Should You Buy the Twilio Dip?

Twilio (NYSE: TWLO) has enjoyed a strong start to the year but now finds itself in a 20% correction. Many companies use Twilio's platform to communicate with customers via text, video, artificial intelligence (AI) chatbots, and other capabilities. It's natural for stocks to take breathers after long runs, but a high P/E ratio offers some reason for concern.

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Twilio is a good company but a bad stock

Twilio has good fundamentals, but it's hard to justify a stock with a P/E ratio hovering near 300. The company delivered 20% year-over-year revenue growth in the first quarter. Those sales come from a solid foundation, which includes more than 400,000 customers and 68% of Fortune 500 companies.

However, growth investors aren't concerned only with the current foundation. They want revenue acceleration and enticing long-term growth prospects. If those are good, investors can more easily justify a stock that is trading near a 300 P/E ratio, but that isn't the case for Twilio.

The company anticipates only 15.5% to 16.5% year-over-year revenue growth in Q2 and 14% to 15% year-over-year revenue growth in full-year 2026. These aren't exciting numbers, especially when investors can choose from AI stocks that are delivering substantial growth rates well above the 14% to 15% growth rate Twilio expects to deliver throughout the year.

The agentic AI angle is worth monitoring

Not everyone feels bearish about Twilio. Goldman Sachs gave it a $300 price target and cited Twilio's positioning in agentic AI infrastructure.

Twilio's list of top customer wins from its Q1 presentation includes several cases of agentic AI translating into more customer engagement, which bodes well for the bullish narrative. Twilio has formed the backbone for some customers' voice AI infrastructure, customer service chatbots, and AI agents for sales. Twilio CEO Khozema Shipchandler even touted the company as a "foundational infrastructure layer in the era of AI," demonstrating that it wants to capitalize on the opportunity.

However, the impact of agentic AI did not show up in guidance, which is a red flag. Leaders in the AI chip and memory cycle have regularly pounded the table with compelling guidance that shows growth rates much higher than Wall Street expected.

This isn't the first time investors got caught up in Twilio, thinking it could be a superstar stock. The company soared from $80 per share to over $400 per share in less than a year during the pandemic. Then the bubble burst, and Twilio is still down by roughly 60% from all-time highs.

Twilio's full-year guidance suggests that investors are overestimating the opportunity and may get burned again by the stock, especially if a short-term rally takes shape. If Twilio projected accelerated revenue growth rates for Q2 and beyond or had a more reasonable valuation, it would be easier to buy shares. However, neither of those is the case.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Twilio. The Motley Fool has a disclosure policy.