As 2023 draws to a close, it is time to reflect on the investment trends that emerged during the year. For Cathie Wood, it was a period of redemption. The value of her tech-heavy Ark Innovation portfolio has risen around 60% year to date, helped by a surge in interest in artificial intelligence (AI)-related companies. Let's discuss why two of these stocks, Palantir Technologies (PLTR 3.73%) and UiPath (PATH 0.26%), could help make you richer in 2024 and beyond.
Palantir Technologies
Palantir specializes in data mining, which involves using software to discover actionable insights from large amounts of data. As of mid-October, Ark owns a whopping 9.4 million company shares worth almost $151 million. And the investment fits well into Wood's innovation-focused strategy -- especially as Palantir incorporates new generative AI tech into its business model.
Palantir wants to combine data mining with large language models (LLMs) -- the magic behind conversational chatbots like ChatGPT. The two technologies are highly synergistic, and putting them together could expand the potential of Palantir's software, especially in real-time military scenarios where rapid data analysis could be crucial.
Palantir already works with major military clients, like the armed forces of Ukraine and the U.S. Army, which recently awarded the company a $250 million contract for AI-related research and experimentation.
With a price-to-sales (P/S) multiple of 21, Palantir is far from cheap. But the stock's high price tag likely reflects its economic moat in the public sector (not many companies work with such sensitive classified information) and its burgeoning profitability.
The company says third-quarter net income jumped to $72 million, up from a loss of $123.8 million in the prior-year period. The profitability shows the strength of Palantir's business model and gives it a solid foundation to expand into new opportunities.
UiPath
With 47.3 million shares worth $810 million, UiPath is one of Ark's largest holdings. The software and robotics company aims to help businesses optimize operations by automating tasks normally performed by humans. And it looks like a long-term winner because of its convincing financial performance and massive addressable market.
UiPath's specific niche is called robotic process automation (RPA). According to Fortune Business Insights, this $13.9 billion market could soar to $50.5 billion by 2030 as more companies use the technology to perform mundane, repetitive tasks like data entry.
UiPath aims to make its tools "smarter" by incorporating AI features like computer vision, a subset of the AI that could allow its tools to virtually "see" and interact with elements on a screen, improving their efficiency.
Image source: Getty Images.
The new AI tech seems to be helping drive demand. UiPath's third-quarter revenue jumped 24% year over year to $326 million, helped by increasing client interest in its subscription services. And while the company isn't profitable yet, things are moving in the right direction, with net losses dropping from $57.7 million to $31.5 million in the period.
With a price-to-sales (P/S) multiple of 11.6, UiPath is substantially more expensive than the S&P 500 average of 2.5. But this looks fair, considering it operates in a potentially disruptive industry and has a clear pathway to scale into generally accepted accounting principles (GAAP) profitability.
Which Cathie Wood Stock is right for you?
Investors can use the stock picks of famous investors like Wood as inspiration for crafting a portfolio based on their unique goals. While Palantir Technologies and UiPath are similar in their pursuit of AI-driven growth, they might suit different investment strategies.
On the one hand, with its higher price tag, stable government contracts, and profitability, Palantir looks ideal for investors willing to pay more for an arguably safer company. On the other hand, UiPath's future might be more uncertain because of its current lack of profitability. But a solid growth rate and lower valuation help compensate for this overhang. Thus, both companies look like long-term winners.
