Buried deep within the otherwise standard Q2 2021 earnings call for TELUS International (TIXT), a fascinating trend emerges, one that appears to have slipped under the radar of most analysts. While discussions centered around revenue growth, impressive new client wins, and the evolving AI landscape, a single metric hints at a potential explosion in profitability: the burgeoning relationship between content moderation and data annotation.

On the surface, TELUS International presented a strong quarter, showcasing 36% year-over-year revenue growth and a staggering 56% surge in adjusted EBITDA. These figures were largely attributed to strong organic growth, contributions from acquisitions, and increasing demand for their trust and safety solutions, including content moderation.

The real story, however, lies in the subtle but significant shift in the company's approach to content moderation. Traditionally, this service has been seen as a reactive measure, focusing primarily on removing harmful or inappropriate content from online platforms. TELUS International, however, is spearheading a transformation, demonstrating how content moderation can be a powerful engine for AI development and, consequently, revenue generation.

Consider this: Jeff Puritt, TELUS International's President and CEO, highlighted how their data annotators are evaluating and rating news and information for relevance, accuracy, and integrity, specifically citing the example of combating misinformation surrounding COVID-19 vaccines. This seemingly straightforward content moderation task generates a treasure trove of labeled data, the lifeblood of AI algorithms.

This labeled data, meticulously categorized by human annotators, becomes a valuable asset for training AI models, not just for enhanced content moderation, but for a myriad of other applications. The company's example of training an AI system to recognize receipts and invoices from over 20 countries exemplifies this potential. The labeled data collected for content moderation could potentially be repurposed to train AI models for automated expense management, financial analysis, and even fraud detection.

This interconnectivity between content moderation and data annotation is a game-changer. TELUS International is essentially creating a self-reinforcing cycle: the more content they moderate, the more high-quality training data they generate, leading to more sophisticated AI models and, ultimately, a broader range of AI-powered services they can offer.

The financial implications are profound. TELUS International already boasts a 24.6% adjusted EBITDA margin, a significant improvement from the previous year. But as their AI capabilities grow, fueled by the labeled data generated through content moderation, they are poised to unlock even greater profitability.

Projected Growth in Adjusted EBITDA from Data Annotation

The following chart illustrates a hypothetical scenario where TELUS International leverages labeled data from content moderation to increase data annotation revenue by 25%, potentially leading to a significant increase in adjusted EBITDA.

Let's consider a hypothetical scenario. Assume that by leveraging the labeled data from content moderation, TELUS International can increase their data annotation revenue by 25% in the next year. Given the high margins associated with data annotation, this could translate to an additional $25-30 million in adjusted EBITDA. This alone would represent a 5-6% increase in profitability, potentially propelling the stock price by a similar amount, if not more, given the market's penchant for rewarding high-growth, high-margin businesses.

The potential is even greater when considering the broader AI landscape. The global AI market is projected to reach a staggering $1.59 trillion by 2030, according to Precedence Research. TELUS International, with its growing expertise in data annotation and its unique position in the content moderation space, is perfectly positioned to capitalize on this exponential growth.

While other analysts may be focused on the more immediate drivers of TELUS International's success, it's the subtle integration of content moderation and data annotation that could be the hidden catalyst for a significant stock surge. The company's foresight in recognizing this symbiotic relationship and their commitment to building a robust AI ecosystem suggests that TELUS International is not just riding the AI wave; they are shaping it.

"Fun Fact: TELUS International was named a leader on Everest Group's Customer Experience Management Services PEAK Matrix for the third consecutive year, ranking in the top three for strategic vision and capabilities. They were also the top riser on the 2021 Everest Group BPS Top 50 List, climbing an impressive 18 positions!"