We recently published a list of Top 10 Favorite AI Stocks of Brad Gerstner. Since Confluent Inc (NASDAQ:CFLT) ranks 5th on the list, it deserves a deeper look.
Brad Gerstner, the founder of Altimeter Capital, has been a major believer in AI and tech stocks in general. Recently, the 53-year-old hedge fund manager shared some interesting data points highlighting the importance of tech stocks during an interview with Scott Galloway’s YouTube channel.
“Since 2014 technology earnings have compounded at 16% and technology stocks have compounded at 18%. Non-tech earnings have compounded at about 4% and stocks at about 6%. So if you look at the long run of technology since 2005 it’s gone from 5% of global GDP to 15% of global GDP,” Gerstner said.
Gerstner, whose firm manages about $10 billion in assets, emphasized during the interview that the risk of not investing in AI is higher than the risk of investing. He was addressing the market concerns about ROI on AI spending.
“As a professional investor, we’re just trying to determine what level of asymmetry what level of enthusiasm or exuberance is baked into these stocks and what are we seeing day to day in terms of usage and revenues out of the consumer,” he said.
For this article we scanned Altimeter Capital’s Q2 portfolio and discussed its biggest AI stock picks. 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).
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Confluent Inc (NASDAQ:CFLT)
Brad Gerstner’s Stake: $380,613,883
Data streaming platform company Confluent Inc (NASDAQ:CFLT) is an important AI stock Altimeter is buying. The company talked about the positive impact of AI on its business during Q2 earnings call:
“A wide range of use cases have already been established through the Build with Confluent program, including a GenAI bot for airline customer support, fraud detection against AI-powered voice phishing, automated limit increases for credit card users, and real-time telemetry analysis for freight optimization. We’re also seeing great traction with Connect with Confluent, a technology partner program that makes it easier for partners to build data integrations with Confluent Cloud. In Q2, we crossed more than 40 technology partner-built integrations, including SAP, MongoDB, [Inaudible], and services at Google Cloud and AWS, giving us coverage across the major segments of the modern data and AI stack to help us drive consumption of Confluent. The success of Connect with Confluent has tripled the amount of data traffic from our partner integration since the start of the year.”
Confluent’s data streaming platform is based on Apache Kafka, a popular open-source streaming technology, and they’ve recently expanded by adding a version built on Apache Flink.
With the increasing demand for real-time data analysis, particularly in generative AI, Confluent has seen fast growth in both customer numbers and revenue. In Q2 2024, revenue rose 24% year-over-year, from $189.3 million to $235 million. Subscription revenue, which increased by 27% from $176.5 million to $224.7 million, was a key factor behind this growth. This revenue jump also improved their gross margin, up from 69.4% to 72.35%.
The company expects subscription revenue between $233 and $234 million for Q3 and aims for $910 million in subscription revenue for the full year. Total revenue is projected to hit around $950 million, including $40 million from services. Confluent is also guiding adjusted EPS at $0.05 for Q3 and $0.20 for the full year.
Historically, Confluent charged customers a mix of fixed subscription fees and usage-based pricing. But they are shifting towards a consumption model, where customers pay only for what they use. According to management, this transition is nearly complete. This new model is expected to drive higher demand by offering more flexibility and scalability for customers as their data needs grow. It may also attract new customers who were previously hesitant due to fixed subscription costs.
Overall, Confluent Inc (NASDAQ:CFLT) ranks 5th on Insider Monkey’s list titled Top 10 Favorite AI Stocks of Brad Gerstner. While we acknowledge the potential of Confluent Inc (NASDAQ:CFLT), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CFLT 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.