Cathie Wood is the founder and CEO of Ark Invest, an asset management company focused on disruptive innovation. Few technologies possess as much disruptive potential as artificial intelligence (AI), so it should come as no surprise that Ark owns a great many AI growth stocks. But investors may be surprised to learn that Wood has been selling shares of Nvidia (NVDA +4.39%) and buying shares of UiPath (PATH +2.17%). In fact, UiPath is now the second largest holding in Ark's portfolio, representing nearly 6% of its weighted exposure.
Here's what investors should know about these AI growth stocks.
NASDAQ: NVDA
Key Data Points
Cathie Wood says Nvidia stock is overvalued
Nvidia is a wonderful business backed by a strong investment thesis: The company invented the graphics processing unit (GPU), a semiconductor capable of accelerating complex workloads like graphics and AI. Indeed, Nvidia GPUs hold more than 90% market share in workstation graphics and data center accelerators, and Forrester Research says they are synonymous with AI infrastructure. But GPUs are just the tip of the iceberg.
Nvidia's adjacent data center hardware includes data processing units (DPUs) that secure and accelerate networks, and central processing units (CPUs) that improve application performance. Nvidia also offers subscription software and cloud services, including Omniverse Cloud for 3D design and DGX Cloud for AI application development. Those products put Nvidia at the center of high-growth markets like gaming, virtual reality, and robotics, but its greatest opportunity lies in AI. Ark Invest estimates that AI software revenue will increase at 42% annually to reach $14 trillion by 2030.
So why is Ark selling Nvidia? Wood believes the stock is overvalued and it's hard to disagree. Shares currently trade at 37 times sales, well above the five-year average of 18 times sales. In fact, the stock is currently more expensive than it has been at any point in the past decade, and its valuation is hard to justify even in the context of prodigious growth opportunities.
That said, Ark still has a sizable stake in Nvidia. The stock represents roughly 1% of its portfolio, and Nvidia ranks as the 24th largest holding out of 200 positions. Any shareholders that feel anxious about Nvidia's current valuation should consider selling a portion of their position, and investors looking to take a stake in the company should consider waiting for a pull back.
NYSE: PATH
Key Data Points
UiPath is the market leader in robotic process automation (RPA)
UiPath started as a robotic process automation (RPA) software vendor, but the company has evolved into an AI-powered business automation platform provider. For context, RPA is a technology that automates simple and repetitive tasks like moving files and completing forms. But AI enhances RPA, allowing software to read, write, see, and make complex decisions.
The UiPath platform allows users to identify processes suitable for automation and build applications to automate them. It supports simple RPA use cases like copying and pasting document data, and it supports complex AI uses cases like understanding and acting on document data. Industry experts have recognized UiPath as a leader in several software verticals, including RPA, intelligent document processing, and process mining.
In the years ahead, RPA and AI will undoubtedly become more popular given their ability to boost employee productivity and reduce operating costs, and broader adoption of those technologies should be a powerful tailwind for UiPath. The company currently values its market opportunity at $61 billion, but management believes its product pipeline will push that figure to $93 billion in the future.
UiPath reported mixed financial results in the first quarter. Revenue increased 18% to $290 million, a significant deceleration from 32% growth in the prior year, but the company generated $67 million in cash from operations, up from a loss of $53 million in the prior year. Investors can attribute the top line deceleration to macroeconomic headwinds. Many businesses have pulled back on IT investments to help control expenses, but spending should normalize as economic conditions improve. That means UiPath has a good shot at reaccelerating revenue growth in the future.
Currently, shares trade at 9 times sales, a discount to the two-year average of 17 times sales. That price is far from cheap, and UiPath is by no means a surefire investment, but the company does have a strong competitive position in a large market. To that end, risk-tolerant investors should consider buying a small position in this AI growth stock today.
