Ark Investment CEO Cathie Wood has described artificial intelligence (AI) as one of the major areas of innovation and describes the potential gains as "astounding and shocking." Through various ETFs, her firm holds shares in numerous AI stocks and the technology is likely at least one major factor in why her investment firm has purchased stock in Tesla, Zoom Video Communications, UiPath, and others.

The potential of AI likely also inspired Ark Invest to resume its investment in Palantir Technologies (PLTR 2.14%). Following the announcement of its AI platform, Palantir AIP, earlier this month, Ark bought more than 4 million shares. And given the potential of Palantir's AI technology, it could gain a position as one of Ark's top holdings in five years. Here's why.

Ark's evolving views on Palantir

Admittedly, the Palantir move might have come as a surprise given Ark's history with the stock. Ark held more than 30 million shares of Palantir in February 2022 before selling the entire position, according to data compiled by the website Cathie's Ark.

Brett Winton, who served as Ark's director of research at that time, cited "competitive positioning within the government space" and felt other stocks would serve Ark's funds better from a risk management perspective. Indeed, the price range of $9.50 per share to $12.18 per share where it sold almost all of the stock is significantly above the current price.

However, considering when Ark Invest bought those shares, those sales brought about massive losses. The company first added Palantir shares beginning in October 2020, soon after the initial public offering. It then accelerated its purchases between February 2021 and August 2021, a period when the stock usually sold for more than $23 per share and reached its record price of $45 per share.

Those purchases took its share count to more than 37 million at its peak in August 2021. Additionally, it held more than 30 million shares right before it closed its positions the following February.

Ark's return to Palantir

Ark stayed on the sidelines for over a year, going back into Palantir when it bought almost 6 million shares in the trading sessions following the first-quarter earnings report. That announcement and the launch of AIP appeared to inspire buying in the stock.

Other factors may have reinforced the decision to buy. Palantir reported its second consecutive quarter of positive net income and said it would probably remain profitable throughout the rest of the year. And although Wood is not a value investor, the price-to-sales (P/S) ratio of 12 is near historic lows, which could have also influenced the purchase.

Due to those purchases, Palantir is Ark's 32nd largest holding as of the time of this writing. Still, the company's large role in AI could eventually make Palantir a top holding for Ark. The AIP, which Palantir announced on April 27, reinforces a unique position in the AI market. AIP can monitor and control large language models (LLMs), handing off procedures for audits and human operations and helping enterprises comply with legal and regulatory audits.

Additionally, Palantir's existing AI models can reduce its tasks to numerous micro models, chaining them together through AI in an end-to-end solution. That approach delivers AI-driven insights immediately.

Furthermore, despite its classification as a "big data" company along the lines of Snowflake or Alteryx, no other company can replicate the types of analyses offered by Palantir. Considering its customer counts grew 41% yearly in Q1, more enterprises continue to turn to Palantir, especially in its commercial business. And since it is the only provider of this type of software, the lack of competition should increase potential returns, inspiring more investors to buy Palantir stock over time.

Palantir as a top AI stock

Ark Invest's return to Palantir confirms a level of AI strength that could make it a top holding by 2028. Although it holds a relatively small position today, Ark Invest has previously owned much larger amounts of Palantir shares, a possible indication it may do so again.

Moreover, no other company has built a product that competes with Palantir. With the company bolstering its AI with an additional module, it could inspire Ark Invest to make Palantir stock a leading Ark Invest position as more enterprises turn to its platforms.