Wells Fargo sees Twilio as the next ‘pick-and-shovel play’ in AI

Twilio could be a standout name as software stocks bounce back heading into the end of the year, according to Wells Fargo. Analyst Michael Turrin upgraded San Francisco-based Twilio to overweight from equal weight and lifted his price target by 50%, or $40, to $120 from $80. That suggests 28% potential upside for the cloud-based communication software company, which has already gained nearly 24% year to date. Underlying Turrin’s investment thesis is his belief that software vendors will lead the next phase of AI development. The analyst said that artificial agents will drive increased communications volumes over many years, which should help drive sustained growth for Twilio, which also provides AI customer engagement services. “A new build cycle is here; we expect the future favors the builders … This new set of AI developments is kicking off a new ‘build cycle’ of software development, with most recent example being AI agents, in our view, creating a tailwind for vendors who are able to position themselves as a key component of the new genAI stack,” Turrin said in a note to clients. Twilio is a company that’s likely able to tap into the core parts of this stack, which include Platform as a Service, or a cloud computing model often known as PaaS, as well as data and infrastructure, he said. “We believe Twilio can serve as a pick-and-shovel play for the next wave of AI-native front office and communications-powered genAI applications,” Turrin said, highlighting the company’s integration with OpenAI’s Realtime API that allows developers to build low latency speech to speech AI agents into applications. Low latency refers to to minimal delays in processing data over a network. “Importantly, this positioning could include powering companies that decide to build in-house over buying out-of-the-box applications, like efforts telegraphed by T-Mobile (building in-house customer service chatbot to launch into production next year) and Klarna, among others,” he continued.