UiPath vs. Unity: Which AI Software Stock Has More Upside Potential?

Artificial intelligence (AI) stocks are still popular in 2024, as investors remain bullish about the AI megatrend that's expected to attract billions of dollars in investments in the upcoming decade. While the headlines are dominated by Big Tech companies such as Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOGL), there are several other AI stocks flying under the radar, some of which are positioned to deliver game-changing wealth for shareholders in 2024 and beyond. 

Two popular AI-powered software stocks are UiPath (PATH) and Unity Software (U). Both stocks are part of Cathie Wood’s flagship Ark Innovation ETF (ARKK) - and PATH is the No. 5 holding, in fact, at over 6% of the ETF's weight. Meanwhile, U is the No. 11 ARKK holding, at 3.27%. For investors looking to buy the dip on these Cathie Wood stocks, let’s see which is a better buy right now. 

The Bull Case for UiPath Stock

UiPath (PATH) offers an enterprise-facing platform that automates business processes. It serves companies in multiple sectors, including healthcare, telecom, finance, and banking. 

Valued at $13 billion by market cap, UiPath stock trades 74.5% below its all-time highs. However, due to the optimism surrounding AI stocks, PATH has surged 35% in the last six months. 

UiPath offers automation for processes such as accounts payable, claims processing, and finance and accounting. It is already a leader in RPA, or robotics process automation, and is implementing AI capabilities in all stages of RPA. A report from Grand View Research forecasts the RPA market expanding to $30 billion by 2030, providing UiPath with plenty of room to grow the top line, given it reported revenue of $1.31 billion in fiscal 2024 (ended in January). Based on this growth forecast, if UiPath maintains its market share, it could report revenue of over $14 billion in fiscal 2030. 

Unlike several other AI growth stocks, UiPath is consistently profitable. It reported adjusted earnings of $0.22 per share in fiscal Q4 of 2024, above estimates of $0.16 per share. Its revenue of $405 million was $21 million higher than estimates, and increased 31% year over year. In fiscal 2025, UiPath expects sales at $1.56 billion with adjusted free cash flow at $350 million, indicating a margin of 22%. 

Out of the 18 analysts covering UiPath stock, seven recommend “strong buy,” one recommends “moderate buy,” and 10 recommend “hold.” The average target price for UiPath stock is $25.71, indicating an upside potential of 11.1% from current levels. 

Is Unity Software Stock a Good Buy Right Now?

Valued at $10 billion by market cap, Unity Software (U) stock is down 87% from its March 2021 record highs. Unity develops video gaming software and provides software solutions to create, run, and monetize interactive content for smartphones, tablets, consoles, and augmented or virtual reality devices. 

Unity reported revenue of $451 million in Q4 of 2023, higher than estimates of $395 million. Its total losses also narrowed to $254 million, or $0.66 per share, from $299 million in the year-ago period. However, analysts were looking for a slimmer Q4 loss per share of $0.45. 

In the last 12 months, Unity has lowered its cost base to offset a deceleration in top-line growth amid a challenging macro environment. This allowed the company to report a loss of $826 million in 2023, compared to a net loss of $921 million in 2022. 

Unity reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin of 30% in Q4 of 2023, up from just 5% in the year-ago period. While its losses are narrowing, analysts expect Unity Software’s sales to decline by 16.8% to $1.82 billion in 2024. 

Out of the 19 analysts covering Unity stock, six recommend “strong buy,” one recommends “moderate buy,” 10 recommend “hold,” and two recommend “sell.” The average target price for Unity stock is $30.83, indicating an upside potential of 17% from current levels. 

While analysts seem to think U has more upside potential than UiPath at current levels, investors should proceed with caution - that's largely due to Unity's wide earnings miss. Unity shares are now off roughly 20% from their pre-earnings closing price above $33.