This little ASX AI stock is soaring 10% today. Here's why

Investors are piling into the ASX AI stock on Friday. But why?

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The All Ordinaries Index (ASX: XAO) is down 1.0% on Friday morning, but that's not holding back ASX AI stock Appen Ltd (ASX: APX).

Appen shares closed yesterday trading for 59 cents and soared 10.2% to 65 cents apiece in earlier trade.

After some likely profit-taking, shares in the ASX AI stock are swapping hands for 63.5 cents apiece at the time of writing, up 7.6%.

Here's what's happening.

ASX AI stock lifts on stabilising revenue

Investors are bidding up the Appen share price on the back of today's annual general meeting (AGM).

Ryan Kolln, who took over as Appen CEO in February, addressed shareholders along with Richard Freudenstein, chairman of the ASX AI stock.

Kolln didn't hold back any punches when it came to Appen's FY 2023 performance. As you can see on the above chart, the Appen share price crashed 71% in 2023 and has only recently begun to stabilise.

In FY 2023 Appen's revenue fell 30% year on year to $273.0 million, which Kolln admitted was "a disappointing result".

"Excluding the impact of foreign exchange, we recorded an [underlying earnings before interest, taxes, depreciation and amortisation] EBITDA loss of negative $20.4 million dollars, compared to $13.6 million dollars in FY22," he said.

In response to the falling revenue, the company cut its costs by $60 million in 2023. But the first full year benefit of those cost reductions was only realised in FY 2024. In December, this saw the company exit 2023 cash EBITDA positive.

As for 2024, Kolln noted the decline in revenue this year was driven by the termination of the Google [Alphabet Inc Class A (NASDAQ: GOOGL)] contract, which ended on 19 March.

In FY 2023, Appen's revenue from Google was approximately $83 million, or 30% of the total revenue the ASX AI stock earned over the year. This saw Appen slash its cost base by another $13.5 billion.

Likely spurring investor interest today, Kolln said:

Revenue excluding Google shows a continuation of the stabilisation that we saw in the second half of 2023. We are pleased to see revenue levels in March and April that are well above the non-Google revenue in Q3 2023.

Riding the generative AI wave

Kolln went on to note how generative AI, driven by tech giants like Nvidia Corporation (NASDAQ: NVDA), is fuelling the next wave of AI growth.

He noted that Bloomberg and IDC forecast the generative AI market to reach US$1.3 trillion by 2032, growing at a 42% compound annual growth rate (CAGR).

"We are very bullish on the impact of generative AI, and our strategy is strongly focused on capturing value from the market," Kolln said. "The impact of generative AI has a significant impact on Appen's total addressable market (TAM)."

Indeed, the ASX AI stock forecasts that new generative AI opportunities will increase its TAM by $4 billion to $8 billion by 2030.

Looking to the year ahead, Kolln concluded:

Our cash balance at 30 April 2024 was $36.4 million, and we are confident in our cash position. We remain highly focused on ongoing cash positivity, and our target is to reach cash EBITDA positive on a run-rate basis in the early second half of FY24.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Appen, and Nvidia. The Motley Fool Australia has recommended Alphabet and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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