Many companies in big tech are becoming synonymous with artificial intelligence (AI). Earlier this year Microsoft doubled down on its investment in OpenAI, the operation behind ChatGPT. Unsurprisingly, both Alphabet and Amazon swiftly followed by each investing large sums into a competitor called Anthropic.
Although these technology behemoths are paving the way for widespread adoption of generative AI and large language models (LLMs), there are plenty of other lesser-known opportunities in the market. In fact, Ark Invest CEO Cathie Wood has been recently buying shares in three names that I think are massively underrated in the AI atmosphere. Let's take a look at each stock and assess if the opportunities look appealing.
1. Twilio
Twilio (TWLO 1.47%) acts as a communications application programming interface (API) used by over 300,000 customers. If you have ever ordered a ride on Uber or food through DoorDash, then chances are you've used Twilio's technology via the texting and phone call capabilities each app provides.
As I previously wrote about, one of the core pillars of Wood's investment thesis is rooted in how much data Twilio collects. Just a couple of days ago, Wood sat down with CNBC and said that Twilio had "deep domain expertise" as it relates to the intersection of data and AI. While this presents an interesting discussion regarding the volume of Twilio's data library, how exactly does this make the application valuable for AI?
One of the prevailing arguments around AI is that the possibilities presented by this technology are, in some ways, sensitive to the quality of data that feed it. In other words, if your data is of poor quality, then the help derived from AI-powered applications will be limited. But a few months ago, Twilio showcased its foray into AI with a new product called CustomerAI, which is aimed at helping end users build profiles for their individual customers.
For example, CustomerAI can provide marketers with an entirely new layer of granularity as it pertains to customer data. In turn, companies can form more direct marketing campaigns specifically targeted at specific demographics. The obvious benefit of this marketing strategy is that customers may become repeat buyers as these promotions and interactions feel more personal. Subsequently, companies build more brand equity as users remain loyal and sticky to a particular platform.
Twilio is one of those growth stocks that seemed to propel to stratospheric levels a couple of years ago. The valuation and the underlying fundamentals quickly became misaligned, and there were likely a lot of investors left holding the bag. With that said, Twilio is beginning to turn a new leaf and I think few are noticing.
The company appears to have a path to generate consistent free cash flow, which it can reinvest into additional research and development or other initiatives. Given the stock trades at almost 90% below its highs from just a couple of years ago, it's hard to pass on a company with such secular tailwinds and institutional support.
2. UiPath
UiPath (PATH 0.26%) is a company that I believe is massively misunderstood. The company develops software called robotic processing automation (RPA). I'll admit, at first it sounds like something out of a science fiction novel. However, the underlying theme of the technology is actually pretty straightforward.
UiPath's RPA tools are known as "connectors" and can integrate with adjacent software systems such as customer relationship management tools like Salesforce.com or enterprise resource planning platforms like Oracle. The purpose of these connectors is to help users develop ways to streamline time-consuming administrative tasks. Common use cases for UiPath include financial services processes for documentation or claims. Global accounting and consulting firm Deloitte used UiPath for invoicing and human resources functions for onboarding and benefits.
During the same segment on CNBC, Wood proclaimed that her research suggests "for every dollar in hardware that companies spend on artificial intelligence, that will probably pull $20 through in software." This dynamic is what makes UiPath in particular so attractive to Wood. She posits the idea that given UiPath's ability to integrate with the language models developed by OpenAI, Anthropic, and others, combined with its own data repository from its customers, the company is on its way to building a moat and becoming the largest pure-play RPA operation in the world.
PATH PS Ratio data by YCharts
Similar to its Twilio, UiPath stock has seen better days. But this appears to be a situation in which investors exited their position and sought other opportunities. While UiPath may not carry the same balance sheet as big tech, the company's position in AI is quite unique.
Given its ability to integrate with major cloud players Microsoft, Alphabet, and Amazon and that its data feeds into numerous LLMs, the insights that UiPath can offer enterprises leveraging generative AI look limitless. Now could be an incredible time to take advantage of near rock-bottom trading levels and lower your cost basis in this under-the-radar AI opportunity.
Image source: Getty Images.
3. Ginkgo Bioworks
Ginkgo Bioworks (DNA 10.60%) has long been a staple among Wood's exchange-traded funds. The company specializes in two areas: biosecurity and cell programming (known as synthetic biology). Ginkgo works with a multitude of high-profile pharmaceutical companies including Pfizer, Moderna, Novo Nordisk, and Eli Lilly. Many of Ginkgo's programs revolve around research that is geared toward developing alternative processes for existing treatments in hopes to facilitate manufacturing processes or additional medical breakthroughs.
Perhaps unsurprisingly, Alphabet, which has a reputation for exploring various technologies and innovations well beyond its core competencies of cloud computing and consumer search, recently announced a multiyear partnership with Ginkgo Bioworks. Per the terms of the alliance, Ginkgo will develop LLMs that run on Google's cloud. The combination of Alphabet's AI compute power and Ginkgo's database could drastically shift the time it takes customers to perform certain bioengineering analyses.
While the addition of Alphabet to Ginkgo's ecosystem illustrates another impressive stamp of approval, owning the stock comes with its own set of risks. Ginkgo's revenue is quite cyclical as the company's various research projects are often based on milestones. For this reason, sales remain unpredictable while costs continue to rise -- a combination that yields an unprofitable operation.
The stock currently trades near a 52-week low. Wood, for her part, has been buying the stock in droves over the last several weeks, likely in an attempt to lower her cost basis. However, that is not enough of a reason to buy the stock yourself.
For me, while Ginkgo could be seen as more speculative, I think the company's customer roster speaks volumes. Moreover, the commitment from the world's largest businesses to work with Ginkgo over the course of several years demonstrates the complexity of the operation. I view Ginkgo as another opportunity in AI that could be underappreciated, but investors will need to exercise patience. Wood summed it up best when she said her portfolio represents a "highly diversified way to participate in artificial intelligence."
