Cathie Wood’s Ark Invest is All In on These 2 Artificial Intelligence (AI) Stocks.

There is no doubt that artificial intelligence has the potential to disrupt almost every industry. Therefore, finding a company that can accelerate the use of AI in almost any company can be an incredible opportunity to invest in innovative businesses.

Cathie Wood and her team at Ark Invest have discovered two such companies and believe they are both investing in these stocks.

Ark Invest manages six active ETFs focused on disruptive technologies. It is a diverse investment fund with a variety of topics ranging from space exploration to advanced genomics. One artificial intelligence company appears in all six of Ark’s active ETFs. Another top AI stock from Cathie Wood and her team, it was previously held by all six ETFs and still appears in half of the active funds.

That means the team likely believes these companies can help advance AI capabilities across many industries.

The two stocks are Ui Pass (road -1.01%) and Palantir (PLTR 2.14%).

UiPath: Automate tasks like humans

UiPath specializes in robotic process automation (RPA), which helps businesses identify and automate repetitive tasks such as data entry or setting up new clients.

Ark holds shares of UiPath in all six active ETFs.

Companies use artificial intelligence and machine learning in several ways. In the simplest cases, automating a task requires some level of use of AI or machine learning, especially if the goal is to mimic human behavior in that task, sometimes as needed. AI can also help you find processes within your business operations that may be candidates for automation.

However, there is a risk of being left behind by other companies’ generative AI advancements. microsoft and salesFor example, earlier this year it began including generative AI capabilities in its competing RPA services. In response, UiPath launched its Autopilot service in October. Executives see Autopilot as valuable to everyone in the organization, from automation developers to end users.

UiPath has seen very strong growth. Annual recurring revenue (ARR) increased 24% compared to the last quarter, but the rate is slowing. It was 30% at the end of last year, and management expects ARR to increase only 21% in the next quarter.

That said, the company still has a lot of operating leverage to gain from expanding its business. This is evidenced by the fact that operating margins improved by more than 8 percentage points last quarter. If UiPath can successfully integrate its generative AI capabilities and grow use cases while fending off larger competitors, it could see its profits soar by the end of the decade despite revenue growth in the mid-teens. This makes the enterprise value-to-sales multiple of 9.4 very digestible, and the stock may have more room to run from here.

Palantir: Using AI to Generate Unique Insights

Palantir’s main business is taking data generated by organizations and processing it using artificial intelligence. You can then gain insights that improve efficiency and help you make decisions.

Ark Invest holds stock in the company. Ark Innovation ETF, Ark Next Generation Internet ETFand Ark Fintech Innovation ETF.

The company divides its operations between government and commercial customers. After initially focusing on government customers, the company is transitioning to more commercial customers. This can provide more stable returns compared to large government contracts that renew every few years and are less predictable.

But Palantir’s transformation required a revolution in the way it sells its services. The new modular approach works well, providing only a subset of Palantir’s full platform capabilities for companies with specific needs and cost-conscious needs. We are now taking a land expansion approach and are seeing strong net revenue retention rates of over 100%.

That said, net revenue retention has declined over the past two years. The company made up for this by attracting more customers in recent quarters. Last quarter, the number of customers increased by 34%, including 37% in the United States. This helped reaccelerate sales growth, which bottomed out at 13% in the second quarter, to 17% in the most recent quarter.

Like UiPath, Palantir is also seeing strong margin expansion. However, the EV-sales multiple is much higher at 16x. This is a much riskier investment compared to many other artificial intelligence stocks. Despite the Palantir platform’s strong potential to help improve the operations of almost any business, I would avoid the stock right now and put my cash towards things that have better valuations.