Ark Invest CEO Cathie Wood looks for one thing in her investments above all others: innovation. It's no coincidence that half of Ark Invest's actively managed ETFs feature the word in their names.
There's arguably no greater area for innovation right now than artificial intelligence (AI). Unsurprisingly, Ark Invest has loaded up in recent years on AI stocks. Here is every AI stock that Wood owns, ranked from best to worst.
Top-tier titans
Ark Invest ETFs hold positions in most of the stocks that I'd call top-tier titans in the AI world. These megacap AI leaders make up Wood's top five, in my view:
| Rank | Stock | Market Cap |
|---|---|---|
| 1 | Alphabet (GOOG 9.96%) (GOOGL 10.22%) | $1.7 trillion |
| 2 | Amazon (AMZN 3.43%) | $1.4 trillion |
| 3 | Microsoft (MSFT 1.82%) | $2.4 trillion |
| 4 | Meta Platforms (META 0.43%) | $805 billion |
| 5 | Tesla (TSLA -1.11%) | $783 billion |
Data source for market caps: Google Finance. Chart by author.
I've listed Alphabet in first place for three main reasons. First, the company is indisputably a leader in AI with its Google DeepMind unit. Second, AI gives Alphabet multiple paths to growth, including self-driving car technology with its Waymo business and hosting AI apps on Google Cloud. Third, the stock is arguably the most attractively valued of the top-tier AI contenders.
However, all the other members of the top five have a lot going for them. Amazon and Microsoft, like Alphabet, should benefit tremendously from AI advances. Meta's open-source approach to AI could reap significant rewards. And Tesla has a huge potential market opportunity with self-driving robotaxis.
AI asterisks
Each of the next five stocks in the ranking also lay claim to impressive growth prospects due to AI. However, I think they all also come with asterisks that prevent them from cracking the top five on the list.
| Rank | Stock | Market Cap |
|---|---|---|
| 6 | Nvidia (NVDA 6.18%) | $1.1 trillion |
| 7 | Palantir Technologies (PLTR 3.73%) | $36 billion |
| 8 | Advanced Micro Devices (AMD 2.37%) | $183 billion |
| 9 | Taiwan Semiconductor Manufacturing (TSM 1.26%) | $448 billion |
| 10 | JD.com (JD 6.12%) | $62 billion |
Data source for market caps: Google Finance. Chart by author.
Nvidia's stock has skyrocketed this year, with AI driving seemingly insatiable demand for its graphics processing units. The key problem for Nvidia, though, is its valuation. With shares trading at nearly 44 times sales, my fear is that a major pullback is due for the high-flying stock.
It's a similar story for Palantir and, to a lesser extent, AMD. Palantir's forward earnings multiple is close to 82x. That's steep for a company that delivered year-over-year sales growth of only 13% in its latest quarter. AMD's revenue declined 18% year over year in the second quarter, although I expect better days are ahead.
Taiwan Semi boasts an impressive moat. Its chips are used by AI leaders, including Nvidia and AMD. JD.com is investing heavily in AI apps. Its stock is also dirt cheap.
But both stocks share the same asterisk: China. The potential for the Chinese government's interference with JD's business raises uncertainties. And the possibility that China could invade Taiwan increases the risks associated with investing in Taiwan Semi.
Up-and-comers
I call the final four AI stocks in Wood's portfolio her up-and-comers. All of these stocks are making a name for themselves in AI but remain smaller (and riskier) than the other AI leaders in which Ark Invest has positions.
| Rank | Stock | Market Cap |
|---|---|---|
| 11 | Teradyne (TER 4.79%) | $16 billion |
| 12 | Accolade (ACCD -14.15%) | $1 billion |
| 13 | Schrodinger (SDGR 2.70%) | $3 billion |
| 14 | Recursion Pharmaceuticals (RXRX 3.57%) | $2 billion |
Data source for market caps: Google Finance. Chart by author.
Teradyne's technology is used to test autonomous mobile robots. I listed it ahead of the other up-and-comers because it's already profitable, whereas the other three companies aren't.
However, I like the potential for all of these bottom-rung AI stocks that Wood owns. Accolade is using AI to develop personalized healthcare solutions. Schrodinger and Recursion are using AI in drug discovery and development.
Knocking on Wood
Wood would probably argue that Tesla deserves to be ranked No. 1 instead of Alphabet. The electric vehicle maker is the top position in her combined Ark Invest portfolio, making up more than 7.6% of the ETFs' total holdings. None of the other top five AI stocks in my ranking, however, have a weight of more than 0.22%.
My main knock against Wood is that she hasn't invested as heavily in the best of these stocks as she could have. Overall, though, I think that she has an impressive lineup of AI stocks in her Ark Invest holdings.
