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The share price of Blue Prism (LON: PRSM) has risen by around 50% in the past month. The AIM-listed artificial intelligence (AI) specialist has been the subject of widespread takeover rumours. The company itself confirmed on 31 August that it was in talks with TPG Capital and Vista Equity Partners regarding possible offers. However, it stressed that there is no certainty of any bid ultimately being made.

AI growth opportunities

Of course, Blue Prism’s AI offering could make it an enticing proposition to a wide range of investors. The firm focuses on Robotic Process Automation software. This essentially means that it provides autonomous multi-skilled software robots that can perform a range of repetitive tasks across a variety of industries. They allow human workers to focus on higher-value tasks, while leaving their robot ‘peers’ to conduct administrative and other back-office tasks that may require less skill.

The company’s offering has so far been well-received. It has over 2,000 customers, with 30% of them from the Forbes Global 2,000. Its capacity to reduce costs and boost profitability across a wide range of industries could mean it has an encouraging outlook.

Indeed, the global market for ‘narrow’ AI, where robots perform a specific task such as in administrative work, is forecast to grow by around 33% per year to 2026.

An encouraging industry growth rate is evident in Blue Prism’s recent sales performance. The firm reported a 24% rise in revenue in the first half of the current year. This follows a 40% growth rate in the latest full year. Moreover, the company is forecast to post a 19% annualised growth rate in sales over the next three financial years.


Threats to growth

Despite strong sales growth, the company remains a loss-making entity. For example, it made an operating loss of £81.6m from revenues of £141.4m in the previous financial year. Although this represented a £10.2m reduction in operating losses versus the prior year, its lack of profitability remains a risk facing investors. Indeed, Blue Prism is expected to remain loss-making business, albeit on a reducing scale, over the next three financial years.

In addition, the AI industry is, by definition, a rapidly evolving space. New technology could supersede existing technology, thereby making it obsolete over a relatively short period. There may also be increasing ethical concerns, with the growing use of robots to replace human capital potentially leading to fewer job opportunities. This may weigh on the AI industry’s growth rate over the long run.

Investment potential

Clearly, such risks do not appear to be impeding takeover interest in Blue Prism. As with any discussions, there is no guarantee that an offer will be made. As such, buying the company’s shares now, following their recent surge, could be a high-risk strategy for any investor. Its share price could remain extremely volatile in the short run depending on news flow that is ultimately impossible to accurately predict.

Therefore, it may be prudent to wait and see how the company’s takeover talks progress. Should it fail to be taken over, and its shares shed their current premium following recent news, it may offer long-term growth opportunities within a diverse portfolio of AI stocks. They could produce strong growth in a world that looks set to become increasingly reliant on machines across a broad range of everyday tasks.

Related

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Robert Stephens

Robert Stephens

Robert Stephens is a CFA Charterholder who has around 15 years’ experience working in the financial services industry.

The vast majority of that time has been spent working as an Equity Analyst, with a focus on FTSE 350 shares in the consumer goods, consumer services and retail sectors.

He has also contributed to a wide variety of media publications on a freelance basis, including The Telegraph, What Investment, Master Investor and Citywire.

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