Ark Investment Management manages eight exchange-traded funds (ETFs) that invest primarily in innovative technology stocks. Last year, Ark CEO Cathie Wood said software companies will be the next big opportunity in artificial intelligence (AI), predicting they could generate $8 in revenue for every $1 spent on chips from suppliers as Nvidia.
Ark’s ETFs reflect that view. Tesla shares are the largest holding in the flagship Ark Innovation ETF as Wood has called its self-driving software the world’s biggest AI opportunity. Additionally, Wood recently acquired stakes in leading AI software companies such as OpenAI, Anthropic and Elon Musk’s xAI through the Ark Venture Fund.
If Wood is right about AI software, several stocks could see significant gains in the coming years. This is why Amazon (NASDAQ: AMZN) And Duolingo (NASDAQ: DUOL) might be among them.
1. Amazon: AI software is just the beginning
Amazon is one of the most versatile AI stocks investors can buy. It is weaving the technology into many of its existing businesses, from e-commerce to streaming, and its cloud division Amazon Web Services (AWS) is developing everything from AI chips to AI chatbots.
Amazon uses AI to power the recommendation engine on Amazon.com. It learns which products customers like to buy so it can promote more of them to boost sales. Additionally, the company has developed a range of AI software tools for sellers to help them create product descriptions and create more compelling ads to increase conversions.
But Amazon Web Services (AWS) is the beating heart of Amazon’s AI ambitions. It designed its own data center chips for training and inferring AI models, and these have become popular with developers because they can reduce costs by up to 50% compared to Amazon’s other infrastructure (which, for example, is powered by Nvidia’s more expensive chips ).
Then there’s Amazon Bedrock, where developers can access a range of pre-built large language models (LLMs) in the cloud from leading startups like Anthropic. It also features a family of LLMs designed in-house by Amazon called Titan. Developers can create AI applications for their business much faster by using off-the-shelf LLMs, compared to building their own applications, which would require significant amounts of time, data and money.
Finally, AWS offers ready-to-use AI applications such as the new Amazon Q, a comprehensive virtual assistant that can be tailored to the needs of almost any organization. It can scan, analyze and even write computer code to speed up product development, in addition to answering employee questions on a wide range of topics.
Amazon could soon surpass a $2 trillion valuation, a milestone only four other U.S. tech companies have achieved. Here’s the kicker: Wall Street expects Amazon to generate a record $638 billion in revenue by 2024, which is significantly more than any of those four other companies will bring in — Apple comes closest with an estimated revenue of $386 billion in the current fiscal year.
From that perspective, Amazon stock looks cheap right now. The company is rapidly improving its profitability through cost savings, efficiency initiatives and AI, which could be the final key to achieving a higher stock price in the long term.
2. Duolingo: boosting language education with AI
Duolingo isn’t an enterprise software company, but the app-based language learning platform will benefit from a new subscription-based revenue stream thanks to AI. Before we delve into that, let’s examine the existing activities.
As of the first quarter, Duolingo served 97.6 million monthly active users, up 35% from the same period a year ago. It also had 7.4 million users who paid a monthly subscription to accelerate their learning, and these paying users experienced an even faster growth rate of 54%. That’s incredibly impressive when you consider that up to 90% of the platform’s users are acquired organically (without paid ads).
So, where does AI fit into the picture? Duolingo users complete 10 billion exercises every week, meaning the company collects more data than any other language learning platform in the world. That’s valuable when it comes to training AI models, which Duolingo has been doing since 2013 in an effort to create a learning experience that rivals human teachers.
The launch of its Max plan last year brought it one step closer to that goal. It introduced two new AI-powered features: Explain My Answer, which gives users personalized feedback based on their mistakes in each lesson, and Role Play, a chatbot that allows users to talk in the language of their choice to improve their conversation skills. These new AI features run on a combination of Duolingo’s own models and OpenAI’s latest GPT-4 models.
The company also uses AI to create lesson content, giving employees more time to work on other important initiatives, such as new features.
Duolingo increased its revenue 45% year over year to $167.5 million last quarter. It also turned a profit with a net income of $26.9 million, proving to investors that it doesn’t have to burn truckloads of cash to achieve strong revenue growth.
The new AI-powered Duolingo Max subscription is still in the early stages of rollout, but is being sold at a higher price than the company’s other paid subscriptions, which could ensure a continuation of strong financial results going forward .
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Apple, Duolingo, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
Cathie Wood Says Software Is the Next Big AI Opportunity – 2 Super Stocks You’ll Wish You’d Bought Today If She Was Right, originally published by The Motley Fool
