Legendary fund manager Cathie Wood has shifted her portfolio for the new year with evolving strategies. This week, it was reported that the head of ARK Invest offloaded an artificial intelligence (AI) stock that had lost more than 40% of its portfolio value. Indeed, Cathie Wood sold 500,000 shares of UiPath (PATH) stock across her ARK Innovation ETF (ARKK) and ARK Next Generation Internet ETF (ARKW). This move signals a broader reassessment of risk and opportunity in a market where AI continues to evolve rapidly.

As investors weigh whether to follow in Wood’s footsteps or hold onto their PATH stakes, it becomes crucial to delve deeper into UiPath’s fundamentals and future prospects to determine if this selloff should influence your investment strategy.

About UiPath Stock

UiPath (PATH), a New York-based tech company with a market cap of $8.3 billion, offers an automation platform that combines robotic process automation (RPA) with advanced AI, machine learning, and natural language processing capabilities. Its suite of interconnected software enables organizations to streamline operations and enhance decision-making.

Unfortunately, 2024 was not a great year for UiPath stock. Shares have plunged by more than 42% over the past 52 weeks. This underwhelming performance may be linked to several factors, including leadership changes, increased operating losses, and fierce competition in AI automation. 

Investors interpret the slowing growth as a sign that UiPath’s competitive edge is fading amid heightened industry spending.

AI Agent Could be a Game-Changer

In my view, UiPath is worth betting on as it pivots to AI agents, distinguishing itself from the competition. Its new Agent Builder enables users to create self-operating digital assistants that perform natural language processing, decision-making, and data analysis, integrating cognitive capabilities into traditional RPA. Notably, the private preview has already attracted over 1,000 organizations, underscoring strong market demand.

CEO Daniel Dines captured the excitement during the third-quarter earnings call, stating, “This will mark our most consequential product launch in years. Our AI agents will be first-class citizens on our platform, transforming operational workflows by securely accessing critical systems.” This bold vision sets UiPath apart from competitors that merely offer co-pilot tools.

By moving from co-pilot tools to autonomous agents, UiPath boosts operational efficiency and strengthens its competitive position, paving the way for significant market growth in intelligent automation.

UiPath Delivered Solid Q3 Results

Talking about fundamentals, PATH smashed Wall Street expectations on both the top and bottom lines in its third-quarter earnings report. The company posted normalized EPS of $0.11, beating estimates by $0.04, while sales grew 9% year-over-year to reach an impressive $354.6 million. UiPath’s annual recurring revenue (ARR) surged 17% year-over-year to $1.61 billion, fueled by net-new ARR of $56 million in Q3, significantly higher than the $43 million to $44 million recorded in prior quarters.

Despite these impressive top-line figures, profitability remains an ongoing challenge, with an operating loss of $196.2 million for the nine months ended October 31, 2024, reflecting a 9% increase compared to the same period last year.

“Despite short-term pressures, our strategic investments in recurring revenue and technology innovation are paving the way for sustainable growth and improved profitability,” noted the CEO during the earnings conference call.

On the balance sheet front, the firm reported adjusted free cash flow of $33 million and maintained cash and cash equivalents of around $1.6 billion, underscoring its robust liquidity to fund ongoing strategic initiatives and further growth in the competitive automation market.

Looking ahead, UiPath is now guiding for revenue between $422 million and $427 million, with ARR expected to be between $1.66 billion and $1.67 billion. 

Analysts’ Opinions and Final Thoughts

Operational challenges and price swings have led analysts to maintain a consensus “Hold” rating for the stock. Among the 21 analysts covering UiPath, two have a “Strong Buy” rating, 18 recommend “Hold,” and one assigns a “Strong Sell” rating.

Despite its decline over the past year, the stock is still trading near its mean price target of $15.44, while the Street-high target of $19 suggests 26% upside potential from current levels.

Following the correction, PATH stock trades at more reasonable valuation multiples, with a price-sales ratio around 6 times. At this level, the stock isn’t overly expensive and could be a good rebound candidate later this year following the launch of its new AI-powered autonomous agents.

Although Cathie Wood has exited her position in the stock, I think this could represent an opportunity to bulk up at a reasonable valuation as the upcoming AI agent launch signals the potential for a strong rebound.