Nvidia Corporation is roundly considered the premier blue-chip AI bet on the global equities markets but renowned tech investor Cathie Wood is going against the grain by putting her microchips in two other US tech firms.
Wood, who runs tech-focused investment firm Ark Invest, told Bloomberg that Nvidia is “easy, but it’s also really expensive and very obvious”.
Her opinion is justified when looking at Nvidia’s share price in 2023—it’s still up around 200% despite falling back to $422 from $490 at the end of August.
Nvidia’s price-to-earnings ratio is an eye-watering 102-times on a trailing 12-month basis (though forward PE will almost certainly be lower, given the strong performance expected from the group), with price-to-sales above 30-times against today’s share price.
Jensen Huang’s microchip monolith aside, Wood sees Twilio Inc (NYSE:TWLO) and UiPath Inc (NYSE:PATH) as viable AI plays at a price right now.
How do they stack up?
Twilio
Worth around $10.6 billion, Twilio is the better-known of Wood’s two stock picks.
The San Francisco-based tech group provides programmable communication tools for making and receiving phone calls, sending and receiving text messages, and performing other communication functions.
Off the bat, it's not hard to see the obvious AI synergies present in Twilio’s business model.
“Last year, (Twilio) had one trillion messages between consumers and businesses,” Wood said, with Uber being one major client. “So they’ve got all of that data and it’s accelerating, of course. And now they’re activating it with AI.”
Twilio predicts full-year earnings to come in at approximately $375 million, giving a forward PE ratio of 28.5.
Twilio is Ark’s eighth-largest stockholding, comprising 3.2% of all equities held across all funds.
UiPath
UiPath, by Wood’s admission, is “not sexy”. It is, however, very profitable with “a fantastic management team”.
Not quite as well-known as Twilio, UiPath nonetheless commands a $9.2 billion market capitalisation.
UiPath is a global software company that makes robotic process automation software. Again, it’s not hard to see the AI synergies here.
UiPath racked up a $350 million operating loss in the year ending January 31, but the group expects to net $188 million in profit for the current financial year.
That’s still a pretty hefty 50-times PE ratio, though Wood is likely motivated by the forward-looking 7x price-to-sales ratio- cheap in Big Tech terms.
UiPath is Ark’s second-largest stockholding with a 6.7% weighting across all funds.
Wood misses out on Nvidia gains
Cathie Wood decided to exit Ark’s Nvidia stake in January, meaning she missed out on 200% of year-to-date gains achieved in what has been the semiconductor giant’s pivotal year.
She defended the decision in May, just as the stock was rallying, telling Bloomberg: “As far as Nvidia goes, there are a few reasons we take some pause… shortages, shortages, shortages about GPUs or anything, I begin to think about the cyclicality of a group.”
She said has “not gotten much pushback” for dropping the stock prior to its major bull run.