The explosive growth of the artificial intelligence (AI) market lit a blazing fire under tech titans like Nvidia and Microsoft over the past year. But as those AI darlings soared, many other AI-related businesses were left in the dust.
Three of those stocks were UiPath(NYSE: PATH), SentinelOne(NYSE: S), and Baidu (NASDAQ: BIDU). Today, I'll explain why these three unloved AI stocks could head much higher in the near future.
Image source: Getty Images.
1. UiPath
UiPath develops robotic process automation (RPA) tools that can be plugged into a company's existing software applications to automate repetitive tasks like entering data, processing invoices, onboarding customers, and sending out mass emails. It's the world's largest RPA company, according to Gartner, and UiPath serves more than 10,800 customers in over 100 countries.
UiPath's growth accelerated throughout the pandemic as more companies replaced their human workers with its RPA tools. In fiscal 2023 (which ended Jan. 31, 2023), its revenue increased 19% even as as inflation, rising interest rates, geopolitical conflicts, and other macro headwinds drove many companies to rein in spending.
In fiscal 2024, UiPath's revenue jumped 24% after some of those pressures eased. For fiscal 2025, the company expects revenue to rise another 19%. Analysts expect its adjusted EPS to climb 6%.
UiPath's stock doesn't look terribly expensive at 8 times this year's sales, but it still trades more than 60% below its IPO price two reasons: It's still unprofitable on a generally accepted accounting principles (GAAP) basis, and investors are concerned that new generative AI tools like ChatGPT could replace UiPath's stand-alone RPA offerings. UiPath insists generative AI tools will actually strengthen its RPA services with new features, and that the company will continue to grow as it rolls out more advanced AI tools for analyzing the data it automates. If UiPath achieves those goals, its stock could soar back toward its IPO price.
2. SentinelOne
SentinelOne is a cybersecurity company that provides extended detection and response (XDR) tools through a hybrid mix of on-site appliances and cloud-based services. It believes its Singularity XDR platform, which is entirely powered by AI algorithms, will help companies respond to cyberattacks more efficiently and eliminate the need for human analysts. It's a small company, but three of the Fortune 10 companies and hundreds of Global 2000 enterprises already use its services.
SentinelOne's revenue more than doubled in fiscal 2023 (which ended last January) and rose another 47% in fiscal 2024. It expects 31% to 32% growth in fiscal 2025.
SentinelOne's growth is gradually slowing, but it's still gaining larger customers that generate more than $100,000 in annual recurring revenue (ARR) as the company keeps its dollar-based net retention rate comfortably above 100%. SentinelOne's stock still trades nearly 40% below its IPO price, looks reasonably valued relative to its growth at 8 times this year's sales, and the company reportedly mulled a few takeover bids last year before deciding to stay independent.
SentinelOne isn't profitable by GAAP or non-GAAP measures, but it could narrow losses as it scales up business and locks more companies into its XDR platform. If SentinelOne stabilizes its business, shares could surge higher over the next few years.
3. Baidu
Baidu operates the largest online search engine in China. It also owns one of the country's leading cloud infrastructure platforms, and it's become a major player in the AI race with its Ernie chatbot and Apollo driverless vehicles. Baidu's mobile app served 667 million monthly active users at the end of 2023, and it owns a majority stake in the streaming video platform iQiyi.
In 2022, Baidu's revenue dipped 1% as its adjusted earnings per American depositary share (ADS) grew 10%. That slowdown was caused by macro headwinds in China, which drove many companies to rein in their ad and cloud spending. Stiff competition from ByteDance's Douyin (known as TikTok overseas) and Tencent's WeChat in digital ads exacerbated that pressure.
In 2023, Baidu's revenue and adjusted earnings per ADS rose 9% and 37%, respectively. It stabilized its core advertising segment by expanding its managed business pages -- which manage a company's presence across its entire ecosystem -- to curb the dependence on traditional search and display ads. It also continued to expand smaller cloud and AI divisions.
In 2024, analysts expect Baidu's revenue to climb 7% as its earnings dip 3%. Those growth rates might seem tepid, but its stock looks dirt cheap at 10 times forward earnings -- and it could soar if the bulls embrace Chinese tech stocks again.
Should you invest $1,000 in UiPath right now?
Before you buy stock in UiPath, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and UiPath wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 8, 2024
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Baidu, Microsoft, Nvidia, Tencent, and UiPath. The Motley Fool recommends Gartner and iQIYI and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
