Generative AI boosts UiPath; analysts see triple-digit EPS growth

Key Points

• UiPath surged 16%, as the company surpassed revenue and earnings expectations and analysts cheered AI product integrations.
• The company's recurring revenue is growing, offering encouragement about the stability of its revenue.
• UiPath, which went public in 2021, has partnerships with large tech companies such as Google and Salesforce. 

Robotics software maker UiPath Inc. NYSE: PATH  gapped up 16% in early December after beating revenue and earnings views. Wall Street particularly liked the company’s use of generative AI in its software platform.

Revenue came in at $325.9 million, up 24% from the year-ago quarter. Earnings of 12 cents per share marked an increase of 140%.

The company also boosted its guidance for the current quarter and full year. Annualized renewal run rate (ARR), a key metric analysts and investors track for subscription-based software companies, climbed by 24% over a year ago. 

A price move based on strong ARR growth is not uncommon among technology stocks or artificial intelligence stocks. 

For example, Internet of Things specialist Samsara Inc. NYSE: IOT rallied more than 25% following better-than-expected earnings and revenue and 39% year-over-year ARR growth. 

Analysts cheering recurring revenue growth

ARR is a metric that offers a clue about a company’s future income streams. Strong double-digit growth, as seen recently in UiPath and Samsara, is clearly an encouraging sign to investors.

ARR is also a widely followed metric for telecom stocks that rely on steady monthly billings from customers.

In its quarterly earnings release, the company said ARR “is a key performance metric we use in managing our business because it illustrates our ability to acquire new subscription customers and to maintain and expand our relationships with existing subscription customers.”

Another key theme of UiPath’s report was AI.

UiPath recently rolled out platform features to help enterprise customers execute on processes more quickly. 

Putting mundane tasks on Autopilot

UiPath Autopilot, introduced in October, integrates generative AI and specialized AI to assist workers with a wide range of tasks. In an October blog post, “What can I do with Autopilot?” UiPath chief product officer Graham Sheldon wrote, “I use Autopilot for Assistant for everything from ordering my go-to Subway lunch order to automating the travel expense process.”

In addition, the UiPath connector for Alphabet Inc.’s NASDAQ: GOOGL Google Cloud Vertex AI allows developers, data scientists and machine learning engineers to integrate generative text and chat completion into their automations. 

UiPath said it now offers customers more than 30 activity packs and 10 connectors for Google Cloud.

A connector is software that allows integration between a provider, such as UiPath, and an end-user or additional developer, such as Google. UiPath also provides connectors for other big customers, such as Salesforce Inc. NASDAQ: CRM. 

Expansion into new industries

After the recent earnings report, analysts also applauded the company’s expansion into new industries including manufacturing and retail, adding to longer-term growth prospects. 

New York-based UiPath specializes in robotic process workforce automation tools to reduce the number of repetitive tasks performed by people. 

A look at the UiPath chart shows you that this is still a young stock, having gone public in April 2021. After rallying to a post-IPO high of $90 in May of that year, it went into a prolonged slump as investors fretted about its long-term profit potential. At that time, the company was still operating in the red, a not-uncommon situation for newly public techs.

In 2022, as the S&P 500 as a whole declined, with the Technology Select Sector SPDR Fund NYSEARCA: XLK among the index’s worst laggards, UiPath declined even further. 

Boosting price targets 

UiPath is far too new to be tracked by the S&P 500, but broad tech performance is a relevant indicator.

UiPath analyst forecasts show a consensus view of “hold.” Following the most recent quarterly report, eight analysts boosted their price targets on the stock, with none slashing their forecast. 

For the full year, analysts expect the company to earn 47 cents a share, up 239% over 2022. That’s a pretty good indication that previous concerns about profitability were misplaced.

Next year, Wall Street expects UiPath to increase earnings by another 10%, to 52 cents a share. 

As of December 7, UiPath stock was trading between $23 and $24, well below its 2021 highs, but at its best levels since April 2022. It’s currently out of a buy range, but would-be investors could watch the stock for support at its 10-day moving average as a potential entry point.