Ever since OpenAI unveiled what appears to be the next step in the artificial intelligence (AI) revolution with its large language model ChatGPT-4 chatbot nearly a year ago, just about every tech company out there has been laying a claim to an AI connection in the hopes of attracting some of the heightened interest around this technology.

By now, most investors have some level of awareness regarding the AI strategies of big tech companies like the “Magnificent Seven.” As a result, those strategies are largely priced into those stocks already. For example, Nvidia‘s shares have soared this year as it’s seen skyrocketing demand for its AI-related products. And Microsoft has gained in part from its partnership with OpenAI.

Rather than chase stocks that are already valued at more than $1 trillion, investors who are looking to get the biggest returns from AI might be better off focusing on smaller companies. One that looks particularly appealing is Perion Network(NASDAQ: PERI), a fast-growing Israeli adtech company best known for its intelligent hub that connects ad buyers and sellers, optimizing pricing and placement for both parties. But Perion just announced a new AI that could help it penetrate a multibillion-dollar ad market.

A person looks at many images overlapping on a large screen.

Image source: Getty Images.

What Perion is doing with AI

Perion launched an AI lab a few years ago tasked with developing new and unique products. Earlier the company unveiled SORT, a cookieless ad-targeting technology.

It just revealed the latest product to come out of its AI research unit: WAVE, which stands for Waveform Audio Voice Engine. It’s an audio advertising technology powered by generative AI that creates and reads scripts in a human voice for ad spots served on podcasts, radio, and music streaming services. Because the creative component is limitless, WAVE can target ads and customize them in a way that would be impossible for traditional audio advertising with a human voice-over — it would be too costly and inefficient.

The ads can be tailored based on factors including weather, location, time of day, and the device being used.

The first major customer for WAVE is Albertsons Companies(NYSE: ACI), the nation’s second-biggest supermarket operator. The grocer is using WAVE to serve tailored ads and seems pleased with it. Albertsons’ director of paid media, Tony Colvin, told Perion: “When your team brought us the AI script and voice, we were blown away. It was very hard to detect that it was an actual AI voice — right down to the nuances of how certain products are pronounced.”

One of the criticisms of generative AI tools like ChatGPT so far has been that despite its evident capabilities, it lacks useful applications. Perion’s WAVE clearly shows one way generative AI can add value for advertisers and consumers, and do something that previous technologies could not.

The product should help the company increase its penetration of the $6.8 billion U.S. digital audio market, which is expected to grow to $9.7 billion by 2027.

Perion also shared some other AI-based innovations in its third-quarter earnings report, including high-impact connected TV (CTV) ads that run alongside sports events. The technology can do things like identify a lull in the action, so that it can show an ad when a player is being substituted. Another example is an ad campaign with FanDuel that ran during Yankees baseball games immediately after a Yankees home run, allowing the brand to take advantage of an “unmissable moment” with the ad running as the player circles the bases.

Why Perion stock is a buy

Those innovations helped drive Perion’s overall revenue up 17% year over year in the third quarter to $185.3 million; adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were up 29% to $42.7 million. Connected TV was also a bright spot in the quarter, with revenue up 39% to $7.9 million.

The company showed particular strength in retail media in the quarter; revenue increased 112% to $13 million. In an interview I did with Perion CEO Tal Jacobson, he said that the company has focused on retail media because “You actually have the chance to work with big data.” He explained that factors like purchase frequency, location, and promotions all help make a tool like WAVE more valuable for retailers than it would be for other kinds of advertisers. A retailer like Albertson’s, for example, could customize ads in dozens of different ways that a carmaker is less likely to use.

Perion has a strong track record in recent years of delivering growth and outperforming the stock market. With the emergence of new AI technologies like WAVE, the company should continue to deliver impressive results.

The stock is also surprisingly cheap at a price-to-earnings (P/E) ratio of just 12. As it continues to innovate in AI and tap into new markets like retail media, Perion Network looks like a great bet to continue to outperform.

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Jeremy Bowman has positions in Perion Network. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool has a disclosure policy.

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