What Happened?
Shares of automation software company UiPath (NYSE:PATH) fell 5% in the afternoon session as stocks tumbled (Nasdaq down 2%, S&P 500 down 1.5%) after the Fed signaled that there would be fewer cuts ahead (than expected) during the December 2024 FOMC meeting. This announcement followed the committee's decision to reduce rates by 0.25% to a range of 4.25%–4.5%, which was largely in line with consensus forecasts. Looking ahead to 2025, the Fed is expected to implement two quarter-point rate cuts, suggesting that future policy adjustments will be implemented at a slower pace, with the committee reiterating a data-driven approach that factors future inflation data and updates on the labor market. As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
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What The Market Is Telling Us
UiPath’s shares are quite volatile and have had 18 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 14 days ago when the stock gained 7.9% as market optimism around innovators in the software as a service (SaaS) space continued to improve following strong earnings from Salesforce. The enterprise software giant showcased clear progress in capturing demand for AI solutions, signing 200 deals within a week of launching Agentforce, its new AI platform for enterprise customers. In addition, Salesforce reported thousands more deals in the pipeline, hinting at robust future growth.
Reviewing some of the numbers, Salesforce reported sales and adjusted operating income ahead of Wall Street's expectations.
On the other hand, EPS and some top-line growth indicators, including billings and remaining performance obligations (RPO), fell slightly below consensus estimates, as products like Tableau, MuleSoft, and Slack revealed some weaknesses.
Despite the mixed top-line result, CRM recorded double-digit growth in the Sales and Service Cloud segments, which is encouraging. Since the onset of the AI boom, Wall Street has been craving hard data to justify the lofty projections surrounding the industry's potential. The numbers are finally trickling in, and the data suggest the AI market's trajectory might exceed initial expectations, heralding the shift from speculative hype to tangible value creation.
UiPath is down 44.7% since the beginning of the year, and at $13.17 per share, it is trading 51% below its 52-week high of $26.88 from February 2024. Investors who bought $1,000 worth of UiPath’s shares at the IPO in April 2021 would now be looking at an investment worth $190.87.
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