We believe this stock could gain by more than 100% within the next two years.
**ON ALL TRADES, it is important to use proper risk management to correctly allocate and protect your capital.
Outlier Discovery Grid: Bucking the Tech Spend Slowdown
The LikeFolio Outlier Grid displays Purchase Intent (PI) Mention growth on the x-axis and Consumer Happiness on the y-axis. The ideal positioning is in the top right corner, indicating a potential bullish opportunity:
Although PATH has one of the smallest levels of consumer mention volume of the compared companies (indicated by relative dot size), the chart above shows that PATH is outperforming systems and infrastructure software providers Snowflake (SNOW) and CrowdStrike (CRWD) in terms of both consumer demand and happiness.
Making Businesses More Efficient
Consumer mentions of subscribing to UiPath's Business Automation Platform reached an all-time high in FY24 Q1 and are up 186%year-over-year on a 90-day average, even in today's slower technology spending environment.
New partnerships with Amazon and SAP have helped grow UiPath's customer base to 10,850. For the quarter ended April 30, revenue was up 18% year-over-year to $290 million — showing that enterprises continue to spend on software that improves their efficiency and productivity.
Total PATH mentions have more than doubled since the Nov. 30 launch of artificial intelligence (AI) chatbot ChatGPT and are on pace to smash their previous quarterly high in FY24 Q2.
On May 25, Co-CEO Daniel Dines said, “…customers are partnering with UiPath to harness the combination of generative AI and automation in an enterprise-grade platform.” UiPath is introducing more AI capabilities to its robotic process automation (RPA) platform to create AI-powered solutions for manufacturers, financial institutions, and healthcare providers.
Reducing Mundane Tasks and Errors
UiPath's Consumer Happiness mentions are 90% positive over the past three months, down 3% compared to the prior year.
PATH is capitalizing on growing demand for automation software that helps businesses across many industries automate repetitive tasks and reduce errors. Customers value the efficiencies, cost savings, and competitive advantages that result from UiPath's workflow automation solutions.
The AI Revolution Is Accelerating
Consumer mentions related to artificial intelligence usage and capabilities are up 52% quarter-over-quarter and an astounding 491% year-over-year on a 90-day moving average.
LikeFolio's consumer data provides a zoomed-out view of the trends driving cloud computing software and services over the past year:
Recent financial results and outlooks from Nvidia (NVDA) and other AI leaders confirm that interest in AI technology is booming. Cloud computing software and services are helping business executives “do more with less>” in a challenging economic environment.
Within the next three years, an estimated 85% of enterprises will combine human expertise with AI, machine learning (ML), natural language processing (NLP), and pattern recognition to improve efficiency and worker productivity.
The Bottom Line
The AI revolution is rapidly reshaping the global economy. Businesses across virtually all industries and functions are tapping artificial intelligence and machine learning to improve productivity. As these technologies continue to demonstrate value beyond that of human capital, global AI software spending is forecast to grow 14x by 2030.
Enterprises are spending on tech that makes them more efficient. At a time of cautious IT budgets, businesses are discovering that software that improves operational efficiency and cuts costs is a worthy investment. Many are turning to UiPath's cloud-based robotic automation platform to enhance competitiveness and help offset the consumer and B2B spending slowdown. The software helps organizations automate repetitive, low-skill tasks such as insurance claim processing without the need for an in-house software engineer.
UiPath's AI ambitions are ramping up at the right time. Having introduced an automation platform that leverages advanced technologies like AI and data analytics in May 2020, PATH's AI roots pre-date the ChatGPT launch. Given the worldwide scramble to create and acquire AI capabilities, the company's plan to go beyond RPA and transition to an AI-first platform positions it to outperform in the automated workflow space.
The market overreacted to PATH's Q1 report. Despite crushing Wall Street's Q1 estimates in delivering 18% revenue growth and swinging to a non-GAAP profit, PATH sold off on May 25 because of soft Q2 revenue guidance. While management's projection for 16% growth would mark a sequential slowdown, it may be setting the company up for another big beat. More importantly, UiPath is generating solid growth in a tough macro environment, and its long-term growth drivers — the digital transformation and AI-powered automation —are intact.
Summary
PATH is a cloud-based automation software provider and an intriguing mid-cap play on the AI revolution. With the company generating impressive growth amid a soft IT spending backdrop, record levels of social media buzz, and the stock trading more than 80% below its peak of just two years ago, we see this as a bullish investment opportunity.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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