Tech stocks were big winners in 2020 as Covid-19 provided an impetus for consumers and businesses to adopt new technologies. The tech-heavy Nasdaq rallied 43.6% last year, marking its fifth best year ever. In this rising tide, one of the best-performing tech stocks was conversational AI pioneer LivePerson (NASDAQ:LPSN). LPSN stock surged nearly 70% in 2020, thanks mostly to the huge shift toward online shopping.
Some investors are concerned that this big rally in LPSN stock will fall flat in 2021, as the world normalizes and retail stores reopen. On those concerns, shares have shed 10% over the past few weeks.
This minor selloff is a buying opportunity into a long-term winner.
While the world will normalize and retail stores will reopen in 2021, those things won’t short-circuit this rally in LivePerson stock. Instead, a rebound in consumer spending coupled with sustained elevated online shopping trends and accelerated investment into conversational AI technologies will power continued big growth for LivePerson in 2021.
Alongside that continued big growth, LPSN stock will continue to be a big winner.
Here’s a deeper look:
Consumer Spending Rebound
There are really three big components to the 2021 bull thesis on LPSN stock.
The first is that a sharp rebound in consumer spending will create a rising tide for all retail and retail service companies over the next 12 months.
One of the larger impacts of Covid-19 was its hit on consumer spending. It basically just dried up. Some people lost their jobs. Others, worried about job security, held back on personal outlays. And, for those who were not economically impacted, they stopped spending, too, because there was simply less to spend on with so many things closed.
All of those trends will reverse course in 2021. Covid-19 risks will abate with widespread distribution of highly effective vaccines. Things will go back to normal. The economy will recover. Jobs will come back. Employees will be less concerned about job security, and individuals who weren’t economically impacted during 2020 will have a lot of dry powder in 2021.
Net net, the consumer is fully loaded to spend big this year.
Amid this spending surge, retail companies will make more money, and therefore, have more money to spend on investing back in their business. Some of those investments will be into conversational AI technologies like the ones LivePerson makes.
To that end, the rising tide of consumer spending in 2021 creates a meaningful tailwind for LPSN stock.
Elevated Online Shopping
The second big tailwind underpinning LPSN stock in 2021 will be a continued elevated engagement with online shopping.
Yes, the world will return to normal in 2021. Retail stores will reopen. Consumers will go back to shopping at those stores. But, they will do so with less frequency than they did in 2019.
Throughout 2020, many consumers discovered the wonderful benefits of e-commerce. The inventory universe of the internet is significantly larger than that of any store or mall. You can price comp much more dynamically and quickly. You can research products much more dynamically and quickly, too. Shipping times are short. The convenience factor is high.
In 2020, consumers discovered online shopping. They loved it. They’re going to stick.
Thus, while consumers will return to stores in 2021, they will continue to do a lot of online shopping. At the same time, the amount of money those consumers spend will go up significantly.
The net result? A continued surge in retail e-commerce sales.
That will, of course, prompt retailers to invest more heavily in their e-commerce channels. One such investment? Conversational AI.
Shift to Conversational AI
The third big tailwind for LPSN stock in 2021 is an increased enterprise investment focus on AI technologies.
Let’s take a step back for a moment.
When we talk about AI, the things that power AI are really machine learning (ML) and natural language processing (NLP) models. These models are informed by data. The more data they have, the better the models are and the more capable the AI becomes.
In the AI world, data is everything.
The volume and granularity of data globally is exploding right now, mostly because every object in the world is becoming a data-producing device.
Dumb phones became smartphones, and started producing bunches of phone usage data. Dumb cars became smart cars, and started producing bunches of driving data. Dumb apps became smart apps, and started producing bunches of consumer preference data. Dumb watches became smart watches, and started producing bunches of fitness data.
As we’ve sprinted into the “Smart World” — where every object is a data-producing smart device — the amount and speed of data that AI algorithms have access to has exploded, making those AI algos more capable than ever. Why else do you think AI has started popping up everywhere in recent years? It’s because 90% of the world’s data was generated in the last two years alone.
More data. Better ML and NLP models. Smarter AI.
Extrapolate that process out. The world isn’t going to take any steps back in terms of this “smart” pivot. No. We love our smartphones, and smart cars and smartwatches too much. Instead, society is going to accelerate in this transition. Globally, the world produces about 2.5 exabytes of data per day today. By 2025, that number is expected to rise to 463 exabytes.
More data. Better ML and NLP models. Smarter AI.
Thus, as the volume of data produced daily soars more than 185X over the next five years, ML and NLP models will get 185X better (more or less) and AI machines will get 185X smarter (more or less).
The AI Revolution is just getting started. Businesses know this. And they want to invest early. So enterprise investment into AI technologies will increase dramatically in the coming years.
Conversational AI platforms will benefit from this rising tide. LivePerson will end up selling a ton of conversational AI tech to a ton of retailers over the next 12 months. As they do, LPSN stock will soar.
Bottom Line on LPSN Stock
LivePerson stock is a long-term winner. Recent weakness is nothing more than noise. With retail spending set to rebound, online shopping positioned to keep surging and investment in conversational AI tech set to meaningfully pick-up, LivePerson is in a great position to sustain robust growth momentum in 2021. Alongside that momentum, LPSN stock will recover from today’s selloff, and rally in a big way throughout the course of the year.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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