Cloud Communications Specialist Actions Twilio (TWLO 1.34%) They may have underperformed the broader market this year with a 10% decline, but they have regained some momentum of late and have surged more than 20% in the past three months.

Additionally, Twilio stock received a nice boost on October 2, rising more than 4% in a single session after the company revealed that it would integrate the Real-Time API (programming interface of ‘applications) of OpenAI in its platform.

Let’s take a look at why investors applauded this news and check whether Twilio’s recent moves to integrate artificial intelligence (AI) into its cloud-based communications platform would be effective enough to help it grow faster at the future.

AI could shake things up in a big way for Twilio

Twilio believes that integrating the Realtime API into its cloud communications platform would enable its 300,000+ customer base to create powerful conversational AI virtual agents leveraging the flagship multi-language, multi-modal GPT model – 4o of OpenAI”. It’s worth noting that the Realtime API supports speech-to-speech technology, which allows developers to create conversational AI assistants that seem more human.

Management points out that AI conversational assistants capable of human-like dialogue could help customer service agents deliver better levels of satisfaction and experience. Additionally, the company believes that customers looking to build conversational AI assistants will be able to build, deploy and connect with their customers using virtual agents on a single platform instead of turn to several suppliers.

As a result, Twilio claims that customers using its platform to create virtual agents using OpenAI’s real-time API would be able to reduce operational costs while improving efficiency. Insight Partners estimates that the conversational AI market size was estimated at $8.4 billion last year, but could reach nearly $40 billion in 2031.

So, Twilio is doing the right thing by partnering with OpenAI to exploit this lucrative opportunity, as it will now be able to offer customers an additional product that could help it gain a greater share of their wallet, while also also helping it attract new customers. Twilio ended the second quarter of 2024 with more than 316,000 active customer accounts, an improvement from 304,000 active customer accounts in the same period last year.

Its net dollar retention rate in the second quarter was 102%. This metric refers to the amount of money spent by the company’s customers on its offerings during a quarter, which is then compared to the money spent by those same customers during the previous year. A number above 100% means that these existing customers continue to purchase more of Twilio’s offerings. However, Twilio’s net dollar retention rate was just over the 100% mark, meaning the company needs to find more ways for its customers to spend more money on its services.

This is where AI could come in handy and is likely why Twilio stock jumped on the OpenAI integration news.

Stronger financial performance could be on the way

Twilio’s second-quarter revenue rose just 4% year-over-year to $1.08 billion. Analysts expect the company to finish the year with a 5% increase in revenue to $4.37 billion, nearly in line with management’s forecast. The good news is that consensus estimates call for a slight improvement in its revenue growth next year, to 7%.

Adding AI-related features could potentially help Twilio maintain a healthier level of growth in the future while generating stronger profit growth for the company as it will be able to gain new customers and also generate higher spend compared to existing customers. Analysts expect Twilio’s profits to grow at an annual rate of nearly 20% over the next five years, and the points discussed in this article indicate that it could indeed generate such healthy growth through a new catalyst in the form of AI.

Given that this tech stock is now trading at 17 times forward earnings, investors are currently getting a good deal on Twilio, as it is significantly cheaper than the 45 times multiple of average US tech sector earnings. and capable of generating healthy earnings growth in the future should consider exploiting this buying opportunity before Twilio soars higher.