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When You Look Back in 5 Years, You’ll Wish You’d Bought These 2 Artificial Intelligence (AI) Stocks

In Business
April 11, 2024

The U.S. equity market has consistently proved to be a wealth-generation machine for long-term investors. Many investors who have demonstrated foresight, especially in upcoming trends and technologies, have been richly rewarded by the stock market.

Artificial Intelligence (AI) is one such technology that has been dominating the investment landscape in the past couple of years. Furthermore, this is not a passing trend, considering the transformative potential of AI in businesses and daily lives. Hence, it makes sense to pick up shares of AI-powered companies with well-proven business strategies.

Here’s why UiPath (NYSE: PATH) and ServiceNow (NYSE: NOW) are two AI-driven stocks that investors should consider buying now.

1. UiPath

A leader in the AI-powered process-automation space, UiPath enables its clients to automate and streamline repetitive and rule-based tasks, thereby allowing humans to focus on more complex and creative activities. By reducing errors and increasing efficiencies, these services help businesses save time and costs. Since UiPath’s offerings make AI actionable, they are being increasingly preferred by C-level executives, who are not only focused on digital transformation but also AI transformation within their businesses.

Existing customers have also started using UiPath’s full-platform capabilities, including features such as process mining, communication mining, test suite, and document understanding. The company’s strategic partnerships with major players such as SAP and Deloitte are further helping it reach new customers and secure larger deals. UiPath’s AI-powered products are well accepted in multiple industries, including financial services, insurance, healthcare, and the public sector. Recently, the company also introduced the Autopilot product, which makes it easier to build automated systems, improve processes, and speed up the time to development.

UiPath ended fiscal 2024 (ending Jan. 31) with 10,830 customers. The company is also seeing solid momentum with high-value clients, considering that customers with an annualized renewal run rate (ARR) of over $1 million grew 26% year over year to 288 at the end of fiscal 2024. The company posted impressive financial numbers in the fourth quarter, with revenues and earnings surpassing consensus estimates. The company also achieved its first-ever generally accepted accounting principles (GAAP) profitability in Q4.

Despite the many positives, UiPath is currently trading at a price-to-sales (P/S) ratio of 9.2 times, lower than its historical three-year average of 13.8 times. Considering the multiple tailwinds, robust financials, and relatively reasonable valuation, UiPath seems an attractive pick now.

2. ServiceNow

ServiceNow’s cloud-based NOW platform offers an end-to-end digitization product to enterprises for automating and streamlining workflows across areas such as IT service management, operations management (workforce and customer experiences), observability, and cybersecurity. This, in turn, helps enhance clients’ productivity and operational efficiency, while reducing errors and freeing employees for more complex tasks.

ServiceNow has also introduced several new products and features such as the virtual agent to drive faster issue resolution with advanced, conversational AI, text-to-code and text-to-workflow capability to boost developer productivity, and the generative AI-powered Now Assist platform to improve productivity and efficiency of employees, agents, technicians, and developers. These generative AI products are being rapidly adopted by clients as is evident by their solid annual contract value (ACV) contribution in fiscal 2023’s Q4 (ending Dec. 31, 2023).

With large enterprises prioritizing cost cutting, ServiceNow’s industry-specific, digital-workflow solutions are seeing robust demand in energy and utilities, business and consumer services, education, telecommunications, media, and technology verticals. The company had more than 8,100 customers at the end of fiscal 2023.

ServiceNow continues to attract high-value clients at a healthy clip. In Q4, the company closed 168 deals with more than $1 million in net-new ACV, up 33% on a year-over-year basis. The company ended Q4 with 1,897 customers contributing over $1 million in ACV. ServiceNow has also been successful in cross-selling its products to its existing customers since they account for over 85% of the company’s net-new ACV. Furthermore, thanks to the mission-critical nature of the company’s platform for the clients’ operations, ServiceNow had an exceptional 99% customer-renewal rate in Q4.

Not surprisingly, ServiceNow also boasts impressive financial performance. The company’s Q4 revenue and earnings handily surpassed consensus estimates. ServiceNow generated $2.7 billion in free cash flow and ended fiscal 2023 with $8.1 billion in cash and investments.

In all fairness, ServiceNow’s price-to-sales (P/S) ratio of 18.4 times seems high compared to its historical five-year average valuation of 16.5 times. Hence, despite the company’s rapid top-line growth, improving profitability, and strong cash position, it makes sense to opt for a dollar-cost averaging strategy and build a position over a longer time in this stock.

Should you invest $1,000 in UiPath right now?

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ServiceNow and UiPath. The Motley Fool has a disclosure policy.

When You Look Back in 5 Years, You’ll Wish You’d Bought These 2 Artificial Intelligence (AI) Stocks was originally published by The Motley Fool

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