These stocks went parabolic in the past and could do so again.
Stocks that take a parabolic path higher have an undeniable allure. These are shares with explosive upward moves over a relatively short period. Of course, these are not easy to identify beforehand.
What’s even more important is to determine whether a company is likely to have the staying power to succeed over the long term. No analyst can guarantee that any specific stock will take such a path. And some artificial intelligence (AI) stocks that made parabolic moves early in the decade faded in the last bear market.
However, stocks like Zoom Video Communications (ZM 0.11%) and Upstart Holdings (UPST 2.56%) have strengthened their businesses since the last stock surge, increasing the chances they could return to their former glory. Let’s take a closer look.
Zoom Video Communications
Zoom Video Communications prospered during the pandemic. As lockdowns and social distancing efforts limited the in-person communication options for people and businesses, tens of millions of users turned to the platform, and the stock soared.
But as we all know, Zoom users eventually returned to their pre-pandemic behaviors, drastically reducing the need for Zoom’s platform. In addition, competition from heavyweights like Microsoft took a toll on its business — and the stock. Today, it trades at an almost 90% discount from its late 2020 high.
The good news for investors is that Zoom has branched out, expanding its offerings into a full-fledged communications ecosystem. Added functions such as Zoom phone and AI-enabled features like the Zoom AI Companion could attract more business customers.
With that in mind, Cathie Wood’s Ark Invest predicts that Zoom’s share price will hit $1,500 in 2026, which would be a 23-fold gain from current prices. Ark Invest believes that a burgeoning webinar/events business and growth of Zoom IQ, its conversational AI tool, should help as well. Wood believes Zoom IQ could make up 50% of average revenue per user (ARPU) on Zoom’s core products.
With that in mind, Cathie Wood’s Ark Invest predicts that Zoom’s share price will hit $1,500 in 2026, which would be a 23-fold gain from current prices. Ark Invest believes a burgeoning webinar/events business could increase average revenue per user (ARPU) by 18%. It also thinks Zoom IQ, its conversational AI tool, could make up 50% of ARPU on Zoom’s core products.
Though that forecast may appear ambitious, Ark Invest’s previous ambitious forecasts for Tesla did come to pass, so investors should not necessarily dismiss the possibility that Ark may be right in this case too.
Still, Zoom’s results will need to improve significantly to justify anything resembling that kind of gain. In its fiscal 2024, which ended Jan. 31, its revenue grew only 3% to $4.5 billion. Zoom’s net income rose more than sixfold during that time to $637 million, but lower operating expenses and other income sources helped boost profits, making it likely that its profit levels will begin to plateau in the near term.
Those improvements have not boosted Zoom’s stock price in recent months, and investors may perceive its 32 price-to-earnings ratio as expensive given its profit outlook. However, if its webinar segment and AI-enabled capabilities lead to massive increases in Zoom’s ARPU, the stock could stage a dramatic recovery.
Upstart
Upstart seeks to transform an industry in need of a shake-up by applying AI to the process. It aims to replace Fair Isaac Corporation‘s FICO® score by applying an AI-driven model to better evaluate the creditworthiness of prospective borrowers.
Internal research shows that its model can approve 44% more loans without increasing default risks to banks. Such an improvement could be tremendously valuable to banks.
Excitement about this technology helped the stock boom during the 2021 bull market as its share price briefly topped $400 per share. However, its rapid growth suddenly reversed and gave way to losses amid rising interest rates, causing the stock to lose as much as 97% of its value at one point.
The pain continues as its 2023 revenue of $514 million fell 38% year over year. During that time, losses rose from $109 million in 2022 to $240 million last year.
Nonetheless, the company is showing signs of recovery. The Q4 revenue of $147 million rose from $135 million in the previous quarter. Moreover, the fact that 89% of its loans were approved automatically in Q4, up from 82% one year ago, is a sign of its improved AI technology.
Additionally, the Fed plans to lower interest rates this year, and a more favorable loan environment should increase the number of loans.
Admittedly, Upstart has more work to do to successfully stage a recovery. Still, at a price-to-sales (P/S) ratio of 4, its reaonsable valuation may look like a huge bargain in the future if conditions improve. As it continues to disrupt the loan evaluation market through AI, the stock could finally begin its long-awaited recovery in earnest.
Will Healy has positions in Upstart and Zoom Video Communications. The Motley Fool has positions in and recommends Upstart and Zoom Video Communications. The Motley Fool recommends Fair Isaac. The Motley Fool has a disclosure policy.
