In the realm of Artificial Intelligence (AI) stocks, 2023 has witnessed the meteoric ascent of Nvidia, with shares surging by over 200%. While the graphics processing unit (GPU) giant continues to bask in its success, Wall Street believes there’s another compelling AI opportunity on the horizon. Symbotic, an AI-driven warehouse automation technology company, has seen its stock climb nearly as much as Nvidia this year. What’s more, analysts anticipate that Symbotic could soar by almost 70% in the next 12 months.
Symbotic’s AI-powered warehouse revolution
Symbotic has established itself as a key player in the AI-driven supply chain management sector. The company’s core mission is to leverage AI technology to optimize and automate warehouse operations. It specializes in streamlining the processing of pallets and cases in distribution centers, employing AI-enabled fully autonomous mobile robots and an expansive automated warehouse platform.
As global supply chain challenges continue to escalate, the need for efficient, AI-driven solutions becomes paramount. Handling a growing number of stock-keeping units (SKUs), managing in-store pickups, facilitating home delivery, and retaining skilled workers pose complex challenges. Symbotic’s technology offers a comprehensive solution to these issues, making it a vital partner for major corporations.
Impressive customer base
Symbotic’s impressive customer roster includes retail giants such as Walmart and Target, as well as C&S Wholesale Grocers, the largest wholesale grocery distributor in the U.S., and Albertsons, the third-largest supermarket chain worldwide in terms of revenue. These partnerships underscore Symbotic’s ability to address the diverse needs of major players in the retail and distribution sectors.
Wall Street’s confidence in Symbotic
Analysts tracking Symbotic are overwhelmingly bullish on the stock. Among the 13 analysts surveyed by Refinitiv, 11 rate Symbotic as either a “buy” or “strong buy,” while none recommend selling. The standout feature is the average one-year price target, which suggests a potential 70% increase from the current share price. The most optimistic analyst even envisions the stock more than doubling over the next 12 months.
Market potential and softBank partnership
Symbotic’s attractiveness to investors is partly attributed to its target market. Currently focusing on the $144 billion U.S. apparel, general merchandise, and food and grocery market, the company’s total addressable market expands significantly when considering other verticals and geographical regions, reaching a staggering $430 billion.
A game-changing move came with Symbotic’s announcement of a joint venture with SoftBank, significantly expanding its addressable market. Together, these companies are pioneering “warehouse-as-a-service” systems. This partnership has bestowed upon Symbotic a contracted backlog worth approximately $23 billion, a monumental figure for a company anticipating revenue of around $1.1 billion in its current fiscal year and boasting a market capitalization of only $2.6 billion.
Balancing act: potential drawbacks
Despite the tremendous potential, investors must consider some caveats before jumping into Symbotic stock:
Profitability challenge: Symbotic has yet to reach profitability. In its latest quarter, the company reported a net loss of around $39 million. While investing in growth often incurs short-term losses, achieving profitability remains a crucial milestone.
Revenue growth fluctuations: The company experienced a significant slowdown in revenue growth. After a staggering 177% year-over-year revenue increase in fiscal 2023 Q2, the subsequent quarter only saw growth of less than 17%. The company’s guidance for the current quarter anticipates year-over-year revenue growth of 23%. Symbotic must sustain consistent growth to meet lofty investor expectations.
Concentration risk: Symbotic’s heavy reliance on Walmart is a potential vulnerability. In the last fiscal year, Walmart accounted for nearly 94% of the company’s total revenue and forms a substantial portion of its backlog. Diversifying its client base will be essential for long-term stability.
In the high-stakes world of AI stocks, Symbotic has emerged as a compelling contender to watch. With its AI-driven warehouse automation technology and an expanding market potential, Wall Street’s bullish sentiment is well-founded. The strategic partnership with SoftBank has the potential to reshape Symbotic’s trajectory, offering a substantial contracted backlog and access to an even larger market.
Nonetheless, investors should approach Symbotic with cautious optimism. The company’s current lack of profitability, revenue growth fluctuations, and concentration risk are legitimate concerns. It may not be suitable for conservative investors, but for those with a higher risk tolerance seeking to profit from the AI boom, Symbotic deserves a place on their radar.
In the ever-evolving landscape of AI stocks, Symbotic’s ascent in 2023 could indeed rival Nvidia’s, making it a captivating opportunity for those willing to navigate the inherent challenges and ride the AI wave into the future.
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