While many investors have been pondering since the launch of DeepSeek whether the AI hype was exaggerated and considering how the big players want to make money with AI, ExlService provides the answers - and very well!
ExlService benefits greatly from AI and data analysis.
Quarterly figures exceed expectations, profit increases.
Market forecasts for Exl show further growth potential.
With a market capitalization of just over eight billion US dollars, ExlService is certainly not one of the largest AI companies on the stock market. However, the Americans are a good example of how good money can be made with artificial intelligence. The tills are getting fuller and fuller and the customer base more and more select. This is the beginning of a success story!
The business model
ExlService Holdings, Inc, better known as Exl, is a global company specializing in data analytics, artificial intelligence (AI) and digital solutions. Since its founding in 1999, EXL has expanded its services from business process outsourcing (BPO) to comprehensive data and AI-driven solutions.
The services and solutions
EXL offers a wide range of services including:
Data analytics and AI: helping companies use data and AI to improve customer experience, profitability and growth.
Digital transformation: helping to modernize business processes through digital technologies.
Digital operations management: Optimizing business processes through data-driven, AI-supported solutions.
The industry expertise
EXL serves various industries, including:
Banking and capital markets
Healthcare and life sciences
Insurance
Retail and consumer goods
Energy and infrastructure
Communication and media
The customer base
Not much needs to be said here. A picture is worth a thousand words.
The current figures
ExlService published its quarterly figures for the third quarter at the end of October. Adjusted earnings per diluted share rose to USD 0.44 (approx. EUR 0.41), compared to USD 0.37 (approx. EUR 0.34) in the previous year. Analysts at Capital IQ had expected USD 0.41 (approx. EUR 0.38).
Revenue for the quarter ended September 30 amounted to USD 472.1 million (approx. EUR 440.5 million), up on the previous year's USD 411 million (approx. EUR 383.5 million). Experts had expected 460.8 million US dollars (approx. 430.3 million euros).
The forecast increase
For the full year 2024, the company is now forecasting adjusted earnings per share of between 1.61 and 1.63 US dollars (approx. 1.50 to 1.52 euros) and revenue of 1.825 to 1.835 billion US dollars (approx. 1.70 to 1.71 billion euros). Previously, EXLS had expected a range of 1.59 to 1.62 US dollars (approx. 1.48 to 1.51 euros) with turnover of 1.81 to 1.83 billion US dollars (approx. 1.69 to 1.70 billion euros).
Analysts at Capital IQ are forecasting adjusted earnings per share of USD 1.62 (approx. EUR 1.51) and revenue of USD 1.82 billion (approx. EUR 1.70 billion) for 2024.
On February 25, Exl reports the figures for the 4th quarter. The trend is that another positive surprise is possible.
My tip: The launch of DeepSeek has given investors pause for thought. As a Chinese company with its prescribed censorships, the AI model is unlikely to represent direct competition for Western providers, but its launch will nevertheless have an impact on the market.
The expensive infrastructure and high investments in AI models are now being questioned. This could mean that the long-term forecasts for the demand for high-performance hardware and large data centers may have been too optimistic. This poses a challenge for companies in the AI sector, some of which have very high valuations.
However, there are always two sides to a coin. More efficient AI models could facilitate access for companies and accelerate the spread of AI technology. Even if the hardware requirements per model decrease, the increasing use of AI as a whole could actually increase the need for GPUs and infrastructure.
The price rally of most AI stocks is likely to have come to an end for the time being at a still high level. Investors are reorganizing. The wheat is now beginning to be separated from the chaff. Investors are not currently buying into everything that has AI written on it. Now the companies must continue to deliver. Those who fail to do so will fall by the wayside.
And that brings us back to Exl. The Group is earning very well and its order books are full to bursting at around 2 billion US dollars. Experts believe that the market Exl is targeting will triple in size in the coming years. While many AI high-flyers have weakened recently, Exl's share price has continued to rise almost unperturbed.
This may also be due to the fact that Exl is not very well known among investors and experts due to its current size. According to MarketScreener, only 9 experts are currently taking a closer look at the stock. Of these, however, seven recommend "buy" and two "hold". With a P/E ratio of 36, Exl is also not as highly valued as some other stocks in the AI sector.
The chart also looks good. If the share takes a breather to around USD 50, the next strong upward surge could start from this level. The figures for the fourth quarter, which are due in less than two weeks, could be the fuel for this.
