AI stocks are growing fast and relatively cheap.
Ark Investment Management's Cathie Wood is best known for investing in high-growth, cutting-edge technology companies that she believes are industry disruptors. Unsurprisingly, artificial intelligence (AI) is one of the investment topics that interests her the most.However, the top AI possessed by the flagship is Ark Innovation ETF (ARKK -0.32%) It may surprise investors.it's not Nvidia or microsoftbut instead a little-known company called UiPath (path -0.66%). This stock holds the fifth largest position in the Ark Innovation ETF, accounting for approximately 5.8% of its holdings.
While Wood is excited about UiPath's prospects, the question is: Is the stock worth having in your portfolio?
A leader in AI automation
UiPath is An AI-powered automation company that helps clients build tools to perform a variety of business tasks. So what exactly does that mean? The company's platform allows organizations to do several things. One is that it helps automate routine tasks. This might be something like data entry or filling out a form. It also provides low-code development tools for creating apps and tools for understanding and processing documents such as invoices.
UiPath's platform not only provides tools to help clients automate tasks, but also helps organizations identify areas where they can implement automation to help improve their business. The company's platform not only performs quality assurance testing, but also tracks and shares automation performance metrics. The company also offers customized solutions for different industries and sectors.
Overall, UiPath's AI-powered automation platform is designed to help organizations become more efficient and save money. This is important because this type of technology company is less sensitive to the economy and tends to maintain solid growth through various economic cycles.
Upsell and partnership opportunities
One area where UiPath is doing well is increasing revenue for existing large enterprise customers. The company shows high net dollar retention. This is a measure of the revenue you receive from existing customers after cancellations, upgrades, and downgrades. The company's dollar-based net retention rate was 123% in fiscal 2023, which ended in January, and 119% in fiscal 2024. This shows that once customers adopt UiPath's platform, they tend to expand it to other departments or add more licenses.
What UiPath hasn't done much of lately is add a lot of new customers. At the end of fiscal year 2024, he had 10,830 customers, an increase of just 30 net customers compared to a year ago. But what the company has done is increase the number of large enterprise customers. The number of customers who spend more than $1 million a year with the company increased by nearly 26% to 288, and the number of customers who spend more than $100,000 a year with the company increased by 15% to 2,054.
However, the addition of new customers represents an opportunity for UiPath. To help in this regard, the company has recently entered into or expanded several sales partnerships to help sell its solutions.We are considering a partnership with SAP, Microsoft, Deloitte, and Ernst & Young to help you add new customers. Once UiPath enters an organization, it has shown the ability to grow successfully, and these partnerships will help it get through more doors.
Image source: Getty Images.
increase momentum
UiPath has been growing its revenue rapidly, and what's even more surprising is that its revenue growth accelerated throughout FY24. The company's revenue grew 31% in the fourth quarter, compared to 24% growth in the third quarter and 19% growth in the second quarter. , first-quarter revenue increased 18%. This shows that there is significant movement in UiPath's business and how customers are embracing its solutions as AI technology becomes more important.
PATH PS Ratio (Forward) data by YCharts
UiPath's sales are around 8x forward estimates, but only 6.7x on an enterprise value-to-earnings basis. The latter metric takes into account the company's strong net cash position, which amounted to $1.9 billion at the end of the fiscal year. UiPath's strong revenue growth, balance sheet, and cash flow generation (adjusted free cash flow of $309 million) suggest the stock remains cheap, especially considering the opportunities ahead. It also trades at a much lower multiple compared to other software companies ( adobe and intuition) is embracing AI.
As such, UiPath looks like a great name for growth investors to add to their portfolio.
Geoffrey Seiler has a position at UiPath. The Motley Fool has positions in and recommends Adobe, Intuit, Microsoft, Nvidia, and UiPath. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
