What Happened?

A number of stocks fell in the morning session after a broader market rotation out of the technology sector led to profit-taking following a recent rally. 

The move was part of a wider trend that saw high-growth technology stocks fall, with the Nasdaq experiencing the sharpest decline among the major indices. Multiple reports indicated that traders were locking in profits, particularly from the artificial-intelligence trade, which had previously seen a strong run-up. This market action represented a shift in investor focus, as money moved out of tech. 

Defense stocks emerged as the primary beneficiary of this capital shift, surging after President Trump proposed a massive $1.5 trillion defense budget for 2027. Major contractors rallied on the news, with Northrop Grumman jumping over 10% and Lockheed Martin gaining nearly 8%, providing a counterbalance to the tech slump that kept the S&P 500 flat. The rotation into heavy industry was further supported by a stabilization in energy markets, as crude prices rebounded.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Payments Software company Marqeta (NASDAQ: MQ) fell 4.1%. Is now the time to buy Marqeta? Access our full analysis report here, it’s free for active Edge members.
• Data Storage company MongoDB (NASDAQ: MDB) fell 3.5%. Is now the time to buy MongoDB? Access our full analysis report here, it’s free for active Edge members.
• Communications Platform company Twilio (NYSE: TWLO) fell 4.3%. Is now the time to buy Twilio? Access our full analysis report here, it’s free for active Edge members.
• Project Management Software company Asana (NYSE: ASAN) fell 2.7%. Is now the time to buy Asana? Access our full analysis report here, it’s free for active Edge members.
• Finance and Accounting Software company BILL (NYSE: BILL) fell 2.3%. Is now the time to buy BILL? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Twilio (TWLO)

Twilio’s shares are very volatile and have had 24 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 12 months ago when the stock gained 22.8% on the news that the company shared impressive financial forecasts during its 2025 Investor Day event, unveiling clearer details about its artificial intelligence capabilities. 

Twilio expects low double-digit sales growth when it reports earnings for Q4'2024, a notable improvement from earlier guidance of high single-digit growth. On a GAAP basis, operating income is expected to swing into positive territory, a rare achievement for the company, building on recent quarters where it nearly broke even. In the long term, Twilio expects to achieve an adjusted operating margin as high as 22% by 2027 (ahead of Wall Street's estimates), which could drive $3 billion in free cash flow over the next three years. The profit forecast is partly based on management's conviction that the business can continue to deliver double-digit sales growth, given the abundant AI opportunities. In a further move to return the generated value to shareholders, management announced a $2 billion share buyback plan. 

Following the event, Baird analyst William Power upgraded the stock's rating from Hold to Buy, expressing increased optimism ahead of TWLO's Q4 2024 earnings results. Power highlighted the AI opportunity, adding, "Notably, 9,000 AI companies and 90% of Forbes 50 AI startups are building on TWLO as a customer engagement layer, and AI related companies spent $260 million on Twilio in the last 12 months." The analyst also raised TWLO's price target from $116 to $160, translating to a potential 40% upside.

Twilio is down 2.5% since the beginning of the year, and at $134.85 per share, it is trading 9.1% below its 52-week high of $148.35 from January 2025. Investors who bought $1,000 worth of Twilio’s shares 5 years ago would now be looking at an investment worth $374.29.

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