Frank Downing of Ark Investments said two AI-focused companies — UiPath and Twilio — are being undervalued by investors. Business process automation company UiPath is one of the companies that Downing believes is being overlooked. The company makes software that automates manual workflows in large enterprises, and Downing says large language models, such as those made by OpenAI, the company behind ChatGPT, can dramatically improve its performance. “Large language models may unlock an additional 20% or even 40% of the processes that UiPath can now automate, not just the ones they already automate,” said Downing, director of research at the ARK Next Generation Internet ETF. This could mean less manual intervention, significantly increasing the efficiency UiPath offers its customers. While previously UiPath’s services were sought after only by the finance departments of large corporations, Downing added that UiPath’s potential is now being noticed by marketing and compliance departments as well, opening up new markets for the company. UiPath is the eighth-largest holding in the $1.3 billion fund, accounting for 5.69%. The stock is up 41% this year. However, not everyone is convinced. Analysts at Mizuho Investment Bank believe the company’s conservative guidance for revenue this year and slowing new customer growth due to a slowing economic environment won’t give the stock much upside. Mizuho analysts led by Siti Panigrahi wrote in a note: “While we are encouraged by UiPath’s improving profitability, we expect the stock to remain range-bound in the near term until the company repositions itself beyond its strategy. Significant progress towards growth.” Client May 25. Mizuho’s $16 price target suggests a 10.8% downside for the stock. PATH 1Y line Twilio Twilio, a cloud communication platform founded in 2008, was also marked as a potentially undervalued stock by Downing. Twilio acts as a communication medium between businesses and their customers and is often the backbone of call center and customer service software. Downing explained that Twilio’s access to vast amounts of customer data will allow it to deploy large language models to make their messages “more personal” and “impactful.” A key concern for investors is the high cost of developing new AI models. Still, the research executive believes companies like Twilio and UiPath could be poised to capture the next wave of growth as artificial intelligence becomes increasingly commoditized. “GPT-3, the underlying model behind the chatbot, cost an estimated $4.6 million when it was first trained in 2020. Just two years later, the training cost had dropped to $400,000,” Downing said. This represents a 70% reduction in annualized costs. While companies such as Microsoft and Google are showing off a wide range of AI products, Downing suspects consumers’ willingness to pay for them may be constrained by the increasing commoditization of open-source models. Instead, Downing argues that differentiation and value are likely to come from niche use cases that can provide a high return on investment. Twilio accounts for 4.34% of the Ark Next Generation Internet ETF. Most analysts are conservative on Twilio stock, according to FactSet estimates. The consensus price target points to a 10% downside over the next 12 months, as the stock is already up 37% this year. TWLO 1Y line