This hot AI stock could deliver bigger gains than Nvidia over the next decade.
Quarter after quarter, another phenomenal sales report. It's a recurring story. NVIDIA (NASDAQ: NVDA)Demand for the company's artificial intelligence (AI) chips shows no signs of slowing.
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 chance to make even more money in the coming years.
A perhaps surprising choice
You might think they'd choose one of the major cloud providers, the parent company of Google. alphabet, Amazon, Microsoft,or OracleAI should provide a big tailwind for all of these stocks over the next few years, and while I like all of these stocks, none of them are my favorite AI stocks right now.
Actually, my choice may be surprising. UI Pass (path -0.32%)While all of the aforementioned stocks have performed well so far in 2024, UiPath's stock price has fallen by more than 20%.
Many investors may not be familiar with UiPath. The company has been in business since 2005 but only went public in April 2021. UiPath develops software used to automate business processes. Initially focused on Robotic Process Automation (RPA), the company now offers an end-to-end AI-powered business automation platform.
UiPath is a small hill compared to Nvidia's mountain. The company's market cap is just $10.8 billion. The company generated $1.3 billion in revenue for the fiscal year ending Jan. 31, 2024, which is pocket change for Nvidia. 20 times That amount was just in the first quarter.
What I like about UiPath
So why is UiPath my favorite AI stock to buy right now? There are a few reasons. Its small size is definitely a plus in my view. Nvidia is already a huge company, so it may be hard for it to make another 10x profit. But UiPath may be well-positioned to make those impressive gains.
Cathie Wood's Ark Invest predicts that the AI software market could expand at a compound annual growth rate (CAGR) of 42% to reach $14 trillion by 2030. Granted, that figure doesn't just include the AI business automation software that UiPath sells, but it does highlight the huge opportunity the company could have.
UiPath's growth has already been impressive. The company's revenue grew 31% year-over-year in the most recent quarter, hitting an all-time high, and the company's annualized revenue run rate is growing at a 32% compound annual growth rate from Q2 2022 onwards.
I like that UiPath has only recently achieved profitability as a public company – investing in a company at this stage has the potential to pay off handsomely as it scales – just look at the history of companies like Nvidia, Alphabet, etc.
Valuation is also an important factor: UiPath has a price-to-earnings growth (PEG) ratio of just 0.93, well below Nvidia's PEG ratio of 1.25 and lower than the multiples of Alphabet, Amazon, Microsoft, and Oracle.
What's not to like?
UiPath has some potential downsides. For example, while I see the company's new profitability as a positive turning point, if spending increases too much, the company could return to losses.
Perhaps the biggest risk for UiPath is the rapid pace of technological change. The company faces stiff competition for top talent, and UiPath could lose out on innovation. This is a particular concern if larger players such as Alphabet and Amazon enter the AI business automation platform market.
But I think UiPath has a clear path to success if executed well, and while the company may not become a $2.5 trillion behemoth like Nvidia, it could be a stock worth owning for the next decade.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has invested in Alphabet, Amazon, and Microsoft. The Motley Fool has invested in and recommends Alphabet, Amazon, Microsoft, Nvidia, Oracle, and UiPath. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
