This Is Google's Favorite AI Stock Other Than Itself (and Cathie Wood's Ark Invest Really Loves It, Too)

What's a great way to find out what the most promising players in an area are? Just ask an established leader in that area which rising stars it holds in the highest regard.

In the area of artificial intelligence (AI), Alphabet (GOOG 9.96%) (GOOGL 10.22%) without question ranks as one of the top dogs. The company's Google DeepMind unit is a renowned AI pioneer. More than 70% of generative AI unicorns use Google Cloud. Its Waymo unit is a leader in self-driving car technology.

So which publicly traded up-and-comer does the tech giant especially like? This is Google's favorite AI stock other than itself -- and one that Cathie Wood's Ark Invest really loves, too.

Two thumbs up

You don't have to reach out to Alphabet CEO Sundar Pichai to find out which AI stock is the company's favorite. You won't have to contact anyone at the company. All you need to do is look at its regulatory filings.

Alphabet's 13F submissions to the Securities and Exchange Commission reveal the companies that it's betting on. Those bets include investments made by businesses within the Alphabet family, including Google, venture capital firm GV Management Company, growth fund CapitalG, and healthcare unit Verily Life Sciences.

One AI stock stands out as the single biggest holding in Alphabet's latest 13F filing. As of June 30, 2023, it owned over 14 million shares of UiPath (PATH 0.26%) that were worth a total of more than $233 million.

As previously mentioned, UiPath is a favorite of Ark Invest as well. The AI stock is the fifth-largest holding of Wood's flagship Ark Innovation ETF. It's also the third-biggest position in the portfolio of the Ark Autonomous Technology & Robotics ETF, and is one of the top 10 holdings of the Ark Next Generation Internet ETF, the Ark Fintech Innovation ETF, and the Ark Space Exploration & Innovation ETF.

What's so special about UiPath?

There are plenty of small-cap and mid-cap AI stocks on the market. What's so special about UiPath that both Google and Ark Invest like it so much?

Arguably, the main attraction is what UiPath does. It markets an AI-powered robotic process automation (RPA) platform that, it argues, "can be used everywhere, by everyone, for everything, to benefit every business." In a nutshell, UiPath's goal for RPA is to do anything that a person can do when it comes to interacting with digital systems and software, but do it faster and more consistently.

UiPath's annualized revenue run rate has increased at a compound annual rate of 42% since the third quarter of 2021. The company expects to generate revenue of nearly $1.3 billion in its current fiscal year. It has recently announced partnerships with several major technology companies, including Amazon, SAP, and Snowflake. 

In addition to investing in UiPath, Alphabet has also teamed up with the company. Its Google Cloud integrates with UiPath's platform to enable cloud customers to automate tasks that were previously done manually. This relationship gives Google first-hand insight into the value that UiPath provides.

Ark Invest published an online article last week that praised UiPath as one of its two high-conviction "sleeper" AI stocks. While there are other competitors in the RPA market, Ark believes that UiPath's flexibility and "low-code no-code interfaces" give it a big advantage.

Should you buy this AI stock, too?

It's not a smart idea to run out and buy any stock just because well-known companies have already done so. For one thing, they could have bought at a much more attractive price.

Risk-averse investors might prefer other stocks to UiPath. The company isn't consistently profitable yet. Its shares would likely decline significantly in an overall stock market downturn.

However, UiPath is making progress toward reaching profitability. It even posted positive earnings in the latest quarter on an adjusted basis that doesn't adhere to generally accepted accounting principles (GAAP). The company should have strong growth prospects over the long term.

Google and Ark Invest love this rising AI star for good reasons. I think that UiPath could be just the kind of up-and-coming AI stock that many aggressive investors are looking for.