This up-and-coming AI stock could be poised for bigger gains than Nvidia over the next decade.
Another quarter, another report of jaw-dropping sales. That’s been a recurring story with Nvidia (NASDAQ: NVDA). The demand for the company’s artificial intelligence (AI) chips shows no signs of slowing down.
Does this make Nvidia the best AI stock to buy right now? I don’t think so. My favorite AI stock could give investors a better chance of making even more money over the next few years.
A Perhaps Surprising Choice
You might think I would pick one of the mega-cap cloud providers—Google parent Alphabet, Amazon, Microsoft, or perhaps even Oracle. AI should provide a massive tailwind for years to come for all of them. I like all of these stocks, but none of them is my current AI favorite.
Instead, my choice is perhaps surprising. It’s UiPath (PATH -0.32%). While all of the aforementioned stocks are performing well so far in 2024, UiPath’s shares have fallen more than 20%.
Many investors may be unfamiliar with UiPath. The company has been in business since 2005, but it has only traded publicly since April 2021. UiPath develops software used in automating business processes. It started out focusing on robotic process automation (RPA) and now has an end-to-end AI-powered business automation platform.
UiPath is a molehill to Nvidia’s mountain. Its market cap is only around $10.8 billion. The company generated revenue of $1.3 billion in its fiscal year ending Jan. 31, 2024. That’s practically pocket change for Nvidia, which raked in 20 times that amount in the first quarter alone.
What I Like About UiPath
So why is UiPath my favorite AI stock to buy right now? There are several reasons. Its small size is definitely a plus in my view. It could be tough for Nvidia to deliver another 10x return because it’s already so huge. UiPath, though, might be in a better position to pull off such an impressive gain.
Cathie Wood’s Ark Invest projects the AI software market could expand by a compound annual growth rate (CAGR) of 42% and reach $14 trillion by 2030. Granted, this number includes more than just the AI business automation software that UiPath markets. However, it underscores the massive opportunity the company could have.
UiPath’s growth is already impressive. The company’s revenue jumped 31% year over year in its latest quarter, hitting an all-time high. Its annualized revenue run rate has increased by a CAGR of 32% since the second quarter of 2022.
I like that UiPath only recently achieved profitability as a publicly traded company. Investing in companies at this stage can be highly rewarding as they scale up. Just look at the history of Nvidia, Alphabet, and others.
Valuation is a key factor, too. UiPath’s price-to-earnings-to-growth (PEG) ratio is only 0.93. That’s well below Nvidia’s PEG ratio of 1.25 and is also lower than the multiples for Alphabet, Amazon, Microsoft, and Oracle.
What’s Not to Like?
UiPath has some potential drawbacks. For example, while I view its newfound profitability as an encouraging inflection point, the company could return to posting losses if its spending grows too much.
Perhaps the biggest risk for UiPath is the fast pace of technological change. The company faces stiff competition in attracting top-tier talent. UiPath could be out-innovated. It would be especially concerning if a major player such as Alphabet or Amazon entered the AI business automation platform market.
I think, though, that UiPath has a clear path to success if it executes well. The company might never be a $2.5 trillion behemoth like Nvidia, but it could be the better stock to own over the next decade.
By considering all these factors, it’s evident that while Nvidia remains a dominant player in the AI industry, UiPath offers a unique opportunity for investors looking for substantial growth potential in the AI sector.