AI Demand Will Transform Public Sector And Defense Markets

Key Takeaways

• Rising demand for AI analytics and major government contracts are fueling growth, strengthening Veritone's positioning in both commercial and public sector markets.
  
• Emphasis on scalable, flexible platforms and cost-reduction initiatives supports improving margins, higher-value SaaS revenue, and a path toward profitability.
  
• Sustained losses, shrinking margins, concentration risks, macroeconomic headwinds, and intensifying AI competition threaten Veritone's profitability, growth prospects, and market position.

Catalysts

Engages in the provision of artificial intelligence (AI) computing solutions and services in the United States, the United Kingdom, France, Australia, Israel, and India.

• The accelerating demand for AI-powered analytics solutions-particularly in processing and transforming unstructured data streams such as audio, video, and text-is fueling rapid adoption of Veritone's aiWARE and VDR platforms. This demand is supported by expanding commercial and public sector pipelines (notably with hyperscalers and U.S. federal agencies), which are expected to drive substantial top-line revenue growth.
  
• Recent and expanding long-term contracts with government and defense entities, including sole-source contracts with the U.S. Air Force and other major law enforcement agencies, position Veritone to benefit from the structural increase in AI spending and regulatory pushes within public sector and compliance-driven markets. These multi-year deals support sustained revenue growth and increased gross margin leverage as the deployments scale.
  
• Veritone's infrastructure-agnostic, model-independent aiWARE platform is increasingly favored as organizations shift from legacy AI pilots to production-scale, "agentic" AI use cases requiring secure, interoperable, and highly flexible data orchestration. This unique capability creates long-term competitive differentiation, supporting both customer retention and the expansion of high-margin SaaS revenue streams.
  
• Substantial pipeline momentum in the Commercial Data Refinery (VDR) product line-including deepening relationships and partnership negotiations with the world's largest hyperscalers and AI companies-creates visibility for continued step-changes in growth. As margins on VDR improve with scale and content mix evolution, this is expected to enhance gross margin and eventually net margin performance.
  
• Aggressive operational cost-reduction initiatives, alongside ongoing investment in automation and efficiency, are anticipated to drive improving operating leverage. As revenue from higher-margin SaaS and data products becomes a larger share of total revenues, Veritone is positioned to move toward EBITDA break-even and profitability inflection, positively impacting net margins and earnings.

Veritone Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Veritone's revenue will grow by 20.2% annually over the next 3 years.
• Analysts are not forecasting that Veritone will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Veritone's profit margin will increase from -102.8% to the average US Software industry of 13.1% in 3 years.
• If Veritone's profit margin were to converge on the industry average, you could expect earnings to reach $20.7 million (and earnings per share of $0.31) by about September 2028, up from $-93.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, up from -1.8x today. This future PE is lower than the current PE for the US Software industry at 36.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.45%, as per the Simply Wall St company report.

Veritone Future Earnings Per Share Growth

Risks

• Continued net losses and cash outflows-Veritone reported a Q2 2025 net loss from continuing operations of $26.8 million (up 14.5% YoY), cash and restricted cash of only $13.9 million, and operating losses despite revenue growth, indicating persistent difficulty achieving sustained profitability and risking future shareholder dilution or capital constraints (Net margins, earnings).
  
• Compression of gross margins-Gross margin fell from 68.2% in Q2 2024 to 63.9% in Q2 2025 (non-GAAP margins down 470 basis points); VDR gross margins are currently only ~40%, and while expected to improve, such pressure could signal future challenges to profitability if product mix and costs are not optimized (Net margins, earnings).
  
• Customer concentration and limited diversification-The VDR business is dominated by fewer than 50 major clients (hyperscalers and large AI companies), making Veritone's growth in this segment exposed to revenue volatility if key customer relationships are lost or if one or more top clients scale back spending (Revenue).
  
• Macro and sector risks to Managed Services and Hiring-Veritone's Managed Services revenue continues to decline due to macroeconomic weakness; Veritone Hire remains flat due to hiring market softness, and future economic downturns or secular declines in ad spending or hiring budgets could limit growth across these divisions (Revenue).
  
• Intensifying competition and commoditization-Management acknowledges the proliferation and commoditization of AI models; growing competition from larger platforms (e.g., Palantir, Microsoft, new open-source entrants) and potential industry consolidation could erode pricing power, differentiation, and Veritone's ability to expand or retain market share (Revenue, net margins).

Valuation

• The analysts have a consensus price target of $5.25 for Veritone based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $158.0 million, earnings will come to $20.7 million, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 10.4%.
• Given the current share price of $2.96, the analyst price target of $5.25 is 43.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.