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Cathie Wood's Ark Invest Is Selling Nvidia and Betting Big on These 2 Artificial Intelligence (AI) Growth Stocks

Motley Fool - Sun Sep 3, 6:10AM CDT

Nvidia stock more than tripled in value this year amid a surge of enthusiasm about artificial intelligence (AI). Many investors see it as the quintessential AI stock because its chips are the gold standard in accelerated computing, and Ark Invest CEO Cathie Wood counts herself among the bulls.

However, Ark trimmed its position in Nvidia throughout August, rebalancing in the wake of its tremendous performance year to date. Nvidia still accounts for about 1% of its invested assets, but Ark has more than 10% of its portfolio in two other AI stocks: UiPath(NYSE: PATH) and Zoom Video Communications(NASDAQ: ZM).

Here's what investors should know about these two growth stocks.

1. UiPath: Business automation software

UiPath reported reasonable financial results in the first quarter, though a difficult economy continued to weigh on customer spending. Revenue increased 18% to $290 million, a deceleration from 32% growth a year earlier. But adjusted net income improved to $0.11 per diluted share, up from a loss of $0.03, as the company made progress on cost control.

UiPath specializes in business automation software. Its platform identifies automation opportunities with process-mining and task-mining tools, and it addresses those opportunities with robotic process automation (RPA) and artificial intelligence (AI) tools.

For context, RPA supports simple automation like updating databases and moving files, while AI supports complex automation such as extracting document data and workflows that require decision-making.

UiPath is a recognized market leader in RPA, intelligent document processing, process mining, and task mining, but the company is pressing its advantage with continued investments in AI.

For instance, it recently launched a communications mining product that leans on AI to analyze, understand, and take action on communications. But UiPath still has exciting innovations in the pipeline, including Clipboard AI, a product that uses computer vision and generative AI to intelligently copy and paste data between documents, spreadsheets, and applications.

On that note, UiPath values its addressable market at $61 billion, but management says future innovation could push that figure to $93 billion. That leaves a long runway for growth, and the company is well-positioned to capitalize on that opportunity given its strong foothold in RPA and other adjacent markets. So, with shares trading at 7.8 times sales, a discount to the two-year average of 13.2 times sales, investors should consider buying a very small position in this growth stock today.

2. Zoom: Business communications software

Zoom topped expectations with its second-quarter report, though top-line growth was still sluggish. Revenue increased only 4% to $1.1 billion as enterprise customer growth and spending per enterprise customer continued to slow. The picture was a little brighter on the bottom line, as free cash flow jumped 26% to $289.4 million due to cost controls. Management raised its full-year outlook but still expects revenue growth of just 2% in fiscal 2024 (ending Jan. 31).

The investment thesis centers on the secular tailwinds behind its unified communications platform, as well as growing demand for AI software. Zoom Meetings is one of the most popular videoconferencing solutions on the market, and that popularity has helped the company build momentum in other communications verticals, especially telephony (Zoom Phone) and customer service (Zoom Contact Center).

Indeed, consultancy Gartner has recognized Zoom as a leader in unified communications as a service (UCaaS) for the last three years.

Meanwhile, the company has been pumping money into AI development, and those efforts have already produced a few compelling products. For instance, Zoom IQ is a general assistant that can draft emails, summarize lengthy meetings, and reveal predictive sales insights.

Similarly, Virtual Agent is a service assistant that can automate customer support workflows. Zoom says those products account for about $20 billion of its $125 billion market opportunity in 2026, while its videoconferencing, telephony, and contact center solutions account for the remainder.

Current guidance notwithstanding, Zoom could reaccelerate revenue growth as the economy strengthens and business spending rebounds. UCaaS platforms are more efficient than traditional on-premises systems because they eliminate the cost and complexity of maintaining communications infrastructure in private data centers.

Analysts see that as a powerful tailwind for companies like Zoom, and the UCaaS market is forecast to grow at 21% annually through 2030.

Zoom is well positioned to benefit from the tailwind, given its brand authority in UCaaS and its burgeoning portfolio of AI software. To that end, with shares trading at 4.7 times sales -- a bargain compared to the three-year average of 23.6 -- investors should consider buying a small position in this growth stock today.

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Trevor Jennewine has positions in Nvidia and UiPath. The Motley Fool recommends Gartner, Nvidia, UiPath, and Zoom Video Communications. The Motley Fool has a disclosure policy.

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