At a glance, UiPath (PATH 0.26%) seems to be on a roll, with shares up more than 40% in 2023 as of this writing, thanks to investors' enthusiasm for almost any stock peripherally associated with the rise of artificial intelligence (AI). If you zoom out, however, you'll see that shares of the work-automation software leader are still down around 7% over the past year and remain nearly 80% below their post-initial public offering (IPO) highs from mid-2021.

UiPath's recent gains also pale in comparison to many other AI stocks. Take C3.ai, for example, which has soared a whopping 260% year to date, or Palantir, which has skyrocketed 178%. Even the S&P 500 is up nearly 20% year to date, and the market's megacap tech stocks have easily outpaced UiPath -- which still stands firmly in mid-cap territory with a market cap of $9.5 billion -- in recent months. Amazon and Google parent Alphabet are both up around 50% this year, and Facebook parent Meta has soared 160%.

They're different businesses with different stories, of course, so certainly not apples-to-apples comparisons. But I can't help but shake the feeling that in its current state, UiPath is one of the market's most underappreciated AI stocks today.

An AI company at its core

Since its founding in 2005, UiPath has stood tall as a leader in robotic process automation (RPA). This is not hardware-based robotics, mind you, but a platform created to enable employers to build, deploy, and manage software robots capable of emulating a countless number of human tasks, whether fully automatic or with some level of human interaction.

These tasks might include anything from vetting resumes to automating software development and testing to processing documents or detecting fraud. It's a fast-growing total addressable market that Gartner estimates is already worth more than $93 billion annually. This leaves UiPath a long runway for growth from its roughly $1.1 billion in trailing-12-month revenue.

To be clear, UiPath's stated goal isn't to replace humans but, instead, to "accelerate human development" and "make software robots so people don't have to be robots." In other words, it enables people to rid themselves of time-wasting, morale-destroying tasks so they can do more productive work that's best suited for human minds.

A perfect combination with generative AI

UiPath's AI capabilities were previously focused on enabling its software robots to handle "thinking" tasks, or complex use cases that were previously difficult or impossible to automate at scale. The RPA instances could "understand" what's on a user's screen using cutting-edge computer vision, for example, even if the interface wasn't static. They could also dynamically communicate with customers via AI-enhanced chatbots or process and extract useful data from unstructured documents, like PDF files or scanned images.

A few weeks ago, UiPath upped the ante by announcing an expanded suite of generative AI and specialized AI tools, including general availability and support of connectors for Amazon's Falcon Large Language Model (LLM), OpenAI, and Azure OpenAI supporting GPT-4, and the preview of Google's Vertex connector supporting its PaLM 2 LLM.

"AI technologies are at the core of the UiPath Business Automation Platform," stated UiPath Chief Product Officer Graham Sheldon. "[...] UiPath is uniquely able to combine our understanding of screens, documents, tasks, and processes with the intelligence of Generalized AI to watch work happen, understand what is being done, and automate it in our platform."

Of course, UiPath's income statement has yet to realize the actual fruits of these automations. But it seems to be one of only a handful of companies that are uniquely suited to benefit from the advent and accelerated adoption of generative AI.

It should be quite interesting, then, to see what UiPath management has to say when the company releases fiscal second-quarter 2024 results in early September -- in particular, as it pertains to reiterating or potentially raising its full fiscal-year 2024 guidance.

For perspective, current guidance calls for:

  • Full fiscal-year 2024 revenue of $1.267 billion to $1.272 billion (up 19.9% year over year at the midpoint)
  • Annual recurring revenue of $1.427 billion to $1.432 billion (or growth of 18.7%)
  • Adjusted free cash flow -- a rarity in this niche full of cash-burning tech upstarts -- of at least $160 million (a free cash flow margin of 13%)

If UiPath manages to issue upbeat results relative to this outlook -- and better yet, if that's fueled by accelerated AI adoption -- I suspect the stock will have plenty of room to rally from here.