Artificial Intelligence (AI) and robotics have gotten a lot of attention as of late, and for good reason. And while companies like Nvidia and Microsoft certainly deserve recognition for what they are doing, there are plenty of other companies hiding in plain sight that could provide even more ways to play the space.
1. UiPath is an intelligent choice for AI investors
Scott Levine (UiPath): From banks to healthcare to manufacturing, UiPath provides AI and automation solutions that make work easier for a wide variety of organizations. Between the numerous AI and automation solutions the company offers, management estimates its current total addressable market to be around $61 billion. But the company sees plenty of opportunities for growth. Recognizing the potential for new offerings such as integration platform as a service (integrating data from several applications into a single solution), UiPath pegs its future total addressable market at more than $32 billion.
While there is plenty of growth potential for UiPath in the years ahead, the company is already achieving stellar results. The company recently reported impressive third-quarter 2024 financial results. For the quarter, UiPath reported annualized run-rate renewal (ARR) of $1.38 billion, representing a compound annual growth rate of 30% since the third quarter of 2022.
The ARR is an important metric for companies such as UiPath because it "illustrates our ability to acquire new subscription customers and to maintain and expand our relationships with existing subscription customers," according to UiPath. Simply put, the strong ARR growth shows that UiPAth is acquiring new customers and retaining current customers, demonstrating that customers are happy with UiPath's offerings.
Conservative investors will find the company's strong balance sheet -- UiPath has zero debt and $1 billion in cash -- especially alluring, while growth investors will appreciate the ringing endorsement that the company has received from Cathie Wood. The stock is found in several Ark Invest funds. It's the fifth-largest holding in the ARK Innovation ETF, and it's the second-largest holding in the ARK Autonomous Technology and Robotics ETF.
2. Tesla is packed with potential growth
Daniel Foelber (Tesla): Tesla hosted its Cybertruck delivery event on Nov. 30, marking a major milestone for the electric vehicle (EV) maker and serving as a reminder that Tesla is still a car business even though it would like to be much more than that. Despite long overdue promises for self-driving cars, Tesla vehicles still require a human driver. But it would be a mistake to underestimate Tesla's ultra-long-term potential.
Tesla is unique because it has a couple of long-tail growth opportunities -- including its self-driving software, a robotaxi business, AI, and robotics. Tesla's AI and robotics umbrella includes its full self-driving software, neural networks, autonomy algorithms, code foundations, and evaluation infrastructure tools -- all of which could help Tesla make breakthroughs in self-driving someday. Then there's the Dojo System powered by Dojo Chips, which is intended to train self-driving software. And finally, there's the Tesla Bot, an autonomous humanoid robot that is meant to handle unwanted or dangerous tasks.
In sum, Tesla continues to throw money and resources into its AI and robotics initiatives without making these projects make or break the near-term performance of its business.
Tesla's margins have taken a hit, and its growth has slowed. However, the automobile business is highly cyclical. And Tesla still holds a dominant position in EVs and has many advantages over the competition.
Most importantly, Tesla has the cash flow and balance sheet needed to invest in AI and robotics no matter the market cycle, which is something that can't be said for all pure-play companies or those with less cash flow.
Tesla stock isn't cheap. But it is cheaper than it was a few years ago, and the company has turned itself into a far more stable business. In this vein, Tesla is an easy way to play multiple themes at once.
3. Siemens is a rare valuation option in the automation sector
Lee Samaha(Siemens): The German industrial company has been significantly restructured over the last decade. Its oil, gas technology, and wind power businesses are now part of a separate company, Siemens Energy (Siemens retains a 25% stake). In addition, its former healthcare business, Siemens Healthineers, is also an independent company, with Siemens having a 75% stake.
It's a restructuring designed to focus the company on its two key segments: smart infrastructure (electrification, building controls, and electrical products responsible for 27% of industrial profit in 2023) and digital industries (automation, motion control, and industrial software responsible for 43% of industrial profit in 2023).
The digital industries compete with Dassault and PTC in industrial software and Rockwell Automation, ABB, and Schneider Electric in automation and robotics. However, Siemens trades at a significant valuation discount to all of them. For example, Siemens generated 10.4 billion euros in industrial free cash flow in its fiscal 2023, equivalent to around 8.4% of its market cap. It also sports a 2.7% dividend yield on its U.S. listing.
Although not a pure-play automation and robotics company, the digital industries businesses are the largest single profit generator for Siemens and its highest-margin segment, with a profit margin of 22.6% in 2023. As such, if you are looking for a company in the sector with an excellent valuation, and a healthy dividend, and good growth prospects, then Siemens might fit the bill.
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has positions in Siemens Aktiengesellschaft. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abb, Microsoft, Nvidia, Tesla, and UiPath. The Motley Fool recommends Dassault Systèmes Se and PTC. The Motley Fool has a disclosure policy.