Why Cathie Wood Picks Tesla Over Nvidia As Top AI Play For Next 5 Years

Shares of technology giant Nvidia Corporation NVDA are up over 220% year-to-date in 2023, a move that has helped propel the company into the one-trillion dollar market capitalization club.

Ark Invest may have been early to the large movement, but also sold out of the position early, leaving potential gains on the table.

What Happened: Nvidia was previously a large holding in the Ark Funds’ flagship Ark Innovation ETF ARKK, before the company sold the stake in January 2023.

By selling the position in the flagship fund, Ark missed out on a sizable move for the technology stock.

“This is portfolio management,” Ark Invest CEO Cathie Wood said of the trade when asked if she regrets selling early.

Going forward, Wood sees a more promising opportunity in the expansion of artificial intelligence.

On Monday, CNBC asked her how she could label a stock like Nvidia as costly based on its forward price-to-earnings ratio, especially when a major holding in her portfolio, Tesla Inc TSLA, has a price-to-earnings ratio that's twice as high.

Wood responded, saying, Tesla has more upside than Nvidia over the next five years, a timeline often used by Ark Invest when making portfolio decisions. “Substantially more (upside) than Nvidia’s,” she added.

Related Link: Exclusive: Cathie Wood Breaks Down $2,000 Tesla Price Target With Benzinga 

What’s Next: Wood said that the discrepancy arises because analysts are skeptical about Tesla's autonomous and robotaxi potential playing a significant role, a perspective she does not share.

The fund manager sees “incredible” revenue and margin expansion ahead for Tesla. The electric vehicle company has margins that are in the 20s, a figure that could expand to the 60s or 70s with future autonomous efforts, according to Wood.

Nvidia, by comparison, has already realized margin expansion thanks to its chip demand in 2023, which could put pressure on future growth.

“Tesla, we think [is] the largest AI project in the world,” Wood said.

She anticipates that Nvidia will likely do quite well in the future and is included in smaller Ark Invest funds.

The fund manager cautioned that it might not be the largest technology companies that become the biggest winners from the artificial intelligence boom. “We are not sure.”

Wood said ChatGPT could be the best thing that ever happened to Alphabet Inc GOOGGOOGL owned Google as it forces the company to make changes utilizing AI, or it could be the worst thing to happen to the company if it loses its advertising franchise with everyone using ChatGPT instead.

Tesla remains one of the largest holdings by Ark Invest. The stock is the top holding in both the Ark Innovation ETF and the Ark Autonomous Technology & Robotics ETF ARKQ, representing 10.3% and 14.1% of ETF assets, respectively. Tesla is also the fourth-largest holding in the Ark Next Generation Internet ETF ARKW, representing 6.5% of assets.

Read Next: Exclusive: Ark Invest Was There With Nvidia At $5, Cathie Wood Tells Benzinga 

Photo: Ark Invest and Shutterstock