How bullish is Cathie Wood about artificial intelligence (AI)? It's one of her Ark Invest's "big ideas" for 2023. Ark believes that AI "is the most important catalyst" of all for creating "super-exponential growth." 

Earlier this week, Ark Invest published a report that examined the best approaches for investing in AI. Its client portfolio manager, Thomas Hartmann-Boyce, wrote that megacap AI leaders including Apple, Alphabet, and Nvidia are risky. However, Ark Invest -- and presumably Wood herself -- think that there are two AI stocks that could be better. 

Risky business

Apple, Alphabet, and Nvidia have been huge winners with this year's AI boom. But Ark sees two primary risks for these tech giants: high valuations and the potential for disruption.

Nvidia is the most glaring example of a high valuation. Its stock trades at a price-to-sales (P/S) ratio of 44. Even looking at the chipmaker's projected sales for 2025, the P/S multiple is over 19.

Ark also thinks that "AI could disrupt the once reliable, cash-cow businesses" of these huge companies. For example, OpenAI's ChatGPT could threaten Apple's App Store and Alphabet's Google Search. Hartmann-Boyce asked, "Who needs special-purpose apps when a general-purpose interface can provide answers across the open web?"

But what about the significant AI investments that these large technology leaders are making? Ark acknowledges their ample financial resources. However, its recent report argues that their efforts could focus largely "on older technologies, often the reason that large companies have missed subsequent waves of innovation."

Two stocks for AI's "sleeper wave" 

Ark Invest believes that there could be a "sleeper wave" of AI winners that aren't as widely known. Several of the companies on its radar screen are privately held. But Ark's report highlighted two up-and-coming AI stocks.

UiPath (PATH 0.26%) makes robotic process automation software. Its Business Automation Platform supports automating processes for the financial services, healthcare, public sector, manufacturing, retail, and telecom industries.

The company's annualized revenue run rate has had a compound annual growth rate of 42% since 2021. Ark thinks that UiPath's focus on low-code and no-code interfaces gives it a significant competitive advantage. 

Twilio (TWLO 1.47%) markets a customer-engagement platform for integrating messaging, email, and voice with customers' software applications. It has more than 150,000 customers across the world, including Airbnb, Salesforce.com, and Uber. 

In Ark Invest's view, Twilio is in the strongest position to roll out AI into customer communication channels. While its margins have been pressured in recent quarters due to macroeconomic headwinds, Ark thinks the company will enjoy strong growth with its AI focus over the long run. 

More risky business?

Ark's report released earlier this week pointed out key risks for current AI leaders Apple, Alphabet, and Nvidia. However, its "sleeper" AI stocks also come with risks of their own.

Valuation isn't just an issue for the megacap stocks. Neither UiPath nor Twilio is profitable yet, so earnings-based metrics aren't useful in determining their valuations. UiPath trades at a higher P/S multiple than Apple or Alphabet, although Twilio's valuation looks more attractive based on its trailing-12-month sales.

UiPath and Twilio aren't immune from disruption, either. Both companies acknowledge that their respective markets are becoming increasingly competitive. 

Tucked away in Ark Invest's report is a caution that smaller-cap AI stocks "often carry potential risks like higher volatility, lower liquidity, and business failure given earlier lifecycles." All of these potential risks are applicable to UiPath and Twilio.

My view is that Ark Invest is right to point out the prospects of rising stars like UiPath and Twilio that haven't received as much attention from investors. However, I wouldn't dismiss the long-term opportunities for Apple, Alphabet, and Nvidia. All three companies have overcome plenty of challenges through the years to achieve their tremendous success. They just might continue to do so.