As the artificial intelligence (AI) revolution continues to progress, it is important to consider which stocks are best positioned to take advantage of it. One investor who is well-known for her focus on innovation is Cathie Wood, CEO of ARK Invest. Earlier this year, ARK Invest predicted that AI software could generate up to $14 trillion in revenue by 2030 if it captures just 10% of the expected productivity gains it’s expected to produce.
In the past week, ARK Invest’s exchange-traded funds (ETFs) have been purchasing shares of top AI stocks and trimming others. Two stocks that ARK Invest’s ETFs have recently been buying hand over fist are discussed below.
On June 1, The ARK Next Generation Internet ETF and the ARK Fintech Innovation ETF acquired shares of cybersecurity company CrowdStrike Holdings (NASDAQ: CRWD). Although primarily a cybersecurity company, CrowdStrike has been using AI to detect threats to its clients for a while now.
The value of AI applications generally increases with the amount of data fed to them. CrowdStrike has access to vast amounts of data and its platform analyzes trillions of signals each week.
Wood’s purchases of CrowdStrike shares on June 1 were a bit surprising, given the stock had dropped by over 11% in after-hours trading on May 31, in reaction to the forward-looking guidance in its earnings report that suggested growth is decelerating. Despite this, the stock is still up around 46% year-to-date.
During the first fiscal quarter that ended on April 30, CrowdStrike’s revenue increased 42% YoY, reflecting an annualized revenue of $2.77 billion. CrowdStrike has slightly raised its revenue outlook for the full fiscal year of 2024. Management now expects total revenue to be between $3.0005 billion and $3.0367 billion.
The midpoint of CrowdStrike’s forecasted range for fiscal 2024 revenue is a 35% year-over-year gain. The stock price is currently trading at around 66 times the midpoint of management’s earnings projection for fiscal 2024, making it a richly valued stock. As long as CrowdStrike’s projected growth rate persists and it maintains its leadership position in the cybersecurity market, following Wood’s lead and investing in it may be a smart move.
UiPath (NYSE: PATH), a robotic process automation (RPA) software provider, is another stock that Wood’s ETFs can’t seem to buy enough of lately. Six of Ark Invest’s funds acquired UiPath shares on May 25 and 26.
Since its establishment in 2005, UiPath has been using AI to become a leader in the RPA industry. The new UiPath release includes an OpenAI connector that enables developers to access the famous GPT-3 model used by ChatGPT.
UiPath’s customers mainly use its platform to automate repetitive tasks, enabling them to free up employees from such mundane tasks, or even dismiss them entirely. Despite a soft period for software-based services, demand for UiPath has remained strong. During its first fiscal quarter that ended on April 30, UiPath reported a 122% dollar-based net-retention rate.
UiPath has been trading at around 63 times the management’s expectation for adjusted earnings this year, which is a high multiple. However, from now through 2030, the RPA market is expected to grow by 39.9% annually, according to Grand View Research. This statistic highlights UiPath’s potential to overcome its valuation and provide market-beating gains. Diversifying your portfolio by investing in UiPath stock now might be a wise decision.
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