UiPath’s GenAI Expansion Could Skyrocket Its Value - Rally Ahead?

UiPath Inc. (NYSE: PATH) is the leader in robotic process automation (RPA) and business process automation (BPA). The company has been involved with artificial intelligence (AI) for years, using it to help customers task mine and automate manual software processes. However, UiPath saw its stock plunge 34% immediately following its fiscal Q1 2025 earnings, leaving investors in shock over the company's future.

UiPath: A Value Play Based on Cash Alone

The company is bolstering its generative AI (GenAI) efforts, launching more features to help customers more efficiently code processes to automate. The question arises as to whether the sell-off was an overreaction spawning a bargain opportunity as shares traded at levels last seen at the end of 2022. UiPath has $1.9 billion in cash, which makes up 25% of its market capitalization alone.

One Two Punch to the Gut for Investors as UiPath CEO Resigns  

While the quarterly results were decent, its lowered fiscal Q2 and full-year 2025 guidance caught investors off guard. To make the optics even worse, its new CEO, Rob Enslin, resigned two days later after just three months on the job with no explanation. This uncertainty was the nail in the coffin. The position was filled by its founder and former CEO, Daniel Dines.

UiPath operates in the business service sector and competes with software companies like Pegasystems Inc. (NASDAQ: PEGA), Salesforce Inc. (NYSE: CRM), and C3.ai Inc. (NYSE: AI).

Macroeconomic Uncertainty Caused UiPath's Deal Scrutiny

UiPath noted a noticeable shift in March and April when large multi-year deals faced more scrutiny. Macroeconomic shifts caused companies to be more prudent with large deals, either delaying them or shrinking their size. This resulted in drastically lowered forward guidance. The company admits it also had execution blunders that stemmed from sales compensation changes and bottlenecks, which have been resolved going forward.

Salesforce and Palo Alto Networks Also Experienced Deal Scrutiny But Shares Recovered

The uncertain macroeconomic climate was a common theme expressed with other software companies like Salesforce and Palo Alto Networks Inc. (NASDAQ: PANW). Salesforce echoed similar comments in its April quarter as deal momentum waned due to increased customer budget scrutiny from elongated sales cycles. It’s also worth noting that both Salesforce and Palo Alto Network stocks initially sold off on their report but have since been in recovery. Salesforce shares fell to a low of $212.00 and bounced to $263.19, while Palo Alto shares fell to a low of $286.58 and bounced to $345.55 since their announcements.

Can GenAI Put Wind in UiPath's Sails?

UiPath shares had been elevated under the assumption that GenAI would be a growth driver. However, based on its guidance, the initial opportunity may have been an overreach. After all, automation meshes well in theory with the secular AI tailwind. Microsoft Co. (NASDAQ: MSFT) expanded its partnership with UiPath to integrate its business automation platform with its AI Copilot for Microsoft 365. 

PATH Stock Attempts to Recover Above the Gap Fill Level

The daily candlestick chart for PATH illustrates a market structure low (MSL) breakout through the $11.97 trigger, sending shares through its gap-fill price level at $12.69. The gap fill levels formed on the 34% price plunge following its fiscal Q1 2025 earnings release for $18.08 to $12.69. The first part of the gap-fill attempt is underway as shares recover back up through the lower gap-fill level at $12.69 towards the upper gap-fill level at $18.08. The daily relative strength index (RSI) has been rising to the 45-band. Pullback support levels are at $12.69, $11.97, $11.07, and $10.40.  

Key Takeaways from UiPath's Q1 2025 Earnings Report

UiPath reported a fiscal Q1 2025 EPS beat by a penny at 13 cents versus 12 cents consensus estimates. Revenues rose 15.7% YoY to $335.11 million, still beating $333.08 million consensus estimates. Annual recurring revenue (ARR) rose 21% YoY to $1.508 billion with a net new ARR of $44 million. The company has $1.9 billion in cash and cash equivalents.

Dollar-based net retention rate was a respectable 118%, which implies customers are satisfied and upselling opportunities still exist, although at a reduced rate, down 1% quarter-over-quarter (QoQ). Non-GAAP gross margins were 86%, one of the highest rates in the software industry. For example, Salesforce's non-GAAP gross margins are 76%, and Microsoft's are 70%. 

UiPath's Guidance was the Bomb that Shocked Investors

UiPath stunned investors with its downside guidance. For its fiscal Q2 2025, UiPath expects revenues between $300 million to $305 million versus $342.32 million consensus estimates. For the full year 2025, it lowered revenue expectations to $1.405 billion to $1.410 billion, down from previous forecasts of $1.555 billion to $1.56 billion, versus $1.56 billion consensus estimates. CEO Rob Enslin also resigned, effective June 1, 2024. Former CEO and Founder David Dines will resume the role of CEO.

UiPath CFO Ashim Gupta commented, “ During the first quarter, we saw increased deal scrutiny and lengthening sales cycles for large multi-year deals. We have considered these factors, the current macroeconomic environment and our leadership transition in our updated guidance for the remainder of the year,"

Gupta concluded, "While our revenue and operating margin guidance are impacted by contract timing and duration, we have confidence in our ability to generate durable ARR growth at scale and meaningful non-GAAP adjusted free cash flow."

UiPath analyst ratings and price targets are at MarketBeat. PATH stock has a consensus price target of $18.06, implying an upside of 36.4%.

Source MarketBeat