Tech investors will probably remember 2023 as the year that artificial intelligence (AI) became a primary focus of investors. Thanks to ChatGPT, investors bought into stocks that leveraged AI for growth. To this end, a new bull market began in stocks like Nvidia and Palantir, and many non-tech stocks touted their AI strategies.
Still, some AI stocks have attracted comparatively little coverage, even though AI may have significantly improved their value proposition. Knowing this, more investors should take a closer look at Duolingo (DUOL 3.64%) and UiPath (PATH 0.26%).
1. Duolingo
Indeed, an increasing number of language students turn to Duolingo for free learning. Although those lessons primarily revolve around learning languages, the company has also added math and reading lessons.
Not surprisingly, AI has played an increasing role in Duolingo's processes. While it has used AI for years, the technology now helps formulate lesson plans. Also, the company recently introduced Duolingo Max, which utilizes ChatGPT-4 to simulate conversations in other languages or clarify how one's answer to a question is right or wrong.
Most of its lessons are free and earn revenue for the site through advertising. Such users make up the majority of Duolingo's 74 million monthly active users (MAUs), which increased 50% over the last year.
However, investors will probably like that the company offers paid subscription plans that remove the ads. And thanks to AI, paid subscribers get access to Duolingo Max. These subscribers number around 5.2 million, a 59% increase over the last 12 months.
With that subscriber base, Duolingo brought in almost $253 million in revenue for the first half of the year, a 43% increase compared with the same period in 2022. And even though it still runs modest operating losses, an income tax benefit and interest income allowed Duolingo to earn $1.1 million in net income during the period.
Amid such improvements, the stock is up more than 130% this year. Admittedly, the recent 16 price-to-sales (P/S) ratio may deter some investors, but given the customer growth, owning Duolingo should translate into gains over time.
2. UiPath
Cathie Wood believes robotics will be one of the primary fields of innovation over the next few years. Hence, it should not surprise anyone that her funds hold significant investments in UiPath.
Wood may have settled on UiPath because the company operates at the intersection of robotics and software. It utilizes an end-to-end platform connecting software with enterprise products through application programming interfaces (APIs). As of July 2023, this has attracted nearly 11,000 customers.
Moreover, it stands out above competitors through its UiPath Community. This involves a network of more than 2 million developers, giving them a group from which they can learn and support one another. It also makes it less likely that developers will look for competing ecosystems lacking such a network.
Unsurprisingly, the company incorporates AI into that automation process. It can use either one's custom-built or prepackaged machine learning models managed through an MLOps Command Center. A drag-and-drop interface found in the UiPath Studio can insert such models quickly.
These applications helped boost UiPath's revenue in the first half of 2023 to $577 million, rising 18% versus the same timeframe last year. Also, thanks to operating expense reductions, losses for the first six months of the year fell to $92 million. UiPath lost $243 million in the first half of 2022.
Despite that improvement, the stock has traded in a range for most of 2023, though it has risen almost 30% for the year. UiPath's P/S ratio stands at around 8, just above record lows for this stock. Such positioning may make this an excellent time to add shares before more investors discover this robotics stock.
