Ark Invest’s Cathie Wood is known for investing in disruptive innovation. The super investor has placed big bets on artificial intelligence (AI), which is widely regarded as one of the most disruptive and transformative technologies today.
Speaking of AI stocks, it’s hard to ignore what Nvidia Corp. NVDA has been doing. Shares of the chipmaking giant have surged 165% so far this year, and the company crossed $1 trillion in valuation at one point.
Ark Invest’s flagship fund Ark Innovation ETF ARKK exited its position in Nvidia in January, but some of its other exchange-traded funds (ETFs) still have positions in the chipmaker.
In a recent interview with Bloomberg Television, Wood said that Nvidia “will do well over time.” But she sees a new group of stocks that will “benefit from the foundation that Nvidia has laid.”
The keyword is software.
“In our view, for every dollar of hardware that Nvidia sells, software providers, SaaS [software as a service] providers will generate $8 in revenue,” she said. “So we are looking to the software providers who are actually right now where Nvidia was when we first bought it.”
The super investor then named three software companies she believes will thrive because of AI. Here’s a look at the trio and another company she calls “the biggest artificial intelligence play.”
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UiPath Inc. PATH
UiPath is a robotic process automation software company that provides automation solutions for businesses. Its AI-powered UiPath Business Automation Platform is capable of understanding, automating and operating end-to-end processes.
In the first quarter of 2023, the company’s revenue grew 18% year over year to $289.6 million. Notably, its dollar-based net retention rate was 122%.
The stock has surged 47% year to date, but it hasn’t always been a hot commodity: In 2022, UiPath shares plunged 70%.
Wood’s Ark Innovation ETF owns 28,865,375 shares of UiPath. With the position valued at $517.28 million, UiPath is the fourth-largest holding at Ark.
Twilio Inc. TWLO
Twilio’s cloud communications platform allows businesses to develop and integrate various communication channels into their applications. Its application programming interfaces enable developers to incorporate voice, messaging and video seamlessly, helping companies enhance customer engagement.
In the first quarter, Twilio surpassed 300,000 active customer accounts. Meanwhile, revenue rose 15% year over year to $1.01 billion.
In its latest earnings conference call, Twilio Co-Founder and CEO Jeff Lawson said he believes that artificial intelligence “will be a material accelerant over time for Twilio’s business.”
Ark Innovation ETF holds 4,680,705 shares of Twilio, a stake with a market value of $303.54 million.
Teladoc Health Inc. TDOC
Wood’s flagship fund also owns $301.07 million worth of telemedicine company Teladoc Health.
The company’s platform connects patients with healthcare professionals through video, phone and messaging.
At the peak of the COVID-19 pandemic, when in-person nonemergency medical care was temporarily halted, the demand for telehealth services skyrocketed.
In 2020, Teladoc attracted a lot of investor attention as its revenue shot up 98%.
While the pandemic is largely in the rearview mirror, the company continues to expand its business. Teladoc’s first-quarter revenue showed an 11% increase year over year.
The stock, however, wasn’t able to maintain the upward momentum. Trading at $24.30 per share, Teladoc is down more than 90% from its all-time high reached in February 2021.
‘The Biggest Artificial Intelligence Play’
Wood’s biggest bet in the AI arena is a company that isn’t known for being an AI stock — Tesla Inc. TSLA.
“We talk about Tesla all the time, it actually is the biggest artificial intelligence play,” she said.
The reason has to do with the electric car company’s autonomous driving technology.
Tesla is Ark’s largest holding with an 11.81% weighting.
Wood expects autonomous taxi platforms to deliver $8 trillion to $10 trillion in revenue globally in 2030 “from almost zero right now.”
And because of Tesla’s capabilities on that front, the booming autonomous taxi market could take its share price to a whole new level.
“We believe that in five years, 2027, it will be a $2,000 stock if our research is correct,” she said.
Considering that Tesla shares trade at around $235 right now, Wood’s price target implies a potential upside of over 750%.
Investing in disruptive innovation can be very lucrative — but sometimes it can feel like a roller coaster. For instance, while Tesla shares have more than doubled year to date, they are still down over 40% from their peak in November 2021.
If you don’t like that kind of uncertainty, you might want to look into slow-changing industries that provide considerable cash returns to investors — such as those catering to basic human needs like food and shelter. For those seeking to generate passive income without the volatility associated with publicly traded stocks, there are avenues to invest in these essential service businesses through the private market.
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