(NASDAQ: NVDA) has once again reported jaw-dropping sales figures, fueled by the insatiable demand for its AI chips. Despite Nvidia’s impressive performance, I don’t believe it’s the best AI stock to buy at the moment. Instead, I have my eye on another company that could offer investors even greater returns in the coming years.
A Surprising Choice
You might expect my pick to be one of the mega-cap cloud providers like Alphabet (Google’s parent company), Amazon, Microsoft, or even Oracle. AI is set to drive significant growth for all of these tech giants, and I do like their prospects. However, none of them are my top AI stock right now.
My choice is more unexpected: UiPath (NYSE: PATH). While major tech stocks have performed well in 2024, UiPath’s shares have dropped more than 20%.
Many investors might not be familiar with UiPath. The company, founded in 2005, has been publicly traded only since April 2021. UiPath specializes in software that automates business processes, initially focusing on robotic process automation (RPA). Today, it offers a comprehensive AI-powered business automation platform.
Comparing market caps, UiPath is a molehill next to Nvidia’s mountain. UiPath’s market cap is about $10.8 billion, and it generated $1.3 billion in revenue for its fiscal year ending January 31, 2024. By contrast, Nvidia’s revenue for the first quarter alone was 20 times that amount.
Why I Favor UiPath
So, why is UiPath my favorite AI stock right now? Several factors make it appealing. Its smaller size is a significant advantage. While Nvidia may find it challenging to deliver another 10x return due to its massive scale, UiPath has more room for exponential growth.
Cathie Wood’s Ark Invest projects the AI software market could grow at a compound annual growth rate (CAGR) of 42%, reaching $14 trillion by 2030. Although this figure encompasses more than just AI business automation software, it highlights the enormous opportunity ahead for UiPath.
UiPath’s growth is already impressive. In its latest quarter, the company’s revenue surged 31% year over year, reaching an all-time high. Its annualized revenue run rate has grown at a CAGR of 32% since the second quarter of 2022.
Another positive is that UiPath recently achieved profitability as a publicly traded company. Investing in companies at this stage can be very rewarding as they scale up, as evidenced by the histories of Nvidia and Alphabet.
Valuation also plays a crucial role. UiPath’s price-to-earnings-to-growth (PEG) ratio is 0.93, significantly lower than Nvidia’s PEG ratio of 1.25 and below the multiples for Alphabet, Amazon, Microsoft, and Oracle.
Potential Drawbacks
UiPath does have potential risks. Its recent profitability could be jeopardized if spending increases too much, potentially leading to losses. The rapid pace of technological change is another concern, as is the competition for top-tier talent. UiPath could be out-innovated, particularly if major players like Alphabet or Amazon enter the AI business automation market.
Despite these risks, I believe UiPath has a clear path to success if it executes well. While it may never reach Nvidia’s market cap of $2.5 trillion, UiPath could still be the better stock to own over the next decade.
Should You Invest $1,000 in UiPath Right Now?
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