Twilio Soars 69% YTD: Should Investors Still Buy the Stock?

Twilio Inc. TWLO has emerged as one of the strongest performers in the software space this year. The stock has gained roughly 69% year to date (YTD), sharply outperforming the broader Zacks Internet-Software industry’s fall of 2.4%.

Twilio has also outpaced major industry peers, including Atlassian Corporation TEAM, DocuSign, Inc. DOCU and Workiva Inc. WK. While Workiva has declined 8.9% YTD, Atlassian and DocuSign have gained 19.9% and 1.2%, respectively.

Twilio YTD Price Return Performance

Image Source: Zacks Investment Research

After such a strong rally, investors may wonder whether Twilio’s stock has already priced in its growth opportunity. In our view, the answer is no. Twilio's latest results show that the rally is backed by improving fundamentals, stronger margins, rising cash flow and growing demand for its communications infrastructure as businesses deploy AI applications.

TWLO’s Strong Financial Results Support Further Upside

Twilio's second-quarter 2026 results provide a strong reason to remain bullish on the TWLO stock. Revenues increased 22% year over year to $1.50 billion. Organic revenue growth accelerated to 17% from 16% in the previous quarter and 13% in the year-ago quarter. Non-GAAP gross profit climbed 18% year-over-year to $736 million, marking the fifth consecutive quarter of accelerating non-GAAP gross profit growth.

Image Source: Twilio Inc.

Profitability also continued to improve. Non-GAAP income from operations increased 29% to $285 million, while the operating margin expanded 100 basis points year over year to 19%.

The improvement came despite pressure from higher U.S. carrier fees. Twilio's non-GAAP gross margin contracted 160 basis points year over year to 49.1% in the second quarter. But management noted that excluding the incremental carrier fees, the gross margin would have increased 60 basis points year over year. This highlights the underlying improvement in the business and the benefits of a richer product mix and cost discipline.

In the second quarter, Twilio generated a record free cash flow of $352.6 million compared with $263.5 million in the year-ago period. Twilio's dollar-based net expansion rate also improved to 116% from 108%, indicating stronger spending from existing customers.

The company’s optimistic outlook is also reflected in its raised full-year guidance. Twilio expects 18-18.5% reported revenue growth and 13-13.5% organic revenue growth in 2026, up from previous 14-15% and 9.5-10.5%, respectively. The company also increased its full-year non-GAAP operating income and free cash flow forecasts. Each metric, non-GAAP operating income and free cash flow, is projected at $1.135-$1.155 billion, up from the earlier stated $1.08-$1.10 billion.

This combination of accelerating growth, expanding profitability and upbeat guidance makes the stock an ideal investment case.

AI Adoption Creates Growth Opportunity for Twilio

Twilio's biggest long-term opportunity could come from the rapid adoption of AI applications. The company is positioning its communications platform as infrastructure that enables businesses to connect AI agents with customers across voice, messaging and other channels.

Its new Conversations Layer includes Conversation Memory, Conversation Orchestrator, Conversation Intelligence, Conversation Relay and Agent Connect. Early customer results are encouraging. The U.K.-based digital car finance platform and online broker, Car Finance 247, signed a seven-figure deal after testing the platform during the second quarter. Car Finance 247’s AI assistant, Carla, has handled nearly 300,000 customer conversations. Customers interacting with the Carla AI assistant converted to approved leads 1.6 times faster.

Twilio is also seeing strong demand from AI-focused businesses. During the second quarter, it signed an eight-figure deal with a leading AI company. Eltropy, an agentic AI platform, used Twilio's Conversation Relay to build an AI voice agent, while OpenEvidence switched from a competitor to Twilio for voice infrastructure.

The opportunity is significant because growth of AI agents should increase the demand for reliable communication infrastructure. Twilio can potentially benefit from both the development of these applications and the communications activity they generate.

Twilio's Premium Valuation Looks Justifiable

TWLO does trade at a premium. Its forward 12-month price-to-earnings (P/E) ratio of 35.20X is well above the industry's 27.89X average.

Twilio Forward 12-Month P/E Ratio

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It also trades above industry peers, including Atlassian, Workiva and DocuSign. Currently, Atlassian, Workiva and DocuSign trade at P/E multiples of 32.60X, 20.03X and 13.37X, respectively.

However, the premium appears justified by Twilio's stronger growth profile and improving profitability. The company is growing organically at a healthy pace, expanding margins, generating substantial free cash flow and gaining traction in AI-related communications. Its 116% dollar-based net expansion rate also shows that existing customers are spending more on the platform.

In addition, Twilio is returning capital to shareholders. It repurchased stocks worth $323 million in the first half of 2026 and had approximately $826 million remaining under its authorized repurchase program as of June 30, 2026.

Conclusion: Buy TWLO Stock Right Now

Twilio's 69% YTD gain makes the stock more expensive, but its improving fundamentals suggest that the rally is supported by more than investor enthusiasm.

Accelerating organic growth, stronger operating leverage, record free cash flow, raised guidance and increasing AI adoption provide multiple reasons to remain bullish. While the valuation remains stretched, Twilio's growth opportunity and improving financial profile make its premium multiple justifiable for now.

Twilio currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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