Why Twilio Is a High-Conviction AI Stock With 27%+ Upside

In the rapidly evolving landscape of artificial intelligence, few companies have positioned themselves as strategically as Twilio. By embedding AI into the very fabric of its communications platform, Twilio is not merely adapting to the AI revolution—it is redefining it. For investors seeking exposure to a high-growth sector while capitalizing on undervaluation, Twilio presents a compelling case.

Strategic AI Adoption: Building the Infrastructure for Intelligent Communication

Twilio's 2025 AI strategy is a masterclass in platform-centric innovation. The company's three-pronged approach—collaborating with AI pioneers, embedding AI into workflows, and offering flexibility for custom models—ensures it remains a foundational layer for enterprises. Its flagship product, Conversational AI, unifies voice, SMS, WhatsApp, and web chat into a seamless experience, addressing long-standing challenges in scalability and data insights.

Key innovations like ConversationRelay and Conversational Intelligence exemplify this strategy. ConversationRelay simplifies the deployment of AI voice agents with features like interruption handling and HIPAA-compliant integrations, while Conversational Intelligence provides actionable analytics on customer sentiment and intent. These tools are already seeing explosive adoption: Conversational Intelligence usage surged 86% year-over-year, and Fraud Guard alone has saved customers $82 million by mitigating fraudulent traffic.

Twilio's partnerships further solidify its ecosystem. A multi-year collaboration with Microsoft to enhance conversational AI's naturalness, coupled with its AI Startup Searchlight 2025 Award Program, ensures a pipeline of innovation. By avoiding a “walled garden” approach, Twilio empowers developers to use best-in-class tools or internal LLMs, fostering loyalty in a competitive market.

Revenue Acceleration: Scaling Profitability in a $10B Market

Twilio's financials underscore its ability to monetize AI-driven growth. In Q2 2025, the company reported $1.23 billion in revenue, a 13% year-over-year increase, with Communications revenue growing 14% to $1.15 billion. Its Dollar-Based Net Expansion Rate hit 108%, up from 102% in 2024, reflecting strong customer retention and upsell potential.

Profitability has also improved dramatically. GAAP income from operations rose to $37 million (a $56 million improvement YoY), while non-GAAP income reached $221 million—a 26% YoY jump. Free cash flow surged 21% to $263.5 million, demonstrating Twilio's operational efficiency.

The company's updated 2025 guidance—organic revenue growth of 9%–10% and free cash flow of $875–$900 million—signals confidence in sustaining momentum. With 349,000 active customer accounts, Twilio is expanding its reach while deepening relationships through cross-selling AI tools.

Undervaluation in a High-Growth Sector

Despite these strengths, Twilio remains undervalued relative to its peers. The stock trades at 24x forward earnings, a discount to the Nasdaq-100's 30x multiple. Analysts project a 27% upside, with a median price target of $131. This undervaluation is striking given the AI communications market's projected growth to $10 billion by 2032—a 5x expansion from its current size.

Twilio's balance sheet further supports its valuation. With $969.2 million in cash and no long-term debt, the company has flexibility to invest in R&D or return capital to shareholders. Its $2.0 billion share repurchase program, which has already returned $176.7 million in Q2 2025, adds another layer of value creation.

Investment Thesis: A 27%+ Upside in a Transformative Sector

For investors, Twilio's combination of strategic AI adoption, accelerating revenue, and undervaluation makes it a high-conviction play. The company is not only capitalizing on the AI-driven communications boom but also building a moat through its platform's flexibility and ecosystem partnerships.

While short-term volatility—such as the 19% drop post-Q2 earnings—may test patience, the long-term fundamentals are robust. Analysts project Twilio could reach $186 by 2027, assuming $6.20 in earnings and a Nasdaq-100-aligned multiple. This implies an 80% upside from current levels, far exceeding the 27% median target.

Conclusion: A Foundational Play in AI-Driven Communication

Twilio's vision of reimagining customer engagement through AI is no longer theoretical—it is operational. With a platform that unifies communications, data, and AI, the company is uniquely positioned to benefit from the $10 billion cloud-based contact center market. For investors willing to look beyond near-term noise, Twilio offers a rare blend of innovation, profitability, and undervaluation.

In a world where customer experience is the new battleground, Twilio is not just a participant—it is the infrastructure. And that, for investors, is a compelling reason to act.