Cathie Wood Says Software Is The Next Big AI Opportunity — 2 Super Stocks You’ll Wish You’d Bought Today If She’s Right

Ark Investment Management operates several private funds as well as several public exchange-traded funds (ETFs) that invest in innovative technology stocks. Last year, Ark CEO Cathie Wood said software companies would be the next big opportunity in the artificial intelligence (AI) industry, predicting that companies would generate $8 in revenue for every dollar spent on chips from vendors such as Nvidia.

Since Wood made that prediction, Ark Venture Fund has piled on several private AI software companies, such as Anthropic, OpenAI and Elon Musk’s xAI. In addition, Ark ETFs own several AI-related software stocks, including Palantir Technologies, UiPathand adze.

If Wood is right about AI software, there could be an interesting list of long-term winners. Here’s why Amazon (AMZN 3.71%) and Meta platforms (META 0.60%) could be two of the biggest.

1. Amazon: A tech giant with multiple layers of AI

Amazon might be one of the most diverse AI companies in the world. It uses the technology in its flagship e-commerce business, in its advertising business and most importantly in its cloud computing segment led by Amazon Web Services (AWS).

AI powers Amazon.com’s recommendation algorithm, which learns what each customer likes so it can show them similar products to increase sales. Customers can also use a virtual shopping assistant called Rufus, which is trained on Amazon’s product catalog so it can answer questions and provide recommendations. In addition, Amazon just launched a new tool for its fulfillment centers called Project Private Investigator, which uses AI to identify defective products before they are shipped to customers.

But AWS is home to an even more interesting set of AI initiatives. Not only is Amazon designing its own data center chips to give developers a more cost-effective alternative to Nvidia hardware, but 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 are capable of generating text, images, and more.

Titan is accessible on AWS’s Bedrock platform, along with LLMs from several third-party AI start-ups, such as Anthropic.

Finally, last year AWS launched a virtual assistant called Amazon Q, which is able to debug and generate computer code to speed up the pace of software development. Amazon CEO Andy Jassy says Q is the most capable AI tool of its kind because it has the highest known acceptance rate for code suggestions and catches more security vulnerabilities than any competing product.

AWS alone generated a record $26.2 billion in revenue in the most recent second quarter of 2024 (ended June 30), which represented a 19% year-over-year increase. It marked the third consecutive 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 right, its stock could provide spectacular returns for investors in the coming years.

2. Meta Platforms: A social media giant with an AI twist

Meta is the parent company of popular social media platforms like Facebook, Instagram, WhatsApp and Messenger. Together, they serve more than 3.2 billion people every day, and AI is playing an increasingly important role in user experience.

Facebook and Instagram, for example, have evolved from social networks into entertainment platforms, with algorithms based on artificial intelligence showing each user the most relevant posts, even if they were not shared by anyone they know. This increases the time users spend on the Meta family of apps, which means they see more ads and generate more revenue for the tech giant.

Meta continues to deliver new innovations to advertisers as well. They can use AI to create engaging text and image content for their ads, which is great for businesses that don’t have an in-house marketing team. But the process will become even easier over time. Eventually, businesses will be able to tell Meta their advertising budget and goal, and its AI engine will autonomously handle everything from ad creation to target audience selection.

Meta has also developed its own open-source LLM called Llama. Just released Llama 3.1, the most advanced version yet with 405 billion parameters. The company says it’s already competitive with most other top models, but CEO Mark Zuckerberg is already focusing on the Llama 4, which he says will set the standard for the industry next year. Llama is at the heart of many AI features in the Meta pipeline, so it’s key to the company’s strategy.

Meta AI is one of those features. It is a user-oriented AI assistant that is now accessible in chat and search functions in all company applications. Can accurately answer questions on a wide range of topics and can be asked to generate text and image content. It also lays the groundwork for Business AI, which could be a big revenue generator for Meta in the future. Zuckerberg believes that every company will have its own AI agent capable of handling customer inquiries and even processing sales.

Meta shares are trading near all-time highs right now, but are still attractively valued compared to its tech peers. It trades at a price-to-earnings (P/E) ratio of just 26.7 at the time of writing, which is about 17% cheaper than the company’s 32 P/E ratio. Nasdaq-100 technology index. Given the P/E reduction, this could be a great entry point for long-term investors, especially if Cathie Wood turns out to be right.