We recently published a list of Cathie Wood’s 11 Favorite AI Stocks. Since UiPath Inc (NYSE:PATH) ranks 2nd on the list, it deserves a deeper look.
Cathie Wood’s flagship fund is continuing to face steep losses amid a broader pullback in technology stocks. Wood’s flagship fund ARK Innovation ETF (NYSEARCA:ARKK) is down about 18% so far this year and has lost about 75% of its value since hitting its peak in 2021. However, the latest data shows that the innovation-focused investor bought the dip on tech stocks after the latest selloff that shook financial markets globally.
Investors have pulled about $2.2 billion from ARK funds in 2024. The fund is on track to post its worst year of investor exodus since 2014. But Cathie Wood is doubling down on her innovation bets and is hopeful the upcoming rate cuts will be positive for the stock market.
Cathie Wood Says “Something Is Changing” and the Fed is Now on “High Alert”
Talking about the market situation, Cathie Wood said in a latest video on her YouTube channel that the recent selloff shows the market is going through a “cathartic” phase and “something is changing.”
“I do believe that the Fed now is on high alert because the stock market seemed to be encouraging the Fed to hold tight, higher for longer, make sure that the inflation was out of the system.”
Cathie Wood said that corporations are now in a weaker position amid high rates and they will initiate layoffs to cut costs and increase productivity. This weak employment situation could encourage the Federal Reserve to start cutting rates, according to Wood.
“Interest rates coming down should be very positive for the equity markets, but they will not arrest a recession very quickly. In fact, if consumers and businesses know that interest rates and maybe prices will be coming down, what will they do? They will wait.”
Cathie Wood’s ARK has posted its latest stock holdings data as of the end of the June quarter. For this article we scanned the fund’s latest portfolio and picked 11 AI stocks it has positions in. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
UiPath Inc (NYSE:PATH)
Cathie Wood’s Latest Stake Value: $377,197,499
UiPath Inc (NYSE:PATH) has lost about 50% in value this year as the market is losing confidence the company can achieve a successful turnaround. Recently the company posted a software quarter and announced an abrupt CEO change.
Recently, Macquarie downgraded the stock and cut its price target from $29 to $12. The analysts had previously believed that UiPath Inc (NYSE:PATH) was on track with its turnaround strategy as it entered the first quarter of fiscal 2025. However, following the unexpected resignation of CEO Rob Enslin, a downward revision in guidance, and management’s admission of underperformance in its go-to-market approach, they revised their outlook. The analysts now view the stock as having limited potential unless UiPath Inc (NYSE:PATH) can demonstrate a consistent recovery.
UiPath is one of the pioneers in the robotic automation process market. Its software helps companies automate repetitive tasks. That makes the company one of the first entrants in the AI market. But the generative AI revolution has created a dilemma for the company: every other software company is now launching no-code automation tools based on AI. Companies are also cutting costs and instead of buying RPA software from UiPath, they are hiring AI talent to make such processes in-house.
While UiPath Inc (NYSE:PATH) RPA tools are better suited for complex enterprise-level tasks, Microsoft’s Power Automate and integration of genAI in platforms of Salesforce (CRM) and ServiceNow (NOW) are among the biggest challenges for UiPath.
UiPath Inc (NYSE:PATH) is expected to generate around $160 million in non-GAAP operating profits this fiscal year, leaving the stock valued at 41 times forward non-GAAP operating profits—a steep multiple given the company’s current challenges and uncertain growth trajectory.
Overall, UiPath Inc (NYSE:PATH) ranks 2nd on Insider Monkey’s list titled Cathie Wood’s 11 Favorite AI Stocks. While we acknowledge the potential of UiPath Inc (NYSE:PATH), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PATH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
