2 AI Stocks Down Over 80% to Buy Before It's Too Late

Artificial intelligence (AI) is expected to provide the biggest increase to worker productivity since the adoption of the PC in the 1990s, and like shareholders of the leading tech companies that emerged from that period, investors could realize tremendous returns if they own the right AI stocks.

If you're looking for the "right" AI stocks, here are two to consider. Once headwinds are lifted, growth could explode for these two companies and send their share prices soaring.

1. UiPath

One of the ways companies are using AI is to automate tasks. Companies can get significantly more value out of their employees' time by using AI-powered software to take over tasks such as pulling information from dense documents, logging into applications, filling out forms, and many other use cases. This is a huge opportunity for automation specialist UiPath (NYSE: PATH) , which estimates its long-term addressable market at $60 billion.

Since 2021, UiPath's revenue has doubled to over $1.3 billion. It has a huge growth runway ahead, but the company's growth has fallen below expectations this year, which has sent the stock well off its highs.

The company started to experience a slowdown in sales earlier this year due to macroeconomic challenges, but this is impacting other software companies, too, not just UiPath. Management's guidance calls for full-year revenue to be up approximately 8% year over year.

Still, the stock could be a steal right now. The shares were trading at a high valuation at their all-time high a few years ago, which contributed to the 86% haircut, but the stock looks oversold now. Wall Street typically punishes stocks of companies that have a cloudy near-term outlook, but the demand for automation software will continue to grow over the next several years and increase the value of UiPath's business.

It's a positive sign that UiPath's larger customers are continuing to expand their product usage. Moreover, the company's founder, Daniel Dives, has returned as CEO with a focus on improving the company's profit margin.

With the stock selling at a modest price-to-free-cash-flow ratio of 22, investors could earn stellar returns once the software industry recovers.

2. Upstart Holdings

Financial services is another market where AI could be a game changer, particularly in areas of risk assessment and lending. This is a massive opportunity for Upstart Holdings (NASDAQ: UPST) .

The company charges fees to lending partners, such as banks, for using its AI lending marketplace. Its AI models are powered by over 1,600 variables and are trained by over 58 million past repayments. It helps banks accurately evaluate the risk profile of a borrower, which can lead to more approvals and better payback rates.

Upstart's trailing-12-month revenue peaked at $1 billion in 2022 before a weak lending market cut its revenue in half over the last two years. Not surprisingly, the stock fell sharply and is currently down 90% from its previous peak.

However, Upstart has continued to train its AI models with more data, and this is starting to lead to improving growth prospects. The product has made huge strides in accuracy, fraud detection, and automation, and these improvements are starting to show in the company's financial results. Management expects a return to growth next quarter, with guidance calling for sequential revenue growth of 17%.

Using AI to improve credit profiling is a very complex process, and Upstart's continued investment in its models is leading to a substantial competitive advantage. Management said eight new lenders joined the platform last quarter, and other banks and credit unions continue to return -- a sign that the lending market might be in the early innings of a recovery.

The stock jumped 75% following the company's recent earnings report, but it's still trading at a deep discount. With Upstart Holdings at the start of a turnaround, investors could earn handsome returns over the next few years.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends UiPath and Upstart. The Motley Fool has a disclosure policy .