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Artificial intelligence (AI) is rapidly changing industries in ways that remind veteran investors of the internet frenzy of the late 1990s. The potential is so large that it can be difficult to comprehend.

Cathie Wood, the CEO of Ark Invest, believes AI will enable the largest productivity increase in history and that huge gains for investors are right around the corner. Ark Invest expects global software spending to surge from roughly $1 trillion annually in 2022 to $14 trillion in 2030, driven mainly by AI.

It’s still too early to know which businesses will flourish as Amazon did in the late 1990s, and which will fizzle out like and so many of its peers did. So it makes sense to pay attention to successful investors with a track record of finding the next big thing.

The hyper-successful, AI-driven stock Cathie Wood keeps selling

With demand for graphics processing units that run AI applications going through the roof, you might expect Wood’s Ark Invest funds to be buying up Nvidia (NASDAQ: NVDA) shares with both hands right now. After all, it’s hard to find an experienced developer of AI applications that isn’t already familiar with the company’s software development kit.

Surprisingly, the exchange-traded funds that Wood manages for Ark Invest have sold Nvidia shares at least eight times this year without a single purchase. It’s no longer in the flagship Ark Innovation ETF but it is Ark Invest’s 27th largest holding at nearly 0.8% of the firm’s combined holdings.

Wood’s likely been more heavily influenced by Nvidia’s market performance than the strength of its underlying business. The stock has more than tripled so far this year and the semiconductor industry is famously cyclical.

Instead of souring on Nvidia, it looks like Wood’s simply taking advantage of its inflated valuation as the stock is trading for more than 100 times trailing earnings. When the next downward phase of the never-ending semiconductor cycle pushes chip stocks lower, don’t be surprised if Ark Invest starts buying this one again.

The AI stock Cathie Wood is buying hand over fist

Ark Invest has added shares of robotic process automation specialist UiPath (NYSE: PATH) to its ETF portfolios more than a dozen times this year. It’s now the firm’s second-largest holding across all its funds.

UiPath sells AI-driven software that companies use to automate repetitive tasks so that office workers can accomplish more. For example, banks use UiPath’s document-reading features to scan loan applications for accuracy and potential issues. They can also use a generative AI feature to immediately compose appropriate requests and responses.

Businesses of all sizes can benefit from process automation tools and investors will be glad to know that enterprise-sized clients are particularly eager to expand their relationship with UiPath. During its quarter that ended July 31, the number of customers spending more than $1 million annually rose 30% year over year to 254.

UiPath’s big clients appear ready to spend more. The company ended July with a $1.3 billion annualized renewal run rate that was 25% higher year over year.

After using its software to design customized software robots, enterprise customers aren’t in a hurry to try a competing service either. The company boasted a 121% dollar-based net retention rate in its fiscal second quarter, indicating that existing customers are spending more.

Large enterprise customers expanding their subscriptions allows UiPath to grow sales without splashing out on marketing expenses. In fact, sales and marketing expenses in the first half of fiscal 2024 are down 11% year over year.

Is UiPath still a good stock to buy?

Thanks to popular AI-driven process automation solutions, UiPath generated a record $168 million in free cash flow over the past year. At recent prices, you can buy the shares for the sky-high multiple of about 61 times trailing free cash flow.

With sticky services that enterprise clients can’t seem to get enough of, UiPath’s bottom line could skyrocket and make its present valuation seem trivial down the road. Of course, if there’s any sign of a slowdown before it has time to grow into its high valuation, the stock could fall hard. This is a great AI stock to buy now, but only for investors with a relatively high tolerance for risk.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Cory Renauer has positions in and UiPath. The Motley Fool has positions in and recommends, Nvidia, and UiPath. The Motley Fool has a disclosure policy.

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