William Blair completely revamped how it rates AI companies. These 7 stocks emerged as the winners.
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- William Blair reassessed its AI stock coverage using a new framework.
- They focus on metrics, including the ability to execute, AI defensibility, and pricing models.
- Seven stocks came out as AI winners, while four names were downgraded to underperform.
Analysts at William Blair reexamined their framework for rating AI stocks after the bout of disruption fears upended the market earlier this year
AI hype morphed into AI fear, fueling a massive sell-off in exposed names. New AI tools and a hypothetical doomsday scenario stoked investors' worries that AI will displace current leaders in software across industries.
"Put simply, against a backdrop where AI changes everything, shouldn't we change the lens through which we evaluate the companies under our coverage?" William Blair said of its review of AI names.
The analysts identified four criteria to determine which AI stocks are positioned to be winners or losers in the new era of AI.
- Ability to execute: "We measure a company's ability to execute by looking at the quality/continuity of its leadership team, its culture of winning, and its demonstrated track record of product innovation, go-to- market excellence, and financial performance."
- AI defensibility: "AI defensibility is a function of: A) proprietary data and telemetry, B) deep workflow integration/ecosystem and corresponding network effects, C) platform stickiness/switching
costs; D) trust and control plane footprint (security, validation, and governance will be increasingly critical in the age of AI), and E) distribution." - Pricing model: "We evaluate pricing models through the lens of structural risk introduced by AI, particularly the potential
displacement of knowledge workers and software engineers over time. While the magnitude and timing of this impact remain
uncertain, we believe consumption-based, capacity-based, and usage-aligned pricing models are inherently better insulated than
seat-based approaches." - Likelihood of organic revenue acceleration: "In this more unpredictable period, we think organic revenue acceleration is the most tangible yardstick for measuring company performance and positioning. This criterion is intentionally straightforward:
either AI is acting as a growth tailwind or not."
Using these four metrics, William Blair rerated its AI stock coverage list, utilizing a 20-point system, spread out across five points for each metric, to determine which names were best and worst positioned.
None of the stocks received a perfect score of 20, but some came close.