net expansion rate of 105% in the third quarter indicates that its existing customer base is spending more money on its offerings.
This metric compares the revenue generated by Twilio's customers at the end of a particular quarter to the revenue generated by the same customer base in the year-ago period. So, a reading of over 100% means that those customers have increased their usage of Twilio's platform or have adopted more of its solutions.
More importantly, the company is moving into new AI-focused niches as well that could help it tap multibillion-dollar markets such as conversational AI assistants. In all, it won't be surprising to see an uptick in Twilio's growth going forward because of its AI-centric efforts and solid customer base.
The verdict
By now it is evident that there is not much separating Twilio and Zoom. Both companies are growing at a slow pace right now, though Twilio is growing at a slightly faster rate. Coming to the valuation, while Zoom is trading at 5 times sales, Twilio sports a price-to-sales ratio of 3.4. The forward earnings multiples of both companies are also on the inexpensive side, considering that the Nasdaq-100 index has a forward price-to-earnings ratio of 30.
ZM PE Ratio (Forward) data by YCharts
The bottom line is that both Zoom and Twilio are inexpensive stocks to buy right now, and their growth could pick up pace in the future because of AI. So, investors could consider buying either of these two stocks, though those looking for better value and slightly faster growth may be tempted to buy Twilio over Zoom.
