UPWK is a buy for value investors despite AI risks; low conviction but attractive valuation.

Upwork, the gig economy platform, informed investors that they're experiencing an acceleration in AI-related automation, which is shrinking demand for low-complexity tasks. And that's been a headwind for Upwork.

However, that's offset by an increase of 22% in explicit AI-related jobs and broader integration of AI into standard project workflows that often goes unstated in job postings.

So, it's experiencing a mixed impact from artificial intelligence. Overall, it's negative the negative impact is outweighing the positive impact on its enterprise.

And so, the management updated its full-year revenue outlook to $740 million at the midpoint. With adjusted EBITDA expected to fall in 230 million, which is lower than what investors were initially expecting.

So, does this mean that Upwork stock is now it's time to dump this business and move on to something else? Let's answer that question together.

So, it's important to remember that Upwork stock is already down 56% year-to-date in 2026, with most of those losses coming in the beginning of the year, between January and May, were the bulk of the losses as agentic AI proliferated and investors got ahead of the curve and sold off Upwork stock before the business actually started reporting significant headwinds.

That turned out to be the right play as Upwork stock has not recovered just yet. And of course, I'm disappointed in that because I've been ranking Upwork stock as a buying opportunity suggesting that there's still value in the business.

It's not going to lose 100% of its business to agentic AI. Sure, on the edges they're going to lose some tasks to agentic AI. But they're also going to gain as the workers on the platform incorporate AI into their services and are able to offer a better value to customers that are hiring them.

And longer term, the business has done an excellent job growing. It's more than tripled its revenue from 2019 where it was 250 million up to 787 million, even though growth has slowed and turned negative.

It benefits from the convenience advantage. It benefits from a lot of enterprises needing things to be completed but not necessarily needing a full-time employee. Right? It bridges that gap between hiring a temp worker or not hiring anyone at all.

So, it's able to capture on that demand. It's also able to capture the demand from workers where they don't want to work at an enterprise full-time. They prefer the flexibility of gig economy work where they can choose the days they work, the hours they work, the projects they complete, the people they work for.

That selection, that convenience is a breath of fresh air for a lot of workers that are tired of that 8:00 to 5:00, 5 days a week, 50 weeks a year without very much flexibility and needing to ask for permission to take a vacation, needing to ask permission to take a day off.

And the gig economy platform offers a lot more flexibility and convenience.

It's also important to remember that in 2022, when the United States and a lot of the enterprises in the United States were fearful of an oncoming recession, they made major restructurings and cost-cutting efforts, and that's paid off, and that's been a boom for Upwork because its operating profitability was heading downward.

The business was investing in growth and trying to capture new opportunity, and thankfully, they turned things around. They focused on profitability. They focused less on new customer acquisition and focused more on customer value, getting the right customers rather than getting more customers, and their operating margins turned higher.

From -15% in 2023, it's reached record levels of 16.8% over the trailing 12-month period.

And management is doubling down on that strategy. Again, they're focusing on higher-value customers on both sides of the equation, and less on the number of customers it has on both sides of the equation, whether you're looking at businesses looking to hire on the platform or individuals that are looking to offer their services on the platform.

Due to this macroeconomic slowdown in the labor market, coupled with more significantly the trends in artificial intelligence and the proliferation of agent tech AI, Upwork stock has sold off and is trading at the cheapest valuation in years.

It's now selling for a forward price-to-earnings of 6.4, which is roughly 1/4 the price of the average stock in the S&P 500. And I think that's appropriate for a business that's facing as significant a risk that Upwork is facing.

It should be selling at a significant discount to the average stock.

I also updated my discounted cash flow valuation for Upwork and I'm not expecting hardly any growth for this business and I'm not forecasting such. From 2026 to 2031, I'm estimating the company's free cash flow goes from 220 million in 2026 to 240 million in 2031.

So, hardly any growth, not even exceeding the rate of inflation I'm forecasting for Upwork over the next 5 years. Due to that significant risk and threat from AI. But, even after incorporating that, the stock looks undervalued.

I calculated a fair value of $14.64 and the current market price of $8.70 suggests a 68% upside for Upwork at current market prices.

So, I mentioned my disappointment in Upwork stock performance given my buy ranking of this business. I still think it's a buying opportunity, although my conviction, my confidence level in that buying opportunity is decreasing.

I'm lowering it to the lowest level I could possibly have in a business and still rank it a buying opportunity. The disruptions from artificial intelligence are already being felt and the business is going backwards as it's losing revenue, it's losing customers, and it's difficult to estimate just how much business it will lose as a result of AI.

For that reason, I'm not so confident in this buy ranking, but I do think that at these market prices, it's attractive for value stock investors to consider.