Ark Invest believes AI software revenue could hit $14 trillion by 2030 and, as such, Ark has added a number of such stocks to its portfolio including
The Trade Desk, Inc. (TTD) and
UiPath Inc. (PATH). (Source) Continue reading to learn why Ark considers these stocks worth your consideration. Why Invest In The Trade Desk Company?The Trade Desk company operates an ad tech software platform that helps media buyers plan, measure, and optimize ad campaigns across digital channels. While Alphabet’s Google holds far more market share than TTD, The Trade Desk company, as an independent ad tech vendor, does not own any media content or sell any ad inventory, compared to Google which sells ad inventory from properties like Google Search and YouTube as well as helping third-party publishers sell their own inventory. That is a clear conflict of interest making brands hesitant to share data with Google, but with no such reservations regarding TTD.The Trade Desk company continued to gain market share in Q3 with revenue climbing 25% (see Q3 Financial Report here) easily topping the 9% ad revenue growth reported by Alphabet. Morgan Stanley believes TTD should continue to grow more quickly than the broader ad tech industry which, in and of itself, is projected to expand at 14% annually through 2030.The Trade Desk company, with a market capitalization of $33B as of November 24th, 2023, has
a YTD stock price appreciation of 53% compared to the industry average of 47.3% (Source)
a forward price-to-earnings (PE) ratio of 53 (Very High – 241% above the sector* mean of 15.6)
a forward price-to-sales ratio (PSR) of 17.0 (Extremely High – 1,416% above the sector mean of 1.1)
a price-to-earnings-growth (PEG) ratio of 2.3 (High – 50% above the sector mean of 1.5)
an Enterprise Value-to-Earnings Before Interest Taxes, Depreciation and Amortization (EV/EBITDA) ratio of 41.7 (Very High – 395% above the sector mean of 8.4)
*Communication Service/Advertising (33 stocks)
Based on the above valuation metrics the stock price is currently extremely high but it probably has merit as a 3-5 year hold according to Morgan Stanley based on its acceptable PEG ratio.Media Coverage
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Why Invest In UiPath, Inc.?UiPath’s software blends robotic process automation with AI capabilities which allow its customers to:
analyze tasks and processes to identify automation opportunities,
build software robots that address those opportunities, and
manage and optimize those software robots.
Revenue increased 19% in Q2 to $287 million and non-GAAP net income improved to $49 million, up from a loss of $11 million. Investors should look for growth as UiPath leans into its AI-centric roadmap of products such as:
its Autopilot product which is a generative AI assistant that makes its platform more conversational by allowing users to run existing automations, create new automations, and identify automation opportunities with natural language,
its Clipboard AI which intelligently copies and pastes information across documents, spreadsheets, and applications, and
the broadening of its integration capabilities by extending support to custom AI models from vendors like Amazon and OpenAI.
UiPath has a market capitalization of $10.4B as of November 24th, 2023
a YTD stock price appreciation of 49% compared to the industry average of 27.1% (Source)
a forward price-to-earnings (PE) ratio of 45 (Extremely High – 95% above the sector* mean of 22.9)
a forward price-to-sales ratio (PSR) of 8.2 (Extremely High – 210% above the sector mean of 2.6)
a price-to-earnings-growth (PEG) ratio of 1.1 (High – 43% BELOW the sector mean of 1.9)
an Enterprise Value-to-Earnings Before Interest Taxes, Depreciation and Amortization (EV/EBITDA) ratio of 40.6 (Extremely High – 178% above the sector mean of 14.6)
*Information Technology/Systems Software (46 stocks)
Morgan Stanley believes UiPath could grow revenue as fast as 21% annually over the next decade if its AI ambitions bear fruit and that makes its current PSR valuation of 8.2 times sales seem quite reasonable in their opinion. Like Morgan Stanley’s assessment of The Trade Desk company, while the above valuation metrics for UniPath’s stock price are currently extremely high, it also probably has merit as a 3-5 year hold according to Morgan Stanley based on its low PEG ratio.Media Coverage
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Understanding Valuation Metrics To evaluate the above companies look at the key valuation ratios referred to above and defined below:
The price-to-earnings (P/E) ratio compares a company’s share price to its earnings per share, providing a measure of relative value. A high P/E ratio could mean that a company’s stock is overvalued, or that investors are expecting high growth rates in the future.
The price-to-sales ratio (PSR) indicates the price paid for a share relative to the revenue that share generates, helping assess if a stock is valued appropriately. The mean forward PSR is considered excellent when the value falls below two (2).
The price earnings-to-growth ratio (PEG ratio)is considered to be an indicator of a stock’s true value. A PEG lower than 1.0 is best, suggesting that a company is relatively undervalued.
The Enterprise Value-to-Earnings Before Interest, Taxes, Depreciation, and Amortization ratio (EV/EBITDA) ratio considers a company’s total value, including debt and equity, relative to its earnings before interest, taxes, depreciation, and amortization, giving investors insight into profitability across companies. A high ratio means the company is overvalued, while a low ratio indicates it’s undervalued.
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