Cathie Wood Thinks This Stock Is the Biggest AI Play in the Market

Could artificial intelligence (AI) present the biggest moneymaking opportunity in a generation? It just might.

We've already seen several AI stocks soar so far in 2023. Nvidia, for example, has skyrocketed more than 160% higher thanks to AI-fueled demand for its graphics processing units.

But is Nvidia the best AI pick right now? Not according to Ark Invest founder and CEO Cathie Wood. She thinks there's another stock that's the "biggest AI play" in the market.

"The most obvious beneficiary"

Wood firmly believes that Tesla (TSLA -1.11%) stands out as the top AI stock around. She stated at Fortune's Most Powerful Women Next Gen Summit in May that the electric vehicle maker is "the biggest AI play out there."

A couple of weeks ago, the Ark Invest leader tweeted about her company's bullish take on Tesla. Wood claimed that the company "is the most obvious beneficiary of the recent breakthroughs in AI."

She's definitely putting her money where her mouth is. Tesla ranks as the largest holding in three of Wood's funds: Ark Innovation ETF (ARKK 1.05%), Ark Autonomous Technology & Robotics ETF (ARKQ 2.52%), and Ark Next-Generation Internet ETF (ARKW 0.45%).

Tesla has been a big winner for Ark Invest, too. So far this year, the stock is up nearly 130%. The huge gains haven't deterred Wood from adding more to Ark's position. In April, Ark Innovation ETF and Ark Next-Generation Internet ETF scooped up more Tesla shares.

Why Tesla?

Why does Wood view Tesla as the best AI stock? She's especially optimistic about the company's autonomous taxi (robotaxi) platform business.

Wood predicts that the robotaxi market will reach between $8 trillion and $10 trillion by 2030, or soon thereafter. Ark Invest expects the autonomous taxi business will make up roughly 44% of Tesla's revenue but two-thirds of its enterprise value as soon as 2027. 

With such a massive growth opportunity, Wood and her team believe that Tesla's market cap could approach $8 trillion within the next four years. Even the bearish model projected by Ark Invest gives Tesla a market cap of over $4.4 trillion by 2027. That's more than 5.6 times the stock's current valuation. 

Wood argues that Tesla is on track to be the biggest winner in robotaxis (and thus, in AI in general) because of its competitive advantage. She stated at the Fortune conference last month that Tesla has "more data than all the other auto companies and tech companies touching transportation combined." 

Is Wood right?

But is Wood's highly bullish take on Tesla really justified? That's debatable, to say the least.

There are two important numbers to keep in mind. The first one is $0. That's how much revenue Tesla generates from robotaxis right now. The second number is $25.5 trillion. That's the total size of the U.S. economy today.

Wood predicts that the autonomous taxi market will go from nothing to not far from half the size of the current U.S. economy by 2030. Color me skeptical. 

I'm not alone. Wall Street expects Tesla's growth to slow rather than accelerate over the next five years, compared to the past several years. Of the 23 analysts covering the stock surveyed by Refinitiv in June, only eight rate Tesla as a buy or strong buy. 

This does not mean that Tesla won't be successful, though. I agree with Wood that the EV and robotaxi markets will grow, and I have no doubt that Tesla will control significant shares of both markets.

But is Tesla the biggest AI play in the market right now? Maybe, but I suspect Wood is wrong on that view.