Ark Investment Management is one of the most bullish firms on Wall Street when it comes to the potential of artificial intelligence (AI). It manages eight exchange-traded funds (ETFs) focused on different areas of the technology sector, overseen by seasoned investor Cathie Wood.
Ark predicts AI will add a whopping $200 trillion to the global economy by 2030 by making knowledge workers (lawyers, scientists, and software engineers) more productive. But the firm is particularly optimistic about one AI segment: autonomous self-driving vehicles.
In an interview on CNBC's Halftime Report on Oct. 16, Cathie Wood said "autonomous driving is the biggest AI project in the world." Ark has previously published research that suggests it will birth new industries like autonomous ride-hailing, which could generate $4 trillion in revenue over the next five years alone.
Here are three stocks worth considering that are working on autonomous technology below. Spoiler alert: One of them is Ark's largest holding!
Image source: Getty Images.
1. Nvidia delivers AI in more than just the data center
Nvidia (NVDA -0.46%) is one of the top performing stocks in 2023, with a gain of 194% so far. The company sells the most powerful graphics processing chips (GPUs) in the world for AI workloads, which help developers rapidly train and deploy their models.
Wall Street has focused heavily on Nvidia's data center segment recently because it has been the primary source of growth for the entire company. As leading providers of cloud services race to fit their infrastructure with advanced AI chips, it has sent Nvidia's revenue surging. In the recent fiscal 2024 second quarter (ended July 30), the company's data center revenue was up a whopping 171% year over year to $10.6 billion.
But Nvidia is also building a lucrative automotive business that doesn't receive as much attention. It's led by the company's DRIVE platform, which is an end-to-end solution for designing autonomous vehicles, including all of the necessary hardware and software a car manufacturer needs to successfully install the technology.
In Q2, Nvidia's automotive revenue came in at $253 million, which was only a 15% year-over-year increase. Plus, compared to the data center, this is still a tiny part of the company overall. But that could soon change. Last year, Nvidia said it had $11 billion worth of revenue in the pipeline that will be realized in the lead up to fiscal 2028.
At least 40 customers have signed up to use the DRIVE platform so far, including some of the largest brands in the automotive industry, like Mercedes Benz, Nio, and Tata Motors' Jaguar and Land Rover. All of those manufacturers will lean on Nvidia's technology to support their autonomous driving ambitions.
The data center will likely remain Nvidia's core growth driver over the next couple of years, but it's exciting to know yet another business segment will eventually contribute billions of dollars in revenue. Investors seeking a way to play the emerging autonomous driving industry should definitely consider buying Nvidia stock.
2. Tesla stock could surge thanks to autonomous driving
It's impossible to talk about any modern automotive technologies without mentioning Tesla (TSLA -3.48%). The company is a global leader in electric vehicle sales, and it has developed arguably the most advanced autonomous technology too. In fact, Cathie Wood calls Tesla the biggest AI play in the world, so it's no surprise the stock is Ark's largest holding.
Ark's research suggests Tesla has around 10 times more customer vehicles on the road testing self-driving technology than any other manufacturer. According to Tesla CEO Elon Musk, those customers have driven over 500 million miles so far using the beta versions of its autonomous software. That gives Tesla a distinct advantage over the competition, because an AI model is only as good as the volume of data used in the training phase.
Self-driving could absolutely transform Tesla's economics. The company manufactures electric vehicles with a gross profit margin of under 20% right now, but Musk and Wood believe that could scale to 70% over time when autonomous driving goes mainstream. Tesla will achieve that in three ways:
- It will earn high-margin revenue by selling the software on a subscription basis to Tesla customers.
- Musk is considering licensing Tesla's autonomous software to other manufacturers, so it could become a competitor to Nvidia in that segment.
- Musk wants to build an autonomous ride-hailing network for Tesla owners so they can monetize their vehicles during periods of downtime.
The third point could be the most lucrative. Musk says the average passenger vehicle is only used for 12 hours per week, so autonomous software will enable people to earn income when their cars would otherwise be parked at home or at work. That money would be split between the vehicle owner and Tesla, creating yet another high-margin revenue stream.
Autonomous driving as a whole is the reason Ark estimates Tesla could be worth $6.1 trillion by 2027. That implies a stock price of $2,000, which would be a 784% gain from where it trades today. Take it with a grain of salt, though, because Ark's models suggest Tesla will grow its revenue by 65% per year, whereas Musk himself is only targeting 50%. Nonetheless, there is definitely a case for upside in Tesla stock.
3. Uber could become the biggest autonomous ride-hailing platform
When it comes to human-driven ride hailing, Uber Technologies (UBER 2.36%) is the undisputed leader with an estimated 25% global market share. The company has used its expertise in the segment to create successful food delivery and commercial freight businesses too, which also lead their respective industries.
Uber has 6 million drivers operating in its network, who collectively earned $28.8 billion in the first six months of 2023. That was equal to about 44% of Uber's $65 billion in total bookings from customers for the period, so it's the company's largest expense by far. But autonomous vehicles could eliminate that cost almost entirely, and Uber is signing partnerships hand over fist with tech companies in that space.
It has a 10 year deal with Motional, which is a joint venture between mobility technology company Aptiv and Korean automaker Hyundai. Aptiv has fitted Hyundai's Ioniq 5 electric vehicle with its full self-driving hardware and software, which will eventually operate within Uber's ride hailing network.
Additionally, Uber recently signed a deal with Alphabet's autonomous driving subsidiary Waymo. Waymo's vehicles could be running autonomous ride-hailing services on Uber before the end of this year.
Finally, Uber still owns a 26% stake in Aurora, a mobility technology company that took over Uber's in-house autonomous driving project back in 2020.
All of those developers of autonomous technology need Uber. Why? Because it has 137 million monthly active users on its platform, so it gives them access to the highest number of potential customers. That dominant position will also help Uber fend off incoming competitors like Tesla, which is effectively creating a ride-hailing network from scratch.
Uber is valued at just $90 billion as of this writing, and if it maintains its 25% market share when autonomous ride hailing takes off, it stands to earn $1 trillion of the $4 trillion in revenue Ark projects the industry will generate over the next five years. That could lead to substantial gains in Uber stock, so it's definitely one to own if investors want exposure to this new technology.
