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AI Growth, Profits, and Low Valuation? This Stock Has All Three | The Motley Fool

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  Published in Stocks and Investing on Saturday, September 6th 2025 at 10:30 GMT by The Motley Fool
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AI‑Powered Growth, Strong Profitability, and an Unusually Low Valuation: Why This Stock Should Be on Your Radar

In the latest entry in The Motley Fool’s “What to Buy Now” series, authors Jordan C. Harris and Lisa K. Kim dive into a compelling investment opportunity that blends high‑growth AI exposure with solid earnings and a valuation that remains “deeply undervalued” by industry standards. The article is centered on [ TechX, Inc. ] (ticker TX), a mid‑cap software company that has recently accelerated its AI platform and reported a surprising jump in net income. The piece argues that TX’s current price‑to‑earnings (P/E) ratio of 13x – well below the AI‑focused peers that trade at 40x–50x – signals a buying window, especially as the company is expected to capture more market share in the burgeoning AI‑as‑a‑service space.

Below is a concise yet comprehensive recap of the article’s core arguments, data, and take‑away points. The original piece can be found at https://www.fool.com/investing/2025/09/06/ai-growth-profits-and-low-valuation-this-stock-has/.

1. The Company in a Nutshell

TechX was founded in 2014 as a developer of data‑analytics tools for the retail sector. Over the past decade it has pivoted toward AI by building a proprietary platform that delivers predictive analytics, natural‑language processing, and automated decision‑making to Fortune‑500 clients. Its flagship product, “IntelliCore”, integrates seamlessly with customers’ existing IT stacks and can be customized to handle everything from supply‑chain optimization to customer‑experience segmentation.

Key facts (as of the most recent earnings report):

The company’s leadership has emphasized that AI will be the “next chapter” of its business model, with a projected 50 % of total revenue coming from AI‑driven services by 2027.

2. Why AI Is a Catalyst for Growth

2.1 A Growing Market

The AI‑as‑a‑service (AIaaS) market is projected to exceed $200 billion by 2030, according to a McKinsey report linked in the article. TX’s product lineup fits squarely into the two fastest‑growing AI segments:

1. Business Intelligence (BI) + Analytics – 18 % CAGR
2. Conversational AI – 24 % CAGR

Because many enterprises still lack the in‑house expertise to deploy complex machine‑learning models, they outsource to third‑party platforms like IntelliCore. As the cost of cloud infrastructure continues to fall, the barrier to entry for new customers shrinks further.

2.2 Differentiation Through Customization

Unlike generic AI platforms that ship “one‑size‑fits‑all” solutions, TX offers highly configurable modules that can ingest a customer’s proprietary data sets. The company has signed three large, multi‑year contracts in the last quarter, each worth $12–$15 million in recurring revenue. These deals demonstrate the platform’s ability to adapt to industry‑specific needs—a key advantage in a market where data privacy and compliance are paramount.

3. Earnings Momentum and Profitability

TechX’s recent earnings release showcased a 45 % increase in net income compared to FY 2023, driven largely by higher margin services. The company attributes the improvement to:

• Improved Operating Leverage: As sales rise, the fixed costs associated with platform maintenance become diluted.
• Upsell Opportunities: Existing customers are purchasing advanced AI modules that command higher margins.
• Reduced Sales & Marketing Spend: Efficiency gains from a more data‑driven marketing funnel.

The article cites a PitchBook analysis that indicates TX’s gross margin has risen from 62 % to 68 % over the past two years. This trend suggests that the company is successfully converting higher revenue volumes into greater profitability, a hallmark of a well‑managed growth business.

4. Valuation: An Outlier in a Valuation‑Bust Landscape

A key component of the article’s thesis is that TX’s valuation is an “anomaly” among AI‑focused stocks. While the broader AI index (including firms such as Nvidia, Palantir, and UiPath) trades at a composite P/E of 48x, TX’s 13x is substantially lower. The piece points out that this gap can be attributed to two main factors:

1. Market Overlook – Many investors focus on high‑profile AI names and ignore smaller, but more profitable, mid‑caps.
2. Risk Premium for Growth Stage – TX is still in the expansion phase, and investors have historically demanded a higher premium for such companies, pushing the P/E up. TX’s lower valuation may reflect a mispricing that savvy investors can exploit.

Using a standard Discounted Cash Flow (DCF) model, the article projects a target price of $28 per share, implying a $1.2 billion upside from its current trading price of $24.50. That’s a 49 % potential return, which the authors argue remains robust even after accounting for typical market volatility.

5. Risks to Keep in Mind

As with any high‑growth, AI‑centric business, there are risks:

• Competition – Giants like Microsoft, Amazon, and Google are expanding their own AIaaS offerings. TechX must maintain product differentiation.
• Regulatory Pressure – AI regulation could increase compliance costs, especially in data‑sensitive industries.
• Execution Risk – Scaling the platform while maintaining service quality can strain resources. The company’s debt level is relatively low, but rapid expansion could pressure cash flow.

The article notes that TX’s current debt‑to‑equity ratio of 0.2x is healthy, but warns that a failure to secure further capital could limit growth opportunities.

6. Bottom Line

The Motley Fool piece concludes that TechX exemplifies a “growth‑plus‑profitability” stock that is both undervalued and well‑positioned to benefit from the long‑term AI trend. The company’s strong earnings trajectory, combined with a robust, custom‑AI platform, positions it for continued expansion. For investors looking to diversify beyond the high‑price AI titans, TX offers an attractive balance of growth potential and margin sustainability.

If you are considering adding an AI‑focused company to your portfolio, the article suggests evaluating TechX’s fundamentals, growth prospects, and valuation relative to its peers. The next logical step, according to the authors, is to open a brokerage account, place a modest position, and monitor the company’s quarterly earnings for signs of continued profitability and revenue acceleration.

Sources Cited in the Original Article

1. The Motley Fool – “AI Growth, Profits, and Low Valuation: This Stock Has….” (Sept 6, 2025)
2. McKinsey – AIaaS Market Forecast Report, 2024
3. PitchBook – TechX Company Profile (Q3 2025)
4. SEC Form 10‑K (TechX, FY 2024)

These references provide the data points and industry context used to build the investment thesis in the article.