The savvy investor keeps their eyes forward, toward the horizon. Right now, the sea of tech is the one to watch, and the ships coming into view are flying AI’s flag. This is not a new development, it’s been on course for several years – but as an investment sector, it’s heating up. AI is the tech that will power our digital systems for years to come, everything from our smartphones to our cars to Elon Musk’s Mars rockets.
AI isn’t just one technology, rather, it’s a range of techs – and approaches to tech – including the data collection and analysis that feeds machine learning. Long term, the goal is to create software that can analyze systems and mimic human intuition; shorter term, AI should be able to analyze its environment – digital or physical – and decide how to react.
That’s not to say that machines will become us, but they will become more capable of working with us, instead of just for us. And when that happens, who can say what doors will open? In the meantime, the savvy investors can clock opportunities opening up in the space. And we can use the TipRanks data platform to pick out three AI stocks that certain Street analysts believe are poised for gains as the tech comes of age.
UiPath (PATH)
Let’s start off with UiPath, an AI company specializing in robotic process automation, or RPA. This is a clever hill in the larger AI field, using machine learning and AI to create bots – the automated software units that can handle the ordinary, boring, and repetitive tasks of the digital world. Or, as the company puts it, they’re robots so that people don’t have to be robots.
UiPath’s software robots offer customers a wide range of advantages, from accuracy to cost savings, to regulatory compliance to happier customers – and happier personnel, with improved productivity. While bots get a lot of negative press, especially for their abusive use in social media, when used constructively, they fill an important role.
The company has been in operation since 2005, but went public earlier this year, riding the tide of rising stock prices when it held its IPO. The stock opened on the NYSE on April 21, in an upsized IPO. The company put 13 million shares up, and existing shareholders sold another 14.474 million shares. The initial price was set at $56, above the $43 to $50 range expected. UiPath realized $728 million of the total $1.34 billion raised; the company did not profit from the sale by existing stockholders. Since the event, PATH shares have slipped 36%. Even so, the company has a market cap above $22.76 billion.
UiPath will report its third quarterly results as a public entity on December 8, but we can check back to the last quarter, the company’s fiscal 2Q22 report from September 7, to get an idea of where it stands. The company reported total revenue of $195.5 million, up 4.8% sequentially and 40% yoy. Annual recurring revenue, a measure of forward business potential, rose to $726.5 million, a gain of 60%, and the company finished its fiscal Q2 with $1.9 billion in liquid assets.
This company’s strong product and clear revenue potential attracted the attention of Credit Suisse analyst Phil Winslow, who wrote, “We believe that UiPath’s differentiated, end-to-end hyperautomation platform that can scale from individual workers to company-wide initiatives will enable the company to continue driving strong new customer acquisition, robust customer expansion, and attractive unit economics longer than Wall Street appreciates.”
Winslow, a 5-star analyst, gave the stock an Outperform (Buy) rating, and a $75 price target suggesting a one-year upside of 69%. (To watch Winslow’s track record, click here.)
With UiPath, we move to a stock with a Buy rating from the analysts. The 16 most recent reviews include 7 Buys, 8 Holds, and 1 Sell, for a Moderate Buy overall consensus. The average price target is $70.43, indicating a potential for 59% growth from the share price of $44.32. (See UiPath’s stock analysis at TipRanks.)
Stem, Inc. (STEM)
Next up, we have Stem, a company that uses AI tech to drive clean energy monitoring and storage systems. In short, this company has put together an integrated system – software to solve problems inherent in energy storage batteries and to maximize renewable energy generation for a cleaner, more resilient energy grid. This is the dream of Green Energy boosters, and Stem’s AI is the heart of its system.
AI allows the company’s Athena software platform to enable utility bill savings of 10% to 30% for Stem’s customers. The system is capable of machine learning, and can learn when and how to switch from grid power to onsite generation to battery power for maximum efficiency, energy savings, and cost savings.
Stem, Inc. is a pure-play smart energy storage company, and it’s the first of its kind to go public. The company entered the public markets through a SPAC transaction back in April of this year; the combination, with Star Peak Energy Transition Corporation, was approved on April 27 and the STEM ticker debuted on April 29. Star Peak brought $383 million in cash to the combo, as well as $225 million PIPE funding, for $608 million in new capital for Stem. The company has a current market cap of $2.57 billion, after the stock as slid 34% since the SPAC completion.
