Technology investor Cathie Wood is back in the headlines. But for once, she isn't talking about her bullish stance on Tesla. Wood is known for setting lofty price targets as well as for acquiring large positions in high-flying growth stocks.
Given the increasing interest in and use of artificial intelligence (AI) technology by businesses of all sizes, it should not surprise investors to learn that Wood is pouncing on an array of stocks in that niche. What may come as a surprise, however, is that she is not scooping up shares of well-known AI names such as Nvidia or Palantir at the frequency you might expect. Rather, she appears to be looking for less obvious AI opportunities.
One such company in particular has really started to stick out: UiPath (PATH 0.26%). Why? Well, because Wood has bought so much of its stock that it now represents her second-largest position across all of her exchange-traded funds (ETFs).
The company develops robotic process automation (RPA) software that helps its clients streamline tedious and time-consuming tasks.
While it may seem like UiPath merely makes software widgets designed to save workers a little time at the office, its capabilities are much more robust, and Wood, for her part, is pounding the table.
Why might Wood love the stock?
On UiPath's most recent earnings call, management noted that the company has roughly 10,890 customers. Moreover, IT research firm Gartner estimates that UiPath has a 36% share of the robotic process automation market -- a larger slice than behemoths such as Microsoft, SAP, Salesforce, and IBM.
Some of Wood's most noteworthy activity in the market has included taking large positions in Tesla, Palantir, and Twilio. While these companies operate in different industries, there is one obvious common denominator among them. Each of these technology enterprises collects a ton of data. Wood has made it clear on several occasions that she prefers to take positions in companies that have more data than the competition.
Given the stats above about UiPath, I think it's safe to say that the business is processing a large, and growing, volume of data. So even though the RPA market is dense with competitors, UiPath has set itself apart and become the de facto leader. Despite not having nearly as robust a balance sheet as its big tech counterparts, my hunch is that UiPath has been able to move past the competition because it is focusing solely on dominating one market. Said differently, Microsoft, IBM, SAP, and Salesforce have all sorts of solutions geared toward small and medium-sized businesses, as well as large enterprises. But UiPath primarily operates within one core market.
Another reason UiPath is likely seeing so much success is its ability to support various integrations. For example, Microsoft, Alphabet, and Amazon are all investing aggressively in generative AI. Microsoft is integrating OpenAI into various parts of its business, while Alphabet and Amazon are developing competing large language models. UiPath has the luxury of being able to work with all of these solutions. The company's RPA software can integrate with OpenAI, but also support critical applications in the cloud for Amazon or Alphabet.
The combination of the company's leading market share and its ability to work across the various ecosystems in Big Tech make UiPath's data-aggregation story pretty compelling.
Image Source: Getty Images.
Should you invest in UiPath?
Although UiPath's prospects may look attractive, investors should consider a few things when valuing the stock. UiPath is not yet profitable on a generally accepted account principles (GAAP) basis. However, the company is generating positive free cash flow.
Data source: YCharts.
The chart above illustrates UiPath's price-to-free-cash-flow ratio over the last year. Over the last few months in particular, the stock's valuation by that metric was well below its prior highs, which could make this an interesting opportunity to buy the dip. I would encourage investors to consider the long-term picture here. An investment in UiPath should be predicated on your view of the outlook for AI and its various applications.
Given the progress the company has already made, UiPath looks like a compelling stock to own for the long haul. But remember, big tech companies have deep pockets, and they have shown an ability to make headline-grabbing investments. For UiPath to evolve into a bigger force, it will need to reach consistent profitability and continue to innovate.
For now, though, the company's impressive growth and technological capabilities should not be discounted. As data becomes increasingly more important for companies' digital transformations and AI becomes more prevalent in IT budgets, UiPath appears to be sitting in an enviable position.
