The tech sector has been crushed over the past three months, and in 2022 especially. The tech-heavy Nasdaq index is down 12% year to date, and many funds that invest heavily in the technology sector have tumbled even more. Cathie Wood's ARK Innovation (ARKK -0.26%) exchange-traded fund (ETF) has fallen over 25% so far this year and is more than 55% off its all-time high.
While Wood and ARK Invest's performance have been poor in recent months, the Innovation ETF has still done quite well overall. Since its inception in 2014, the fund has provided a 250% return, far outpacing the broad market. ARK Invest and Wood have a strong track record, which is why it might benefit investors to see what stocks she's buying during this decline.
Wood has added a lot of UiPath (PATH -0.42%) and Coinbase Global (COIN 2.01%) since the start of the year -- here's the case for digging into these two stocks.
Image source: Getty Images.
1. UiPath
This artificial intelligence (AI) stock, down 22% year to date, now sports a valuation of 19 times trailing revenue, versus the 60 times it debuted at last year. With the lower valuation, Wood has purchased 1.38 million shares in 2022 alone.
UiPath is trying to bring AI and automation to businesses through robotic process automation (RPA), which handles repetitive tasks in the workplace, freeing up employees for more crucial work. This solution has attracted over 9,600 customers and more than $818 million in annual recurring revenue.
The company frees up users' precious time by increasing their efficiency with software robots that handle menial tasks faster than a human could. UiPath boasts of the major benefits its customers have enjoyed, including millions of employee hours (and dollars) saved. As of July 31, 2021, existing clients were spending an average of 44% more on UiPath's services than they did in the year-ago period.
Gartner and IDC both rank UiPath as the leader in RPA with the two research firms saying only one major competitor -- Automation Anywhere -- comes even close to its level of dominance. IDC estimates the process automation industry will be worth $30 billion by 2024, meaning UiPath can grow into a high potential market. The company reported a net loss of $122.8 million in its fiscal 2022 third quarter as it continues to invest heavily to capitalize on a growing opportunity.
UiPath is rapidly becoming a mission-critical service for its big-name customers, including NASA and Alphabet, and as a market leader that's deeply integrated with thousands of customers already, its future looks bright. With shares trading near their all-time low, Cathie Wood took advantage of a potential bargain, and you might want to consider doing the same.
2. Coinbase Global
Coinbase stock has fallen 30% so far in 2022, and ARK Invest bought more than 437,000 shares over the same period.
Looking at its latest results, you can quickly see why Wood is bullish on this cryptocurrency business. In the third quarter, revenue grew 330% year over year to $1.2 billion while its net income jumped more than 400% to $406 million. Free cash flow (FCF) reached $7.7 billion for the first nine months of 2021, up 825% year over year.
Coinbase has become the leading cryptocurrency platform with 7.4 million users who traded $327 billion in crypto in the third quarter alone. The company collects a fee on every transaction that goes through its platform, so in one of the hottest cryptocurrency markets ever, it has seen amazing growth.
What makes the stock even more appealing today is its low valuation. The company trades at 4.2 times FCF and 16.7 times earnings, a bargain for a business delivering triple-digit growth. There are doubts about Coinbase's ability to sustain such growth, but it's still a value play worth buying as the leading trading platform for cryptocurrency.
