UiPath (PATH 1.63%) hasn't had a great run over the past few years. The stock was down nearly 50% last year when many tech stocks were up significantly. The reason? Many investors are worried that generative AI models will destroy UiPath's business.
But the company isn't going to go silently into the night. It has a strategy that could save the business. What is this technology? AI Agents.
UiPath's business is currently struggling
First, let's talk about why UiPath struggled so much during 2024. Its primary business is software for robotic process automation (RPA), which is used for automating repetitive tasks, such as an filling out an expense report or plugging data into a spreadsheet.
This was a fairly popular solution for many clients, as repetitive tasks didn't help employee morale and filled up employees' calendars with mundane tasks that didn't allow them to do any original thinking.
However, many of these tasks could also be automated using generative AI, which threatened UiPath's business model. These concerns materialized throughout the results so far in UiPath's fiscal 2025 (ending Jan. 31). In the third quarter, revenue only rose 9% year over year, while the dollar-based net retention rate (how much money existing customers spent this year versus last year) came in at 113%.
In the year-ago quarter, revenue growth was 24%, and its net retention rate was 121%. Considering that most companies spent more on AI and automation in 2024 than they did in 2023, this indicates that UiPath is facing challenges. But can the latest push turn things around?
AI agents could turn around UiPath's fortunes
AI agents (also known as agentic AI) are going to be something you'll hear about often throughout 2025 as we enter the next phase of generative AI implementation. AI agents are basically digital assistants that you have programmed to do a certain task. This job sounds a lot like UiPath's original RPA software, which is why the company must get this right.
UiPath has a software program called Agent Builder that gives its users all the tools they need to build AI agents to do various tasks using a third-party large language model (LLM). That's an issue because many companies that UiPath is competing against already have an LLM in-house and are building platforms similar to UiPath's. Furthermore, this software isn't available for use right now, but it is coming soon.
Fortunately for the company, as of its third-quarter conference call (Dec. 5), over 1,000 organizations had signed up for the software, which management says is the fastest pace and the largest number of sign-ups for any launch in the company's history. This is a great sign for UiPath, but the battle will be difficult because this space is full of competition.
So, with the stock down so much, is it worth investing in? I'd say it's a long shot. One of the more attractive things about the stock is its valuation, which is dirt cheap for a software company, at 5.3 times sales.
PATH PS ratio, data by YCharts; PS = price to sales.
This cheap price indicates skepticism from the market, and investors should heed that warning. I already own shares of UiPath, and I won't add any until I see a material turnaround in the business thanks to Agentic AI.
If you're not a shareholder now, I'd only add a small position size (no more than 1%) to your portfolio if you believe in the business. If UiPath rebounds, you'll still make a solid profit. If it doesn't, then it won't have a massive effect on your overall portfolio value.
