Is Twilio (TWLO) Still a Buy After Its Volatile Share Price Action?

Twilio (TWLO) has long been a poster child for the cloud communications sector, but its 2025 share price volatility has left investors grappling with a critical question: Is the stock still a buy, or has the market already priced in its most optimistic growth scenarios? To answer this, we must dissect the tension between Twilio's valuation metrics-discounted cash flow (DCF) estimates, price-to-sales (P/S) ratios-and the competing narratives around its AI-driven platform, international expansion, and profitability trajectory.

Financial Performance and Strategic Shifts

Twilio's third-quarter 2025 results underscored its resilience. Revenue hit $1.3 billion, a 15% year-over-year increase, with non-GAAP income from operations surging 29% to $235 million. CEO Khozema Shipchandler emphasized AI and international expansion as growth engines, noting progress in Australia, Japan, and Singapore. The company raised full-year 2025 guidance for non-GAAP income to $900 million–$910 million, reflecting confidence in its operational efficiency. Analysts project Twilio's profit margin could expand from 0.4% to 7.6% over three years, a sign of improving profitability.

Valuation Dislocation: DCF vs. Market Pricing

Twilio's valuation appears split between optimism and caution. A DCF analysis using a 2 Stage Free Cash Flow to Equity model estimates its intrinsic value at $117.07–$119.57 per share, while the stock trades at $139.38 as of early 2026, implying overvaluation by 10–16.2%. This gap suggests the market is pricing in aggressive growth assumptions, such as free cash flow rising from $778.5 million (latest twelve months) to $1.39 billion by 2035.

However, the P/S ratio tells a different story. At 4.3x, Twilio trades below its estimated fair P/S ratio of 4.79x but above the IT industry average of 2.27x and peer group average of 6.54x. This suggests the stock is reasonably valued relative to sales but still more expensive than broader benchmarks. The mixed signals highlight a valuation dislocation: while revenue growth is priced in, future margin expansion and AI-driven differentiation remain speculative.

Growth Narratives: AI and International Expansion

Bullish narratives hinge on Twilio's AI-driven communications platform and global expansion. The company's acquisition of Stytch, Inc. aims to enhance AI capabilities for developers, positioning it to capitalize on the $100 billion generative AI market. Shipchandler's emphasis on AI integration aligns with analyst forecasts that Twilio's messaging and voice solutions will drive 8–9% organic growth in Q4 2025.

International expansion is another key lever. Twilio's focus on Australia, Japan, and Singapore-markets with high digital adoption-could unlock new revenue streams. However, regulatory hurdles and competition from cloud giants like AWS and Google Cloud pose risks.

Bearish Risks: AI Adoption Challenges and Margin Pressures

Despite the optimism, bearish risks loom large. A recent Twilio report revealed a critical gap in AI adoption: while 90% of business leaders believe customers are satisfied with AI interactions, only 59% of consumers agree. This misalignment could erode trust and necessitate costly overhauls as conversational AI evolves rapidly. Additionally, 78% of consumers prefer seamless handoffs to human agents, yet only 15% report experiencing this, highlighting operational challenges.

Margin pressures also persist. Twilio's core messaging business faces pricing competition, and sustaining its 7.6% margin projection will require disciplined cost management. Regulatory scrutiny in international markets could further strain margins, particularly in regions with strict data privacy laws.

Conclusion: Margin of Safety or Overhyped Expectations?

Twilio's valuation sits in a precarious sweet spot. The DCF model suggests the stock is overvalued, but the P/S ratio indicates relative affordability. The company's AI and international narratives are compelling, yet execution risks-such as AI adoption gaps and margin pressures-could derail growth. For investors, the key question is whether Twilio's current price reflects a margin of safety or overhyped expectations.

If the company can deliver on its AI roadmap and sustain margin expansion, the stock may justify its premium. However, given the valuation dislocation and execution risks, a cautious approach is warranted. Twilio remains a buy for those who believe in its long-term vision but demands a closer watch on Q4 2025 results and February 2026 guidance updates.