Under the leadership of Cathie Wood, ARK Investment Management is known for its unrelentingly bullish stance on the technology sector. It has a portfolio of exchange-traded funds (ETFs), like the ARK Innovation ETF, that are focused on buying innovative technology companies with long-term growth potential.
The firm just released its Big Ideas 2023 report, and it contained a series of bold predictions about electric vehicles, robotics, aerospace, and (of course) artificial intelligence (AI). According to ARK's predictions, that last one could have a gigantic financial impact on the economy.
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Knowledge workers are set for a productivity explosion
A knowledge worker is typically somebody with a professional set of skills like a lawyer, engineer, or computer programmer. ARK Invest estimates those workers are collectively paid about $32 trillion per year in salaries, but by 2030, they could be producing $200 trillion per year in economic output with the help of AI.
That's twice the value of the entire world's $97 trillion in gross domestic product (GDP) in 2021.
ARK believes the cost of training AI models and coding assistants (like ChatGPT) will fall 70% each year until the end of this decade, which forms the basis for the substantial boost in productivity. It estimates that computer programmers, for example, will be 10 times more productive in 2030 than they are today because AI will be so easily accessible, reducing the amount of code that needs to be written manually.
Some companies are already helping their business customers harness the power of AI, and they're seeing incredible success. If ARK's predictions come true, there could be $14 trillion in revenue up for grabs across the industry, and here's why Confluent (CFLT 2.46%) and Splunk (SPLK) are set to share in that enormous pie.
1. Confluent is a leader in data streaming
Data streaming sounds like a complex concept, but it's actually rather simple (at least on the surface). Modern-day businesses are increasingly operating online by using technologies like cloud computing. As a result, they're generating more data than ever, but they're not necessarily equipped to draw value from it.
A business needs to get data from point A to point B instantly, and analyze it in real time because that can be the difference between keeping a customer or waving goodbye to missed revenue. Point A might be the customer's experience and purchase patterns in the business' online store. Point B could be the company's headquarters, where it runs analysis to make improvements. Thanks to data streaming, that whole process now takes seconds instead of days or weeks.
That's why more than 4,500 businesses use Confluent, including Walmart and global tire producer Michelin, to automate inventory management, improve the reliability of their online infrastructure, and streamline operations.
Machine learning begins and ends with the user's ability to harness data, and so Confluent's data streaming technology is a key bridge to building such models. The company says customers can effectively stream machine learning to build predictive maintenance tools, or even identify bank fraud in real time.
Confluent was one of the fastest growing tech companies in 2022. Its revenue jumped 51% year over year to $585.9 million, but it has only scratched the surface of what it believes to be a $60 billion opportunity today. The company cites a study by the International Data Corporation that suggests by 2025, 90% of the world's 1,000 largest companies will be using data streaming technology. Confluent stock looks like an attractive buy now, through that lens, without even considering ARK Invest's forecasts.
2. Splunk is a go-to provider of machine learning technology
Machine learning is a sub-field of the artificial intelligence industry, and it's focused on the intelligence of machines and computer systems. It relies on a significant amount of data (just like training language models), and it's already widely used in the corporate sector. Splunk is a leading provider of the technology.
The McLaren Formula 1 racing team uses Splunk to ingest 1.5 terabytes of data from 300 sensors fitted to their cars every single race. Manually analyzing that data to generate any sort of valuable information is impossible in real time, no matter how many members of the team are working on it. But by using machine learning, Splunk spits out actionable insights instantly, so McLaren can make adjustments to the car even in the heat of a race.
That resembles the enormous productivity boost ARK Invest claims AI is capable of delivering. Extrapolate that across thousands of Splunk customers in different industries -- including 90 of the Fortune 100 -- and it's easy to envision a substantial boost to economic output.
As of the recent fiscal 2023 fourth quarter (ended Jan. 31), Splunk had 790 businesses spending at least $1 million per year with the company, with 422 of them spending that much on cloud-based services alone. The company has found a rich vein of growth by offering its tools in the cloud so customers can access them anywhere.
Its annual recurring revenue (ARR) came in at $3.67 billion in fiscal 2023. The cloud portion made up more than half that figure, but it grew at 64% year over year, which is triple the pace of its non-cloud ARR. The equation is simple: More accessibility equals more uptake, so Splunk's cloud strategy is contributing to the adoption of advanced machine learning tools among businesses.
Splunk stock is down 58% from its all-time high at the moment amid the broader sell-off in the technology sector. That might be a great long-term entry point for investors, especially if ARK's predictions come true.
