The Appen Ltd (ASX: APX) share price has been on fire so far in 2020.
Since the start of the year the machine learning and artificial intelligence company’s shares have rallied 15% higher.
This means they have now climbed a sizeable 61% over the last 12 months.
Why is the Appen share price racing higher?
Investors have been scrambling to buy Appen’s shares due to its strong performance in FY 2019.
Next month the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence will release its full year results and is widely expected to outperform its guidance.
Due to stronger than expected demand for its Content Relevance services during the second half, in November Appen lifted its guidance materially.
It was expecting underlying EBITDA to be between $85 million and $90 million in FY 2019, which represented a 19% to 26.2% increase on FY 2018’s result.
But the strong demand led to management lifting its underlying EBITDA guidance to be in the range of $96 million to $99 million. This implies year on year growth of 34.6% to 38.8%.
Management also advised that its guidance was subject to currency movements. It suggested that a further $1 million to $1.5 million could be added to its underlying EBITDA if the Australian dollar didn’t strengthen.
Despite a brief strengthening in December, this has proven to be the case. In fact, the Australian dollar is currently trading a touch lower than where it stood at the time of its update in mid-November.
Should you invest?
With the machine learning and artificial intelligence market tipped to grow materially over the next decade, I believe Appen is well-positioned to continue growing its earnings at a rapid rate for many years to come.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium, Appen Ltd, and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.