Why UiPath Rallied in December

Shares of automation software company UiPath (NYSE: PATH) rallied 18.3% in December, according to data from S&P Global Market Intelligence.

UiPath surprised investors with a better-than-expected earnings report early last month, which allowed the stock to gain even as many tech names struggled toward the end of the year. Then, toward the end of the month, UiPath was selected to be included in a major stock market index, further boosting sentiment.

UiPath harnesses AI, rather than being disrupted by it

In its fiscal third quarter, UiPath grew revenue by 15.9%, while adjusted (non-GAAP) earnings per share increased 45.4% to $0.16, with both metrics surpassing analysts' expectations.

Other key performance indicators (KPIs) were also strong, with UiPath's annualized recurring revenue (ARR) up 11% to $1.78 billion, and its dollar-based net retention rate of 107% indicating increased spending from existing customers. Overall, UiPath's total customer count increased 12.1%, while the number of major accounts with over $1 million in ARR increased 10.3%.

Management also guided for a significant jump in revenue and profits for the current quarter, forecasting revenue between $462 million and $467 million, which would represent 13% sequential growth, as well as adjusted operating income of $140 million, marking 59% sequential growth over Q3.

UiPath had entered the month trading at around five times sales, which is not very expensive for a software company. Therefore, the handy beat was enough to propel shares higher.

Later in the month, UiPath was selected for inclusion in the S&P MidCap 400 Index. Being elevated into the index potentially opens the stock to more buying from index fund investors in 2026. Therefore, as is usually the case, UiPath's stock rallied a bit more into year-end on news of that inclusion.

Image source: Getty Images.

UiPath: An AI winner?

There has been a cloud over the software sector in recent years, since generative AI has the potential to disrupt the industry. While software companies that harness AI could become huge winners, AI also has the potential to displace others, or at least reduce the number of licenses large companies need to buy.

Fortunately for its shareholders, UiPath appears to be doing a good job integrating large language models into its software platform and delivering benefits to customers, as evidenced by the higher customer count and dollar-based net retention metrics.

Investors should be encouraged by the company's execution and outlook for 2026; still, the AI revolution is dynamic and evolving, so all software investors need to stay on top of current developments.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends UiPath. The Motley Fool has a disclosure policy.