1 Artificial Intelligence (AI) Stock Investors Are Overlooking That Could Be Worth Buying

One of the more surprising stock stories during the first half of the 2020s may be Airbnb (NASDAQ: ABNB). The site leveraged artificial intelligence (AI), bringing landlords and tenants together to market vacation properties that may have otherwise never made it to the market.

Indeed, unexpectedly sluggish demand and tough competition have hampered stock price growth since its December 2020 initial public offering (IPO). However, its network of properties and prospective customers continues to grow, and as its performance shows steady improvements, the internet and direct marketing retail stock may finally begin to reflect Airbnb's improvements.

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Airbnb's artificial intelligence

One of the more surprising facts about Airbnb is that it's a lodging stock that does not own property. Instead, it functions as a technology company that employs networking effects to bring landlords and tenants together.

Aside from that benefit, its success hinges on applications such as AI. AI can help with tasks such as determining the pricing of a property in a given market, assessing risks associated with specific tenants, and monitoring peers and market trends to better market properties.

Moreover, it has not ignored generative AI, using it to power its chatbot, and it seeks other applications for the technology. Additionally, in late 2023, Airbnb acquired a company called GamePlanner AI. In theory, this could give it more ability to humanize the AI experiences of its customers.

So, what happened to the stock?

Such technology presumably gives Airbnb a competitive advantage over a peer such as Expedia's Vrbo. Despite being the first vacation rental site, Vrbo has not developed AI capabilities to the same extent as Airbnb.

Nonetheless, in its third-quarter 2024 earnings report, Airbnb expressed concerns about slowing demand in the U.S. That could be affecting the stock negatively right now.

Also, hotel chains are making more active efforts to compete for customers, which strained Airbnb's business model. Furthermore, the supply of short-term rentals continues to outpace demand, which negatively affects pricing and, by extension, fees to Airbnb.

Hence, even though Q3 nights and experiences grew 8% yearly to 123 million, it has not yet translated into stock price gains. Overall, the stock is down 10% over the last year.

Airbnb's financials

Amid that growth, the company earned $8.6 billion in revenue in the first nine months of 2024, a 12% yearly increase. Still, its total costs and expenses grew 14%, putting pressure on profitability.

Airbnb reported a net income of $2.2 billion in the first three quarters of 2024. While that is much lower than the $5.1 billion profit during the same period in 2023, the decline is less significant if factoring out a one-time income tax benefit in 2023 of $2.7 billion.

Furthermore, with the 2023 income tax benefit gone, its price-to-earnings (P/E) ratio has spiked to 45. However, the company's anticipated net income growth takes the forward P/E ratio to 30, a level near historical lows if not factoring in the income tax benefit. That falling valuation could bode well for investors as they wait on AI or market trends to reinvigorate Airbnb stock.

Stop overlooking Airbnb stock

Considering the state of Airbnb's business and increasingly attractive valuation, it looks like a good time to begin accumulating Airbnb stock.

Admittedly, Airbnb faces significant competition and remains dependent on cyclical consumer trends. Many growth investors were likely hoping for faster growth. Given the gradual nature of its improvements, it might benefit investors to take a dollar-cost averaging approach to Airbnb stock.

Nonetheless, few can argue that the company has fundamentally changed the short-term and vacation rental market. This has made it possible for landlords to lease properties while giving tenants a more home-like experience not found in a hotel.

Additionally, the company has leveraged AI to improve the quality of the experience for both parties. As more landlords and customers turn to Airbnb, it will be harder for investors to ignore its falling valuation, making it more likely they will stop overlooking this vacation rental stock.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.