Even though the stock has slid, Stem’s business is thriving. Revenue in 3Q21 reached $39.8 million, up a whopping (no other way to put it) 334% from the same quarter last year. The company’s net income turned positive in Q3, going from a net loss of 47 cents per share one year ago to a net gain of 85 cents per share. In total dollars, it was a shift from an $18.8 million net loss in 3Q20 to a $115.6 million net profit in 3Q21.
Covering STEM for Wolfe Research, Steve Fleishman says, “Stem’s Athena software has long been the cornerstone of the company and makes an 80%+ margin on revenues under 10- to- 20-year contracts. We also like that the company is hardware/battery agnostic. Both have helped drive a solid margin profile today, one that we see getting better. Stem also stands to benefit from the scarcity value of being one of two pure-play battery cos.”
Fleishman is bullish, and gives the shares an Outperform (Buy) rating. His $35 price target implies an upside of 97% by the end of next year. (To watch Fleishman’s track record, click here.)
While there are only 2 reviews on record for this stock, both agree – it’s a Buy proposition. The average price target is $40.50, and the current share price is $17.77, for a 127% one-year upside potential. (See Stem’s stock analysis at TipRanks.)
C3ai (AI)
Lastly, we come to C3ai, a company in the enterprise AI sector. C3ai offers customers AI software designed to improve the efficiency and user experience of enterprise-scaled applications. The systems allow customers to streamline their app development and customize their end-use apps, and it has applications in fraud detection, supply chain optimization, customer engagement, and other critical processes.
This company is also relatively new to the public markets, having entered the stock exchange through an IPO last December. In the initial offering, 15.5 million shares of AI were put on the market and the company raised $651 million in gross capital. However, the stock has had a hard time since its debut and year-to-date is down by a huge 78% due to a variety of reasons.
For starters, the pandemic put a damper on business early in the year – but that was followed by some idiosyncratic issues. C3ai is currently transitioning to a new CFO, a major shift at the top that is happening along with a reorganization of the sales team. And those two points can be more readily understood by a look at the company’s ‘remaining performance obligation,’ or RPO, the contractually obligated business that has not yet been delivered or paid for – and so is not on the books as revenue. It increased in the most recent quarter (the company’s fiscal 2Q22, reported this past December 1) by an impressive 74% year-over-year.
However – the bulk of that RPO comes from one customer, C3ai’s largest customer, the Baker Hughes Company. C3ai and BKR extended their contract from 5 years to 6, and increased the dollar value by an order of magnitude, from $45 million to $495 million. This dominated the RPO figure, and clouded the fact that C3ai’s remaining RPO – its future revenue stream – declined by 16% yoy. This puts the company in an uncomfortable dependence on one customer.
That’s the negative. On the positive side, revenues for now are solid, up 41% yoy to $58.26 million. Subscription revenue, which makes up the lion’s share of the total, gained 32% yoy to reach $47.4 million. This was better than the expected revenue results of $57 million, and a needed shot in the arm, considering the GAAP EPS loss widened yoy from 39 cents to 55 cents.
Needham analyst Jack Andrews, rated 5-stars by TipRanks, notes these points, including the expanded relationship with Baker Hughes, and comes down on the bullish side. He is careful to note that C3ai is cultivating relationships with Microsoft and Google that have long-term potential to overshadow the Backer Hughes contract. Andrews writes, “Current outlook over the next four quarters is ~ $1.2 billion and approximately $800 million of these qualified opportunities exist in the second half of FY22. Microsoft and Google Cloud are two notable drivers of this pipeline value as they represent roughly 120 transactions totaling around $140 million, and over 90 transactions totaling approximately $58 million, respectively.”
In line with these comments, Andrews rates this stock as a Buy, with a $103 price target that implies a very robust upside of 246% for the year ahead. (To watch Andrews’ track record, click here.)
This AI stock has 8 reviews from the Wall Street analysts, with a breakdown of 4 Buys, 2 Holds, and 2 Sells, for a Hold consensus rating. The shares are priced at $29.75 and their $55.13 average target indicates room for 85% growth in the next 12 months. (See C3ai’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
