Cathie Wood is about as big of a believer in the potential of artificial intelligence (AI) as you'll find. She told Yahoo Finance Live in an interview earlier this year, "AI is going to enable the most massive productivity increase in our history."
Her Ark Invest team released a report predicting that the economic impact of the increased productivity around the world resulting from AI could total close to $200 trillion. Unsurprisingly, Wood and Ark Invest are bullish about several AI stocks.
You might think that Nvidia (NVDA 0.25%) would rank near the top of the list. AI companies are buying Nvidia's graphics processing units hand over fist. However, the chipmaker actually isn't among Wood's favorite AI stocks these days. She likes one up-and-coming AI stock a lot more than Nvidia.
A rising star
Ark Invest made a lot of money from its investments in Nvidia over the years. However, Wood thinks that a rising star in AI is a better bet now. And she's putting her money where her mouth is.
UiPath (PATH +1.34%) ranks as the fourth-largest holding across all of the Ark Invest exchange-traded funds (ETFs). Aside from Tesla, Wood's longtime favorite, no other stock with strong AI ties has a heavier weighting in Ark Invest's total portfolio. UiPath is the No. 2 position for Wood's Ark Autonomous Technology & Robotics ETF. It's the fifth-largest holding for her flagship Ark Innovation ETF and the Ark Fintech Innovation ETF.
NYSE: PATH
Key Data Points
Why does Wood like UiPath so much? The company is a leader in robotic process automation (RPA). Its platform enables customers to use AI to automate processes throughout their businesses. Those customers include Deloitte, Fiserv, and Uber.
Ark Invest's report on investing in AI released on Aug. 21, 2023, referred to UiPath as part of "AI's sleeper wave." The report stated that Ark has "high conviction" in UiPath's business prospects.
UiPath vs. Nvidia
So how does UiPath stack up against Nvidia? In many ways, unfavorably.
Since its initial public offering in April 2021, UiPath's share price has plunged more than 70%. That's a far cry from the gain of more than 200% that Nvidia delivered in the same period.
Nvidia's revenue growth is much more impressive. In its latest quarter, the chipmaker's sales more than doubled year over year to $13.5 billion. UiPath reported second-quarter revenue of $287 million, up 19% year over year.
UiPath also remains unprofitable. It posted a net loss of more than $60 million in Q2. Meanwhile, Nvidia's net income skyrocketed 843% year over year to nearly $6.2 billion.
The one area where UiPath clearly beats Nvidia, though, is valuation. UiPath's shares trade at below 8.8 times sales compared to Nvidia's price-to-sales ratio of over 35x.
Should you like UiPath more than Nvidia?
UiPath's overall less-than-stellar comparison with Nvidia doesn't necessarily mean that Wood is wrong to like the stock more than Nvidia. It's important to remember that the two companies are in very different stages of their life cycles. UiPath's market cap of $10 billion is only a sliver of Nvidia's market cap of more than $1.1 trillion.
Should you like UiPath more than Nvidia, too? For many investors, the answer should be "no." UiPath faces some risks that Nvidia doesn't. Of course, Nvidia certainly isn't risk-free, especially with its sky-high valuation.
On the other hand, aggressive investors looking for earlier-stage AI opportunities that could be diamonds in the rough might want to seriously consider UiPath. The potential for the company's RPA platform could be huge.
Wood and Ark Invest believe that, in general, smaller AI stocks have greater opportunities going forward than mega-cap names do. They could be right.
