Why are hedge funds bullish on HubSpot, Inc. (HUBS) right now?

We recently made a list 8 Best AdTech Stocks to Buy Now. In this article, we take a look at how HubSpot, Inc. (NYSE:HUBS) compares to other AdTech stocks.

Needless to say, the ad tech industry is an exciting and ever-evolving sector as digital advertising continues to dominate market trends and remains at the forefront when it comes to strategic marketing. According to industry data from Allied Market Research, the global AdTech market was valued at $748.2 billion in 2021 and is expected to reach $2.9 trillion by 2031. This represents a CAGR of ~14.7% from 2022 to 2031.

This growth is due to the increase in digital and internet penetration, increased use of advanced technologies such as AI and machine learning, better prospects for the gaming industry, and the growth of social media applications including Facebook, WhatsApp, and others. Some of the major trends dominating the AdTech industry include the increased use of connected TV (CTV) ads, in-app ads, and interactive ads.

Development prospects for the AdTech industry

The AdTech market has been segmented into solutions, ad types, company size, platforms, etc. The AdTech industry encompasses a wide range of companies and products such as demand-side platforms (DSPs), supply-side platforms (SSPs), ad exchanges, data management platforms (DMPs), and others. Experts believe that the global supply-side platforms (SSP) market is expected to reach ~$117.32 billion by 2033. This means that the industry is expected to grow by ~13.3% from 2023 to 2033. This growth is expected to be driven by technological advancements, higher consumer demand, and supportive government policies.

In the same vein, the market size of the demand platform software is expected to reach $120.1 billion by 2033, driven by the improved trend of programmatic advertising and the need for better targeting along with online advertising measurement capabilities. While the AdTech industry seems promising, the incorporation of artificial intelligence (AI) makes it even more attractive.

The Role of AI in AdTech – Opportunities and Challenges

The global AdTech industry continues to prepare for Google’s complete phase-out of third-party cookies, which account for ~65% of the browser market share. This change appears to be a critical step toward ensuring user privacy and data security. AI, due to its ability to process massive amounts of data, should play a key role.

Research suggests that ~54% of businesses believe AI offers advertising cost savings and efficiencies, and ~30% of marketers have allocated more than 40% of their marketing budget to AI-powered campaigns. The emergence of smart speakers, voice search, and podcasting can help advertisers create new ways to reach their target audiences using audio and voice technology.

While advertisers can leverage the opportunities available in the AdTech industry, they need to be careful when faced with challenges such as ad fraud. This fraud is mainly caused by bot traffic, domain spoofing, or ad stacking. Some other challenges include inventory quality, ad creative, and brand safety.

AI and ML are revolutionizing digital advertising by allowing advertisers to evaluate massive amounts of data in real time. As a result, advertisers can make data-driven decisions to optimize their ad campaigns. Advertisers are now using algorithmic advertising, personalization, and performance metrics to maximize return on investment (ROI).

AI algorithms help automate media buying, ensuring that ads reach their target audience. Personalized ads can be delivered using AI-powered recommendation engines, and these engines enable real-time tracking that can help make quick adjustments for success.

The global AdTech industry is expected to grow in the mid-teens over the next decade. Given that it is still in the early stages of its growth story, it is time to take a look at some of the best AdTech stocks.

Our methodology

For this article, we selected SmartETFs Advertising & Marketing Technology ETF holdings and sorted them in ascending order by the number of hedge funds that hold them. For this purpose, we searched Insider Monkey’s hedge fund data for Q1 2024.

Why are we interested in the stocks that hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

HubSpot, Inc. (NYSE: HUBS)

Number of hedge fund owners: 55

HubSpot, Inc. (N5YSE:HUBS) offers a cloud-based marketing, sales, and customer service software platform. The company’s applications are available individually or as a bundle.

Experts believe the stock is trading at reasonable levels given the company’s long-term growth and recent earnings. HubSpot, Inc. (NYSE:HUBS) reported its Q2 2024 results, beating analyst estimates for revenue and earnings. The company’s revenue came in at $637.2 million in Q2 2024, up from $529.1 million reported in the same quarter a year earlier. Analysts were expecting $619 million. The revenue growth was helped by higher revenue from subscriptions and professional services.

Non-GAAP net income was $103.5 million, or $1.94 per share, compared to $71.8 million, or $1.38 per share, in the prior-year quarter. Analysts were expecting $1.63. Earnings were supported by innovation, consistent execution, higher average subscription and total customer growth.

Although the company’s shares have been rising at a rapid pace, recent headlines have had a negative impact on the company’s share price.

For months, rumors have been circulating on the street that Alphabet Inc. (NASDAQ:600G) was considering acquiring HubSpot, Inc. (NYSE:HUBS). When the news broke in April 2024, the stock surged as talks suggested genuine interest from both parties. However, in July 2024, reports indicated that both companies were abandoning their efforts. Shares of HubSpot, Inc. (NYSE:HUBS) fell sharply following the news, causing the valuation to fall below levels prior to the news. Reuters reported that the U.S. regulator expressed increased distaste for large tech conglomerates that are getting bigger through inorganic means.

However, experts believe that this news was a potential drag on the momentum, and HubSpot, Inc. (NYSE:HUBS) is well-positioned to take off. This is evidenced by the company’s Q2 2024 results, where it provided solid guidance for the full year. For fiscal 2024, it expects total revenue of $2.567 billion to $2.573 billion.

Analysts at Piper Sandler have covered HubSpot, Inc. (NYSE:HUBS) shares and reaffirmed their “Overweight” rating. The brokerage house set a price target of $570.00 for August 8, 2024.

At the end of the first quarter, 55 of the 920 hedge funds tracked by Insider Monkey held a stake in HubSpot, Inc. (NYSE:HUBS).

Total HUBS takes 6th place on our list of the best AdTech stocks to buy. You can visit 8 Best AdTech Stocks to Buy Now to see other AdTech stocks that are on the hedge fund radar. While we recognize HUBS’s potential as an investment, our belief is based on the belief that AI stocks are more promising in terms of delivering high returns and doing so in a shorter time frame. If you’re looking for AI stocks that are more promising than HUBS but are trading at less than 5 times earnings, check out our report on cheapest AI action.

READ MORE: Analyst sees new $25 billion ‘opportunity’ for NVIDIA AND Jim Cramer Recommends These 10 Stocks for June.

Disclosure: None. This article was originally published on Insider Monkey.