Ark Investment Management operates multiple private funds and multiple public exchange-traded funds (ETFs) that invest in innovative technology stocks. Last year, Ark CEO Cathie Wood said that software companies will be the next big opportunity in the artificial intelligence (AI) industry, predicting that the companies will generate $8 in revenue for every $1 spent on chips from vendors such as Nvidia.
Since Wood made that prediction, Ark Venture Fund has piled into several private AI software companies, including Anthropic, OpenAI, and Elon Musk’s xAI. Additionally, Ark’s ETFs own several AI-related software stocks, including Palantir Technologies, UiPathAnd Tesla.
If Wood is right about AI software, there could be an exciting list of winners in the long run. Here’s why Amazon (NASDAQ: AMZN) And Meta platforms (NASDAQ: META) are perhaps two of the largest.
1. Amazon: A Tech Giant with Multiple Layers of AI
Amazon is perhaps one of the most diverse AI companies in the world, using the technology in its flagship e-commerce business, its advertising business and, most importantly, its cloud computing segment led by Amazon Web Services (AWS).
AI powers the recommendation algorithm on Amazon.com, which learns what each customer likes so it can show them similar products to boost sales. Customers can also use a virtual shopping assistant named Rufus, who is trained on Amazon’s product catalog so he can answer questions and make recommendations. Additionally, Amazon just launched a new tool for its fulfillment centers called Project Private Investigator, which uses AI to identify defective products before they’re shipped to customers.
But AWS is home to an even more exciting set of AI initiatives. Not only is Amazon designing its own data center chips to give developers a more cost-effective alternative to Nvidia’s hardware, the tech giant has also developed its own family of large language models (LLMs) called Titan. These LLMs are multimodal, meaning developers can customize them to create their own generative AI software applications that can generate text, images and more.
Titan is accessible on the Bedrock platform in AWS, along with LLMs from several leading third-party AI startups such as Anthropic.
Finally, last year AWS launched a virtual assistant called Amazon Q, which can debug and generate computer code to accelerate the pace of software development. Amazon CEO Andy Jassy says Q is the most capable AI tool of its kind, as it has the highest known code suggestion acceptance rate and detects more security vulnerabilities than any competing product.
AWS alone generated a record $26.2 billion in revenue during the recent second quarter of 2024 (ended June 30), up 19% from the same period a year ago. It marked the third straight quarter of accelerating growth, thanks in large part to demand for AI. Amazon is one of the most attractively valued members of the trillion-dollar club, and if Cathie Wood is correct, its stock could deliver spectacular returns for investors in the years to come.
2. Meta Platforms: A social media giant with an AI twist
Meta is the parent company of popular social media platforms such as Facebook, Instagram, WhatsApp and Messenger. Together they serve over 3.2 billion people every day and AI is playing an increasingly important role in the user experience.
Facebook and Instagram, for example, have evolved from social networks to entertainment platforms, with AI-driven algorithms showing each user the most relevant posts, even if they haven’t been shared by anyone they know. This increases the amount of time users spend on the Meta family of apps, meaning they view more ads and generate more revenue for the tech giant.
Meta also continues to deliver new innovations for its advertisers. They can use AI to create engaging copy and image content for their ads, which is great for businesses that don’t have their own marketing team. But the process will become even easier over time. Eventually, businesses will be able to tell Meta their ad budget and goal, and the AI engine will autonomously handle everything from creating the ad to selecting the audience.
Meta also developed its own open-source LLM called Llama. It recently launched Llama 3.1, its most advanced version yet, with 405 billion parameters. The company says it’s already competitive with most other leading models, but CEO Mark Zuckerberg is already focused on Llama 4, which he says will set the bar for the industry next year. Llama is the foundation for many of the AI features in Meta’s pipeline, so it’s central to the company’s strategy.
Meta AI is one such feature. It’s a user-facing AI assistant that can now be accessed in chat and search across the company’s apps. It can accurately answer questions on a wide range of topics and can be prompted to generate text and image content. It also lays the groundwork for Business AI, which could be a big revenue driver for Meta in the future. Zuckerberg believes that every business will have its own AI agent capable of handling customer queries and even processing sales.
Meta stocks are currently trading at an all-time high, but are still attractively valued compared to their big tech peers. It trades at a price-to-earnings (P/E) ratio of just 26.7 at the time of writing, which is around 17% cheaper than the 32 P/E ratio of the Nasdaq-100 technology index. Given the P/E discount, this could be a great entry point for long-term investors, especially if Cathie Wood proves right.
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Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. 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 position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, Palantir Technologies, Tesla and UiPath. The Motley Fool has a disclosure policy.
Cathie Wood Says Software Is the Next Big Opportunity for AI — 2 Super Stocks You’ll Want to Buy Today If She’s Right was originally published by The Motley Fool
