Strong Gains in 2024: Docusign and Upstart Shine in AI Stocks
The last trading day of 2024 sees the S&P 500 index achieving an impressive year-to-date gain of 27%, more than double its average annual return since its inception in 1957.
Leading the Charge: A Surge in Tech Stocks
In 2024, the tech sector has been a crucial driver in the market’s rise, with companies in the artificial intelligence (AI) sector particularly excelling. Notably, Docusign (NASDAQ: DOCU) and Upstart (NASDAQ: UPST) have delivered remarkable returns of 63% and 75%, respectively.
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The Future Looks Bright for Docusign
Docusign is well-known for its e-signature technology and has recently upgraded its offerings by launching the AI-driven Intelligent Agreement Management (IAM) platform. This innovative tool manages the entire lifecycle of contracts, from drafting to final signatures.
According to Deloitte, poor contract management costs businesses roughly $2 trillion annually. Docusign’s IAM products, like Docusign Navigator, provide significant relief by storing agreements digitally and utilizing AI to track critical dates and extract relevant data.
Another feature, Docusign AI, assists in drafting contracts and highlights potential risks in agreements. Docusign Maestro enhances IAM functions with its no-code tools that simplify adding features such as ID verification and e-signatures, optimizing time and resources.
In the third quarter of fiscal 2025, which ended on October 31, Docusign recorded tenfold growth in IAM deals compared to the previous quarter, indicating increasing popularity. The company anticipates reaching a revenue milestone of $2.96 billion for fiscal 2025, marking a 7% increase from fiscal 2024. This cautious growth strategy, focusing on cost management, significantly improved net income by 60% to $62.4 million.
Despite the 63% stock gain this year, Docusign is assessed at a price-to-sales (P/S) ratio of 6.7, representing a 48% discount from its long-term average of 12.9. This suggests a potential for substantial growth, especially considering the company’s $50 billion addressable market and the continuing contributions of AI.
Upstart’s Upward Trend Amid Recovery
Upstart’s incredible stock price increase of 75% in 2024 follows a staggering 425% recovery from its low in 2023. However, the stock still sits 82% below its peak in 2021. The company leverages an AI-based algorithm to facilitate loans for banks, but its stock suffered when rising interest rates reduced credit demand in recent years.
With the Federal Reserve cutting interest rates three times in the last three months, Upstart is poised for further recovery in 2025. The company’s approach to evaluating creditworthiness differs from the traditional FICO scoring, using an impressive 1,600 metrics for assessment, offering a more comprehensive borrower evaluation.
Claiming to approve twice as many loans as conventional methods with rates 38% lower, Upstart’s AI capabilities allow for predominantly automated loan decisions, boasting a 91% automation rate.
By the end of the third quarter of 2024, Upstart had originated 186,786 unsecured loans, reflecting a 65% year-over-year increase in demand for credit. Analysts project Upstart will report $599 million in revenue for 2024, a 16% improvement from 2023, with expectations of $821.8 million for 2025, indicating a growth acceleration of 37%.
Currently, Upstart trades at a P/S ratio of 10.8, slightly above its historical average of 8.9, but its forward P/S ratio based on 2025 projections is just 7.5. This suggests that investors holding onto the stock could find an attractive opportunity.
Considering the annual origination of $3 trillion in personal loans, car loans, and mortgages in the U.S., Upstart’s growth potential remains significant, making it a solid addition to investment portfolios beyond 2025.
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*Stock Advisor returns as of December 30, 2024
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Docusign and Upstart. The Motley Fool also recommends Fair Isaac. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
