What Happened?

A number of stocks jumped in the afternoon session after stocks extended their rebound, led by strong gains in the technology sector, as renewed optimism surrounding U.S.–China trade negotiations lifted investor sentiment. 

Contributing to the bullish tone was a standout earnings report from enterprise software leader ServiceNow, which topped Wall Street's expectations on RPO, profit, and earnings. More importantly, the company's remaining performance obligations (RPO), a key forward-looking metric for future revenue, gave investors confidence that enterprise customers were not pulling back spending amidst uncertain macro. 

This optimism was further reinforced by solid results from Texas Instruments and Lam Research. Their performance was especially encouraging for semiconductor stocks, which had been under pressure due to their exposure to global trade tensions. These earnings results suggested that, despite macroeconomic uncertainties, demand in key tech verticals remained resilient.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Communications Platform company Twilio (NYSE: TWLO) jumped 7.1%. Is now the time to buy Twilio? Access our full analysis report here, it’s free.
• Developer Operations company GitLab (NASDAQ: GTLB) jumped 6.5%. Is now the time to buy GitLab? Access our full analysis report here, it’s free.
• Sales Software company Freshworks (NASDAQ: FRSH) jumped 6.9%. Is now the time to buy Freshworks? Access our full analysis report here, it’s free.
• Design Software company Unity (NYSE: U) jumped 6.5%. Is now the time to buy Unity? Access our full analysis report here, it’s free.
• Lending Software company Upstart (NASDAQ: UPST) jumped 6.3%. Is now the time to buy Upstart? Access our full analysis report here, it’s free.

Zooming In On Twilio (TWLO)

Twilio’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 3 months ago when the stock gained 22.8% on the news that the company shared impressive financial forecasts during its 2025 Investor Day event, unveiling clearer details about its artificial intelligence capabilities. 

Twilio expected low double-digit sales growth for Q4'2024, a notable improvement from earlier guidance of high single-digit growth. On a GAAP basis, operating income was expected to swing into positive territory, a rare achievement for the company, building on recent quarters where it nearly broke even. In the long term, 

Twilio hoped to achieve an adjusted operating margin as high as 22% by 2027 (ahead of Wall Street's estimates), which could drive $3 billion in free cash flow over the next three years. The profit forecast was partly based on management's conviction that the business could continue to deliver double-digit sales growth, given the abundant AI opportunities. 

In a further move to return the generated value to shareholders, management announced a $2 billion share buyback plan. 

Following the event, Baird analyst William Power upgraded the stock's rating from Hold to Buy, expressing increased optimism ahead of TWLO's Q4 2024 earnings results. Power highlighted the AI opportunity, adding, "Notably, 9,000 AI companies and 90% of Forbes 50 AI startups are building on TWLO as a customer engagement layer, and AI related companies spent $260 million on Twilio in the last 12 months." The analyst also raised TWLO's price target from $116 to $160, translating to a potential 40% upside.

Twilio is down 14.6% since the beginning of the year, and at $93.14 per share, it is trading 37.2% below its 52-week high of $148.35 from January 2025. Investors who bought $1,000 worth of Twilio’s shares 5 years ago would now be looking at an investment worth $847.11.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.