1 Simple Way to Invest in Artificial Intelligence (AI) Stocks Just Like Cathie Wood

Cathie Wood is the founder and chief investment officer of Ark Investment Management, which operates several private and exchange-traded funds. She is one of the most optimistic voices on Wall Street when it comes to the long-term potential of tech stocks, which is reflected in Ark’s various portfolios.

Each Ark fund has a unique theme designed to give investors exposure to different segments of the technology sector. The Ark Autonomous Technology and Robotics ETF (ARQ 2.83%)for example, it invests in companies developing autonomous mobility solutions, robotics and neural networks, all powered by artificial intelligence (AI).

That ETF is actively managed, so it can be a great way to invest in the emerging AI industry under the guidance of a seasoned professional like Wood. However, it comes with risks.

Image source: Tesla.

The Ark Autonomous Tech and Robotics ETF has a highly concentrated portfolio

This Ark ETF was established in 2014 and currently manages $739 million in assets. Because it has a specific focus on autonomous technologies and robotics, its portfolio is highly concentrated and only holds 37 stocks.

Its top five holdings represent 23.9% of the total value of the entire portfolio, but include some of the biggest names in the AI ​​space:

Data source: Ark Invest, Cathie’s Ark. Portfolio weightings are accurate as of September 17, 2024 and are subject to change.

Tesla is more than an electric vehicle manufacturer. It is also one of the leading developers of fully autonomous driving software, which could transform the company’s economics in the long term. In fact, Cathie Wood says Tesla is the biggest AI opportunity in the world and believes its stock could rise more than 1,000% by 2029.

John Deere manufactures both conventional and autonomous machines for the agricultural sector. Its driverless tractors powered by artificial intelligence can reduce costs and save significant time for farmers. Then there’s Taiwan Semiconductor Manufacturing (TSMC), which makes most of the data center chips used in AI development.

Many of these chips are designed by Nvidiawhich boasts a 2.59% weighting within the ETF. Its graphics processing units (GPUs) have set a benchmark for the AI ​​industry, and the company can’t keep up with demand right now. Nvidia is preparing to expand shipping of its new Blackwell GPUs later this year, and they should offer significantly higher performance than its popular H100.

Alphabet, Amazonand Palantir Technologies are some of the other renowned AI companies in this ETF Ark.

Investing like Cathie Wood can be a recipe for volatility

Concentrated portfolios are a double-edged sword; they have the potential to deliver spectacular returns, but they can also underperform the broader market when the theme in question doesn’t perform. Furthermore, the performance of an actively managed fund relies on its investment professionals making the right stock picks at the right time.

The Ark ETF is down 2% this year, despite the fact that S&P 500 the index rises by 18%, which highlights the opportunity cost of being wrong.

The ETF’s large holdings in Tesla have been a drag as the stock is down 8% in 2024 so far. Shares of Deere & Company are flat for the year, and Archer Aviation is down 50%. Those losses canceled out the more than 60% gain for TSMC stock and also the 130% gain for Nvidia because it’s a relatively small position.

However, the Ark ETF is up 195% since its inception in 2014, which translates to a compounded annual gain of about 11.7%. That’s a solid return, but lags behind the S&P 500’s 13.2% annual average return over the same period.

The ETF could do much better if Ark’s forecast for Tesla stock comes true, for example. If artificial intelligence remains a dominant theme in the stock market, TSMC and Nvidia will also likely have strong returns in the coming years.

But volatility is likely to remain a consistent theme for this ETF, so investors buying it should do so as part of a balanced portfolio.