UiPath (PATH 0.94%), a leader in software automation and artificial intelligence (AI), continues to grow as its customers look for tech that can help them reduce their spending. The market reacted to this growth path with a shrug, though.

With the generative AI hype sparked by ChatGPT in full swing, it would seem that a company like UiPath would be a big beneficiary. But perhaps not. UiPath's specialty isn't the generative AI that has captured everyone's attention. UiPath specializes in "old" AI.

It looks like the stock could continue to struggle as a result. 

UiPath is making progress, but is it missing the AI boat?

UiPath's specialty is AI software and robotic process automation. Think of it as a virtual bot, a type of software assistant that can find and automatically complete repetitive tasks to help employees get more done with less (like reading text on a screen and using the text to fill out a digital document, for example). 

This type of software has been in demand as organizations try to combat the effects of employee wage inflation. Indeed, even in the tough economy that has characterized 2023, UiPath continued putting up solid growth -- including in annualized recurring revenue (ARR), a key subscription software metric.

Fiscal Year Periods

UiPath Revenue

ARR

ARR Growth (YOY)

Free Cash Flow

Q1 2023

$245 million

$977 million

50%

($62.6 million)

Q2 2023

$242 million

$1.04 billion

44%

($30.3 million)

Q3 2023

$263 million

$1.11 billion

36%

($32.6 million)

Q4 2023

$309 million

$1.20 billion

30%

$91.7 million

Q1 2024

$290 million

$1.25 billion

28%

$65 million

ARR = Annualized recurring revenue. YOY = year over year. Data source: UiPath.

The upshot here is that UiPath's work to get itself more financially fit is beginning to pay off. Free cash flow has turned positive in the last couple of quarters. But growth continues to fizzle, and I wonder if there are more than just economic issues causing customers to tap the brakes. 

You see, UiPath's AI software bots can greatly increase workforce productivity, but it requires some software development know-how. In contrast, generative AI helps remove some of these issues, enabling anyone with the ability to type in natural language the ability to create.

In recent months, UiPath announced some generative-AI services of its own, as well as plenty of integrations with third-party generative-AI services, including invoking the phrase "generative AI" on its earnings call. But UiPath itself is not a primary provider of generative AI.

That will require additional spending by its customers with hardware and software providers other than UiPath -- like public cloud providers Microsoft Azure and Alphabet Google Cloud, both of which are spending heavily on Nvidia's chips and accompanying software to power generative AI.

In other words, UiPath's "old" AI can still be tremendously useful. But a lot of AI spending is being siphoned off by this new breed of generative AI. With corporate financial resources thin this year, UiPath might still struggle to reignite its growth engine. 

Still too soon to buy this stock

As a case in point, management guided for ARR of $1.427 billion to $1.432 billion at the end of this year, up just 20% from where it was at the end of last year. That implies continuous deceleration of revenue growth over the next three quarters (given that first-quarter ARR growth was at 28% year over year).

UiPath stock trades for 91 times trailing-12-month free cash flow as of this writing, a metric that will continue to improve if the company can keep delivering on this profit metric and lap the negative free cash flow from most of last year. This is at least one positive catalyst the company has going for it.  

Earlier in the year, I decided to nibble a little more on UiPath. After the first-quarter update, though, I believe it's too soon to buy any more of the stock. It's becoming clear that this company still has a bit of an uphill battle ahead of it this year as customers have been distracted by the generative-AI hype and are prioritizing their limited cash elsewhere. I'm content with my very small position in UiPath for now and will reevaluate later in 2023.