Cathie Wood’s 3 Favorite AI Stocks: October 2023
At the end of September, Cathie Wood sat down with Morningstar to discuss the current and future state of Ark Invest, including the investment management firm’s flagship fund, the ARK Innovation ETF (NYSEARCA:ARKK). In the interview, the host noted one apparent misstep. He pointed out that ARKK and other Cathie Wood funds dropped the ball on AI stocks, particularly after her funds divested all Nvidia (NASDAQ:NVDA) stock well before the company’s current runup.
However, Cathie Wood disagreed with the assessment. Specifically, Cathie Wood said, “if you read our research going back to 2014, we’ve been very focused on the revolution called artificial intelligence.” She then reminded the interviewer that her funds held Nvidia when the stock traded for just $5 before selling in January 2022 in the mid-$100 range. Furthermore, Cathie Wood told the interviewer the real reason the Nvidia play doesn’t matter for Ark Invest: her firm is doing “real original research as opposed to checking a box, artificial intelligence, Nvidia.”
Cathie Wood says her firm is focusing on more than simply leveraging AI as a buzzword. Instead, Ark Invest is focusing on firms with domain expertise and uniquely applied AI that stands to dominate those respective domains.
Ultimately, Cathie Wood says these three AI stocks are how her funds offer “diversification in the disruptive innovation space.” But you don’t need to be an ARKK bag holder to copy her strategy with Cathie Wood stocks.
Zoom (ZM)
Zoom (NASDAQ:ZM) is a somewhat surprising AI stock play for Cathie Wood. In the interview, she pointed to the then-upcoming Zoomtopia event for an idea of how the remote conferencing tool leveraged AI. That event happened at the beginning of the month. Investors can now understand what Cathie Wood sees in this AI stock.
During Zoomtopia, the company unveiled a new suite of AI-driven products. Zoom Docs, for example, is a centralized AI workspace that could emerge as a competitor to Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) ever-popular Google Docs platform.
If Cathie Wood’s Zoom endorsement isn’t enough, maybe Berkshire Hathaway’s (NYSE:BRK-A, NYSE:BRK-B) Charlie Munger’s enthusiastic support will sway value and growth investors alike. Munger delivered Zoomtopia’s closing keynote speech. In the speech, Munger jokingly discussed how he and Warren Buffett used to rely on telegraph and telephone to discuss and execute deals. But today, he’s bullish on Zoom. He told listeners, “I use Zoom a lot to do business out of my house. It’s very convenient for me because travel is difficult.” But Munger and his team don’t just use Zoom for business. He also said. “We have family Zooms, too, and get the whole family together. It’s easy to punch a few buttons overall to get connected.”
Zoom has been a longtime staple of the emerging remote work world. Its AI offerings could mean big things for the stock. Cathie Wood is headed in the right direction with Zoom, and Charlie Munger’s endorsement further cements its long-term potential on the list of AI stocks.
Exact Sciences (EXAS)
Exact Sciences (NASDAQ:EXAS) is a biotech stock leveraging AI. The company also comprises the largest holding in Cathie Wood’s ARK Genomic Revolution ETF (BATS:ARKG) at 10.38% total weight. The company recently posted its sixth consecutive quarter of double-digit sales growth, proving its market potential. Likewise, analyst sentiment for the stock is overwhelmingly positive, with its current price nearly 50% below consensus fair value estimates.
Exact Sciences’ AI potential comes, in part, from an ongoing partnership with OncXerna Therapeutics, a private biotech firm. The two leverage OncXerna’s AI-powered platform to act as an early cancer diagnostic tool. The platform uses machine learning to align patient tumor types with biologically-appropriate treatment tailored to the patient. The platform’s potential is massive and serves as proof that AI has a bright future in healthcare.
Exact Sciences also partnered with VieCure, another AI-driven cancer diagnostic platform. Like its other goals, this AI-powered partnership seeks to “improve clinical workflow and make it easier for community oncologists to order the right tests and generate patient-specific treatment plans.”
UiPath (PATH)
UiPath (NYSE:PATH) is Cathie Wood’s top AI stock. In the interview, she said that the robotics automation firm “is helping companies automate the most mundane administrative tasks in their companies” using AI. UiPath’s offerings might seem mundane at first. After all, automation systems in the workplace have been longtime staples of the digital office age. But a look at the many case studies the firm hosts points to the underlying reason behind Cathie Wood’s bull thesis. UiPath is tailorable across innumerable industries leveraging company or sector-specific data sets. UiPath is also integratable with many leading SaaS products, including Salesforce (NYSE:CRM), Amazon’s (NASDAQ:AMZN) web service segment and even OpenAI.
Considering how the economy treats tech stocks today, the company’s financial strength and growth are also noteworthy. UiPath posted a 19% overall year-over-year revenue growth in its most recent report. UiPath also grew recurring revenue by 25%, indicating a happy client base sticking with the company’s automation solutions. PATH shares are up about 33% this year, but the stock is still priced to buy. Investors interested in replicating the Cathie Wood strategy should make UiPath a AI stocks portfolio fixture.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
