Down 84%, is this artificial intelligence (AI) stock a buy after earnings surge?

Like most things in the software sector, cloud computing experts are also Apia (APPN -1.01%) Stock prices plummeted during the 2022 bear market.

Stock values ​​soared sky high in early 2021 with the help of a short squeeze, but that proved unsustainable. And while the company has delivered solid growth through a broader slowdown in the technology sector, its valuation has been significantly compressed. The stock is currently down 84% from its early 2021 high.

But Appian’s stock price soared more than 12% following its fourth-quarter earnings report on Thursday. The company reported solid results in both revenue and profitability, and outlined new initiatives around artificial intelligence (AI) and “data fabric,” technology that connects disparate data sources to make them easier to access and use.

So, is Appian a good buy for investors right now? Let’s go deeper and take a look.

View recent results

The company reported a 26% increase in cloud revenue to $83.1 million in the fourth quarter, while overall revenue rose 16% to $145.3 million, beating estimates of $140.9 million. It also reported a surprising adjusted profit of $0.06 per share, which was significantly better than the consensus estimate of a loss of $0.24 and the actual loss of $0.28 in the same quarter a year ago.

Appian has actually grown its business while reducing operating expenses and expects to break even on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024 after generating $1 million in EBITDA revenue in the fourth quarter. I’m doing it.

After a double-digit rise in the stock price, investors seem excited about solid revenue growth, narrowing losses, and increased exposure to AI.

What Appian does with AI

What’s encouraging for some investors is that Appian is focusing on a technology called low-code data, a simple way to connect to data from a variety of sources. Unlike other forms of data management, Appian’s data fabric does not archive customers’ data, giving customers greater control over their data. Instead, as CEO Matt Calkins explains, the data fabric acts as a “virtual database.”

Calkins said Data Fabric has been Appian’s No. 1 feature for several years and now shares that position with its AI capabilities. Calkins added about data fabric: “This is one of the best features we’ve written. I think our customers understand it and are using it like they know it.”

Data Fabric is a key part of the company’s AI strategy, which focuses on what Calkins calls “personal AI.” This allows customers to own their data and allows Appian to sell the tools they need to access and best understand their data, including Data Fabric.

During the company’s recent earnings call, Calkins explained that these new features will be revenue drivers for the company. “So we absolutely expect these capabilities to drive revenue differentiation – not just volume, retention, competitive advantage, but also revenue tagging.”

Image source: Getty Images.

Is Appian stock a buy?

Appian’s revenue improvement this quarter was impressive. The company recorded an adjusted profit and both cost of sales and operating expenses decreased year over year, demonstrating improved cost management even though growth remains strong.

Additionally, the fourth quarter saw the fastest net retention increase of any quarter, at 119%. This means existing customers are growing their spending on Appian faster than ever before, increasing 19% year-on-year.

Appian’s full-year guidance calls for 20% cloud revenue growth and 13% total revenue growth. It also expects an adjusted EBITDA loss of $23 million to $25 million, but management believes it will return to EBITDA positive by 2025.

The company plans to hold an investor day conference in April, which will include updates and surprises on AI and Data Fabric, according to Calkins. That meeting could give the stock another leg up. Investors are clearly eager for exposure to artificial intelligence.

If Appian can leverage its AI products to deliver meaningful revenue growth, the upside potential for the stock appears significant.