Appen Ltd (ASX: APX) shares have rebounded in recent weeks, gaining 146% over the past month.
They are currently swapping hands at $1.13 per share, up a further 6.60% on the day.
The once-struggling artificial intelligence data services company has seen a dramatic turnaround. But with such a rapid rise, investors are wondering: Can Appen shares keep climbing?
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What's driving the surge in Appen shares?
Appen shares surged following the company's latest quarterly update. Despite a decline in overall revenue, the report highlighted some promising developments.
For the three months ending 30 June 2024, Appen reported revenue of $55.0 million, down 16% year over year.
This decline was primarily due to the loss of a significant customer, search engine giant Google.
However, when excluding Google, the company's revenue actually grew by 16%, showing positive momentum elsewhere in the business.
CEO Ryan Kolln pointed to "significant opportunities" in the generative AI space as a key driver for this growth. As my colleague Bernd reported, the company has made substantial progress in multiple AI projects, particularly in China and with another global customer.
Beyond revenue growth, Appen's profitability metrics have also shown improvement, likely propping up its shares.
The company reported pre-tax earnings of US$600,000 for the quarter, a significant turnaround from a US$7.2 million loss in the same period last year.
Management has set a target to be cash flow positive by H2 FY24.
Investors were quick to buy Appen shares en masse since the quarterly update was posted on July 29. Since then, shares have exploded and trade 163% higher off that mark.
Can the momentum continue?
The recent surge in Appen shares is certainly eye-catching, but the key question is whether this momentum can be sustained.
CEO Kolln thinks so, saying Appen's platform and offerings are "becoming crucial sources of data for many leading model builders".
Meanwhile, according to CommSec, the consensus of analyst estimates rates Appen shares as a hold at the time of publication, at odds with the price action seen in the past few weeks.
This is made of one buy rating, two hold ratings, and one sell rating.
So whilst brokers are neutral, the market is clearly bullish. Time will tell what eventuates from here.
Foolish takeaway
Appen's rally over the past month is a testament to its potential, but whether this can translate into sustained growth remains to be seen.
With the company showing signs of a turnaround and new opportunities on the horizon, it could be worth watching closely.
