Ark Invest co-founder and CEO Cathie Wood is followed closely by investors looking for growth stock ideas. And while not all of her recommendations are spot-on, some great companies she's invested in have a lot of potential to beat the market.
Three such companies in Wood's portfolio that could deliver bigger gains than the market in the coming years are Tesla (TSLA 1.14%), Shopify (SHOP -1.68%), and Microsoft (MSFT -3.91%). Here's why.
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1. Tesla
Tesla is the top holding in the Ark Innovation ETF, accounting for just over 10% of the value of its portfolio. Wood believes that Tesla's stock price has the potential to reach a shockingly high $2,000 per share by 2027. Whether you believe that or not, there are still some great reasons why the electric vehicle (EV) leader could outpace the market in the coming years.
First, the company has about 50% of the U.S. EV market and 20% in Europe. And in the first quarter of this year, its Model Y was the best-selling vehicle in both markets (excluding pickup trucks). While competition is certainly heating up in the EV space, Tesla is unlikely to be toppled soon, thanks to its manufacturing dominance.
Tesla's vehicle production rose 44% year over year in the first quarter to 440,000, and its deliveries jumped 35% to more than 422,000. Contrast that with some of Tesla's newest EV rivals, Rivian and Lucid, which are struggling to ramp up their manufacturing.
Sure, it will face pressure from traditional automakers throwing their hats into the EV ring, but that doesn't mean Tesla is doomed. According to an International Energy Agency report, EV sales are forecast to account for 60% of all new vehicles sold by 2030, and Tesla is already in full production mode. The company has years of EV manufacturing under its belt, while smaller competitors are stumbling and prominent auto manufacturers are trying to find their footing.
2. Shopify
E-commerce platform operator Shopify is another favorite of Wood's, and is ARK Invest's eighth-largest holding, with positions in three of its exchange-traded funds.
Shopify may seem like an odd stock to consider buying now, given that inflation is still high and the U.S. economy may be headed for a recession. But the larger trend toward more online shopping is likely to continue gaining momentum in the coming years, and Shopify appears ready.
The company's sales rose 25% in the first quarter to $1.5 billion, and the amount spent through Shopify's platform -- called gross merchandise volume (GMV) -- jumped 15% to $49.6 billion. That growth is impressive enough on its own, but it's even more impressive given that it came at a time when some retailers are experiencing slowdowns.
Shopify could be a long-term winner from here for investors for two reasons. First, it has firmly established itself as a key platform for merchants. And it continues to gain more ground with larger merchants (i.e., ones that bring in more revenue). Larger merchants now account for 34% of its monthly recurring revenue, up from 30% in the year-ago quarter.
The second is that e-commerce is just getting started. According to a forecast from Insider Intelligence, the global e-commerce market will grow from a market size of about $5 trillion last year to $7 trillion by 2025. And when you consider that only 15% of all U.S. retail sales occur online right now, it's clear that Shopify could continue to grow as e-commerce expands.
3. Microsoft
After initially shying away from Microsoft, Wood scooped up shares of the tech giant back in March for the Ark Next Generation Internet ETF. The move was undoubtedly a reaction to Microsoft's $10 billion investment in OpenAI, which created the massively popular chatbot, ChatGPT.
Microsoft has integrated ChatGPT into its Bing search engine, its Azure cloud computing service, and its Microsoft 365 suite of productivity apps. Its rapid adoption of the chatbot technology caused some investors to question the future of Google's dominance in the search business, and speculate about whether an AI-powered Microsoft Bing might be the next wave of online search.
While no AI winner can be declared just yet, Microsoft looks to be taking a clear lead now. In addition to going all-in on ChatGPT, Microsoft could further benefit from AI's rise through its Azure cloud computing services. AI processing needs massive cloud computing power, and Azure is already the No. 2 cloud computing service behind Amazon.
ARK Invest has forecast that AI software will become a $14 trillion market by 2030, and Microsoft could be a fantastic way to tap into this market, especially when you consider that the company is already implementing ChatGPT into its services and has a huge opportunity to grow Azure through expanding AI cloud demand.
