In this artice, we will look at the 8 Worst AdTech Stocks To Buy Now. Let’s look at where Pegasystems Inc. (PEGA) stands against other worst adtech stocks.
Overview of the AdTech Industry
The adtech industry includes an array of products and companies, including supply-side platforms (SSPs), demand-side platforms (DSPs), data management platforms (DMPs), ad exchanges, and more. According to data by Allied Market Research, the global adtech market stood at $748.2 billion in 2021, and is anticipated to reach $2.9 trillion by 2031. This translates to a compound annual growth rate of 14.7% between 2022 and 2031. Experts believe that the industry is well-poised for growth, with the global supply-side platform segment (SS) reaching a market size of $117.32 billion by 2033. Technological advancements, supportive government policies, and higher consumer demand are all factors expected to drive this growth.
In addition, changing trends such as the exponentially growing use of advanced technology like artificial intelligence and machine learning, growing Internet and digital penetration, growth of social media platforms and better prospects for the gaming industry, are all responsible for this growth. In-app advertising, interactive ads, and higher use of connected TV (CTV) have become the dominant trends in the AdTech industry, driving growth and change.
Trends in programmatic advertising are also expected to improve, allowing the demand-side platform software market size to reach $120.1 billion by 2033. The demand for improved targeting and measurement capabilities for online ads is also an important factor to consider in this growth. While the AdTech industry seems promising on its own, the increasing use of artificial intelligence across all platforms is making it even more appealing.
Recent Happenings in the AdTech Sector
Despite its positive trends, the AdTech industry in the US is experiencing certain headwinds, the most prominent being Google’s highly profitable AdTech business going to trial. The Department of Justice and a coalition of states filed a lawsuit against the company in 2023, claiming that the company is illegally dominating the digital ad marketplace, leveraging its market power to suppress competition and innovation. A trial began this month, and the Department of Justice rested its case against its parent company for operating a monopoly in the AdTech market. The tech giant earned more than $200 billion through the placing and selling of ads in 2023, arguing that the reason behind this success is the “effectiveness” of its services. Prosecutors, however, claim that the company has used its dominance to shun rivals.
In addition, smaller AdTech firms are raising concerns over Google’s cookies alternative, Privacy Sandbox. While its ad business is under global scrutiny, the company is making adapting to Privacy Sandbox a critical necessity. However, regulators in the US and UK are of the opinion that the Privacy Sandbox would give Google the lion’s share of control over the digital advertising market, which might negatively affect competition.
Potential technology development delays seem to be negatively affecting smaller AdTech firms, changing the course of the industry. While conclusive results aren’t out, such changes are highly likely to alter AdTech industry trends.
Our Methodology
To list the 8 Worst AdTech Stocks To Buy Now, we used the Finviz screener, ETFs, and rankings to first identify 15 AdTech stocks. Next, we narrowed our list by selecting the 8 stocks that have high short interest but also a high number of hedge fund investors. Finally, these stocks were ranked in ascending order of their short interest. We have also added the number of hedge funds holding each stock as a secondary metric.
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).
8 Worst AdTech Stocks To Buy Now
Pegasystems Inc. (NASDAQ:PEGA)
Short Interest: 1.56%
Number of Hedge Fund Holders: 27
Pegasystems (NASDAQ:PEGA) develops, licenses, markets, hosts, and supports enterprise software to build agility in organizations and businesses and make them more adaptable to change. The company’s Pega Infinity software portfolio connects customers and enterprises across channels in real time.
The company’s platform and applications cross with several software markets, application development platforms, and the Vertical-Specific Software market of packaged applications and industry solutions. Some of the application development platforms include Digital Process Automation, Customer Relationship Management, Business Process Management, Workflow, and Dynamic Case Management. The application development platforms include Robotic Process Automation, Multi-experience Development Platforms, Decision Management, and Business Rules Management Systems. Pegasystems offers a multitude of services and support through three groups: Global Client Success, Pega Academy, and Global Service Assurance groups.
The company is on the path to accomplishing its financial goals while delivering breakthrough technology innovation. It holds a competitive advantage in the industry due to its center at architecture and systematic approach to generative AI and statistical AI. The company’s newest offerings, especially the Pega GenAI Blueprint, encompass many of these advancements. Over the last months, it created tens of thousands of Pega Blueprints, identifying growth opportunities and creating momentum for Pega Cloud, which plays a role in monetization. According to the company, Pega Blueprints is essentially altering how it engages, sells, and delivers to its clients.
Pegasystems (NASDAQ:PEGA) has taken a Gen-AI approach to its improvements. It has added GenAI capabilities to assist its customers. IT and business teams who plan and design their application through the platform can leverage these capabilities to expedite the design phase, use AI to stimulate best practice thinking in applications, and inject best practices and ideas. Similarly, developers can use the Pega GenAI Autopilot to turn Blueprints into live applications, providing contextual guidance and assistance throughout the development journey. The company has also introduced the Pega Gen AI Socrates, a GenAI tutor that can conduct personalized and tailored dialogues with its students to help them learn Pega skills.
Apart from groundbreaking innovations and improvements, the company is running on solid financials. Free cash flow reached $218 million in the first half of 2024, growing by 119% year over year and making a record for the company. The growth was driven by two primary factors: continued improvement in sales execution and continued focus on operational discipline. The stock is trading at a forward P/E of 23.63 at a 0.46% premium to its sector. It received a Buy from William Blair, and JMP Securities upgraded the stock to a Buy. Its current price target of $67.29 implies an upside of 25.58% from current levels. 27 hedge funds hold stakes in the stock as of Q2 2024.
Overall, PEGA ranks sixth among the worst adtech stocks to buy now. While we acknowledge the potential of adtech companies, 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 PEGA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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