Can AI productivity gains boost share prices of Appian, Upstart and Workday?

More and more businesses are investing in AI tools and applications to improve their productivity and customer service, yet the benefits are only just starting to be realised. Companies in the AI software field like Appian, Upstart and Workday stand to benefit in the long-run.

- Appian, Upstart and Workday reported robust revenue growth for the recent quarter

- AI software companies could generate $14trn in annual revenue collectively by 2030, says ARK Invest

- The WisdomTree Artificial Intelligence ETF holds all three stocks and is down 40.6% year-to-date, but up 3.3% in the past month

Appian [APPN], Upstart [UPST] and Workday [WDAY] offer software tools that leverage artificial intelligence (AI) and machine learning in the hopes of helping companies to be more efficient and productive.

A recent survey of 1,000 US consumers by Blumberg Capital found that one-third of respondents were receptive to the support AI can provide in completing tedious tasks in the workplace, up from 19% in 2019. Corporate investment in AI in the customer service field is paying off with 42% of respondents saying that customer satisfaction has increased while complaints have decreased, up from 33% in 2019.

Despite talk of AI and machine learning impacting job creation, workplaces are just starting to realise the benefits of these technologies. According to ARK Invest’s Big Ideas 2022 report, AI could potentially boost the productivity of knowledge workers – those that deal with complex tasks that can’t be automated – allowing them to increase their output by 140% between now and 2030.

AI products and technologies are very much a long-term trend, and investors may need to look beyond losses in the recent term. Year-to-date, the Appian share price is down 25.1%, the Upstart share price has tumbled 84.7%, and Workday shares have slashed 43% in value.

Robust revenue growth

As AI and machine learning software tools continue to advance, so will their adoption.

Revenue for Appian, which builds and sells enterprise apps to companies in multiple industries to improve their workflow, increased by 33% year-over-year to $110.1m in the three months to the end of June. Sales from subscriptions came in at $76.7m, up 35% year-over-year, while the cloud subscription revenue retention rate was 116%.

Workday, which helps companies to automate HR and finance tasks, reported a 23% year-over-year increase in subscription revenue to $1.4bn for the three months to the end of July. It ended Q2 2023 with trailing 12-month subscription revenue of $5.04bn and a 24-month subscription revenue backlog of $8.37bn.

Upstart, an AI lending software used by banks and credit providers, reported revenue increasing 18% year-over-year to $228m in the three months to the end of June. The number of loans originated by third parties using the platform was up 12% over the same period to 321,138 loans, totalling $3.3bn.

A growing market opportunity

Due to the nature of its business, Upstart is directly exposed to the current macro environment, in which potential customers are avoiding new loans because of soaring interest rates and rising default rates. Nonetheless, CEO Dave Girouard is “confident that our AI-based risk model is more accurate than ever, and provides the opportunity for long-term, sustainable growth.”

As for Appian and Workday, they should continue to see strong growth, too. Workday reiterated its full-year subscription revenue guidance on its Q2 2023 earnings call, during which co-CEO Chano Fernandez continuously referred to its products as supporting “mission critical” operations. Appian CEO Matt Calkins said the company’s “efficiency-centric platform gives us advantages in times of economic uncertainty”.

Looking ahead, companies will continue to invest in enterprise tools and applications. Ark Invest has forecast that AI software companies could be generating $14trn in annual revenue collectively by 2030, resulting in an increase in free cash flow from $2.3trn in 2021 to $4trn.

Funds in focus: WisdomTree Artificial Intelligence ETF

Appian and Workday are the third and ninth biggest holdings in the WisdomTree Artificial Intelligence ETF [WTAI], with weightings of 2.77% and 2.52% respectively as of 31 October. Upstart is the twelfth biggest holding with a 2.38% weighting. The fund is down 40.6% year-to-date, but up 3.3% in the past month.

Appian and Upstart are also held by the Robotics & Artificial Intelligence ETF [BOTZ], with respective weightings of 1.05% and 1.04%. The fund is down 45.3% year-to-date, but up 8.5% in the past month.

Appian and Workday are held by the SPDR S&P Software & Services ETF [XSW], with respective weightings of 0.56% and 0.5%. The fund is down 30.5% year-to-date, but up 7.3% in the past month.