Investing in AI software: Ark Invest’s Cathie Wood bets on companies UiPath, Twilio, Teladoc Health and Tesla for long-term growth

Cathie Wood, founder and CEO of Ark Invest, is known for investing in disruptive innovation. Wood has placed a heavy bet on artificial intelligence (AI) which is considered one of the most advanced and transformative technologies of our time.

When it comes to AI-related actions, Nvidia Corporation’s shares have increased by 165% so far this year and the company’s valuation has exceeded 1 trillion dollars at one point.

Wood’s flagship fund, the Ark Innovation ETF, sold its position in Nvidia in January, but some of its other ETFs still hold positions in the chipmaker. However, in a recent interview with Bloomberg Television, Wood claimed that Nvidia “will perform well in the long run,” but sees a new group of stocks that benefit from “the foundation that Nvidia has established.” The keyword, for Wood, is software.

“In our opinion, for every dollar of hardware that Nvidia sells, software and SaaS vendors [software as a service] will generate $8 in revenue. So we’re looking at the software vendors that are currently where Nvidia was when we first bought it.”

The investor then named three software companies that she believes will prosper from AI, as well as a major player, which she calls “the greatest artificial intelligence game.”

Software Companies

UiPath Inc. (NYSE: PATH)

UiPath is a software company that provides automation solutions for companies through its AI-powered Enterprise Automation Platform, capable of facilitating end-to-end processes. The company’s revenue for the first quarter of 2023 grew 18% year-on-year up to $289.6 million, while its dollar-based net retention rate was 122%. Although UiPath’s shares are up 47% so far this year, they have not always been a popular stock, with the stock plunging 70% in 2022. Wood’s Ark Innovation ETF currently owns 28,865,375 shares of UiPath with a position value of $517.28 million, making it the fourth-largest holding in Ark.

Twilio Inc. (NYSE: TWLO)

Twilio’s cloud communications platform enables businesses to develop and integrate various communication channels into their applications. Its application programming interfaces (APIs) allow developers to seamlessly incorporate voice, messaging, and video, which helps companies improve customer engagement. In the first quarter, Twilio surpassed 300,000 active customer accounts, while revenue increased 15% year-over-year up to $1,010 million. In his latest earnings call, Jeff Lawson, Twilio’s co-founder and CEO, said he believes that AI “will be a material accelerator over time for the Twilio business.” The Ark Innovation ETF currently owns 4,680,705 shares of Twilio, a stake with a market value of $303.54 million.

Teladoc Health Inc. (NYSE: TDOC)

Teladoc Health is a telemedicine company whose platform connects patients with healthcare professionals via video, phone, and messaging. At the height of the COVID-19 pandemic, when in-person, non-urgent medical care was temporarily halted, the demand for telemedicine services skyrocketed. In 2020, Teladoc attracted a lot of attention from investors as its revenue increased 98%. Although the pandemic is largely in the rearview mirror, the company continues to expand its business. Teladoc’s first-quarter revenue showed an 11% year-over-year increase, but trading at $24.30 per share, Teladoc is down more than 90% from its all-time high reached in February 2021. Wood’s Ark Innovation ETF owns $301.07 million of Teladoc Health.

Tesla: “The Greatest Artificial Intelligence Game”

Wood’s biggest bet in the AI arena is a company not traditionally viewed as an AI stock: Tesla Inc. (NASDAQ: TSLA). The electric car company is Ark’s biggest holding with an 11.81% weighting. Wood expects autonomous driving technology from Tesla to deliver between 8 and 10 trillion dollars in revenue globally in 2030 “from almost zero now.” And because of Tesla’s capabilities on that front, the booming market for autonomous taxis could take its share price to a whole new level.

“We believe that in five years, in 2027, it will be a $2,000 share if our research is correct.”

Considering that Tesla shares are trading around $235 now, Wood’s price target implies a potential upside of more than 750%. Investing in disruptive innovation can be very lucrative, but it can feel like a roller coaster at times. For example, while Tesla’s stock has more than doubled so far this year, it is still 40% below their peak in November 2021.