Cathie Wood's Ark Invest believes disruptive innovation is a key driver of long-term capital appreciation, and the firm is particularly focused on technologies like artificial intelligence (AI). In that context, readers may be surprised to learn that Ark reduced its position in Nvidia during the second quarter and continued to sell through the third quarter.
Readers should be aware that Ark still has a stake in the AI chipmaker. But Nvidia stock has tripled year to date, so the firm is probably trying to rebalance its portfolio by redeploying some capital elsewhere. To that end, Ark increased its position in UiPath (PATH 8.16%) during Q2, and the software company currently ranks as its third-largest holding.
Here's what investors should know about this AI growth stock.
NYSE: PATH
Key Data Points
UiPath is chasing a big market opportunity
The UiPath business automation platform brings together robotic-process automation (RPA) and artificial intelligence (AI). The former can automate simple and repetitive workflows, while the latter can automate more complex workflows. As a whole, the platform allows businesses to identify tasks and processes suited to automation, then build and manage software robots capable of automating those jobs.
UiPath is a recognized leader in several relevant markets, including RPA, process mining, task mining, and intelligent-document processing. Indeed, Forrester Research says UiPath offers "a superior platform" for enterprise automation. But the company is also leaning into growing demand for AI with its product-development strategy, as detailed below:
- Autopilot is a suite of AI-powered capabilities that address multiple-use cases across the UiPath platform, such as identifying automation opportunities, automating code generation, and activating existing automations. Autopilot was announced earlier this month.
- Clipboard AI replaces manual copy-and-paste workflows by intelligently transferring data between documents, spreadsheets, and applications. Clipboard AI is a stand-alone application that is currently in preview.
- Communication Mining analyzes conversions to identify problems and automation opportunities, such as replying to customer inquiries and acting on customer requests. Communications Mining became generally available earlier this year.
- Project Wingman brings together generative AI and computer vision, a type of AI that can make sense of visual information, thereby allowing users to create automations with natural language prompts. Project Wingman is currently in preview for select customers.
Looking to the future, Goldman Sachs believes two-thirds of U.S. occupations could be automated to some degree, and the resultant boost in labor productivity could add $7 trillion to the global economy. UiPath should be a major beneficiary of that tailwind. Indeed, management values its addressable market at $61 billion but sees that figure reaching $93 billion in the near term as the company executes on its product roadmap.
UiPath is growing quickly despite headwinds
UiPath has undoubtedly lost some momentum as businesses have pared back spending to account for uncertain macroeconomic conditions. Management pointed to new customer acquisition as being particularly difficult to forecast in the current environment. But the company is still expanding at a steady clip.
The average UiPath customer spent 21% more over the past year, and the company achieved a "best in class" gross-retention rate of 97%, meaning it kept the vast majority of its customers. In turn, Q2 revenue rose 19% to $287 million, and non-GAAP net income improved to $49 million, up from a loss of $11 million in the prior year.
Management also raised its full-year outlook. Guidance (at the midpoint) now implies an acceleration to 21% revenue growth and 189% growth in non-GAAP operating income.
Why UiPath stock is worth buying
Morgan Stanley sees UiPath as "a clear category leader in robotic process automation, with leading market share in one of the fastest growing software markets." That assessment fits with commendations the company has received from other analysts, and it bodes well for shareholders.
Indeed, Morgan Stanley expects UiPath to earn $1.8 billion in revenue in fiscal 2026 (ends Jan. 31, 2026), implying annual growth of 19% over the next two-and-a-half years. Investors can expect similar revenue growth in the subsequent years if UiPath (1) maintains its status as the gold standard in RPA technology and (2) successfully expands its offering of AI-enabled products.
That forecast makes its current valuation of 7.8 times sales look reasonable, especially when the two-year average is 11.6 times sales. Personally, I am not as bullish as Cathie Wood -- meaning I would not make UiPath my third-largest holding -- but I think patient investors can confidently buy a small position in this growth stock today, provided they are willing to hold the stock for at least five years.
