Cathie Wood says software stocks are the next AI bet after Nvidia

(Bloomberg) — Cathie Wood says software vendors will be next to ride the artificial intelligence frenzy led by Nvidia Corp.

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“We look to software vendors that are currently where Nvidia was when we first bought it,” Wood, CEO and founder of Ark Investment Management LLC, told Bloomberg TV on Wednesday. While Nvidia should do well over time, Ark has “moved on,” she added.

Wood’s flagship ARK Innovation ETF (ticker ARKK) trimmed its stake in Nvidia in January and missed an epic rally that took the chipmaker briefly past $1 trillion in market valuation. Wood defended his decision to dump Nvidia shares, citing concerns about the computer chip industry’s boom and bust cycle and saying his price was “ahead of the curve” in an earlier tweet this week.

READ: Too rich for Cathie Wood, Nvidia shares stretchable review limits

Instead, Wood is betting on software stocks she expects to eventually grow to the size of Nvidia, citing UiPath Inc., Twilio Inc. and Teladoc Health Inc. as key examples. Wood’s funds own all three stocks.

“For every dollar of hardware sold by Nvidia, software vendors, SaaS vendors will generate $8 in revenue,” Wood told Bloomberg TV.

Wood is betting on a trio of companies that have fallen far from their highs. New York-based UiPath hit more than $85 per share after its IPO in 2021 and has fallen around 80% since. San Francisco-based Twilio is down 85% from its 2021 high, while Teladoc Health is down more than 90% from its 2021 high.

The Ark Innovation ETF has lost more than 10% since its peak in early February, while the Nasdaq 100 stock index has jumped 12% over the period.

Wood reiterated that Tesla is the “biggest game in artificial intelligence” and expects its stock price to hit $2,000 in 2027 on the self-driving tech, from around $200 currently.

“We believe self-driving taxi platforms globally will generate $10 trillion in revenue from almost zero” by 2038, she said on Bloomberg TV. “A lot of people think of Tesla as car stock. We don’t, we think it’s a lot more than that.

On China, Wood said the “common prosperity” policy agenda means companies growing in the country will have to give up their margins if they want that opportunity for scale.

–With help from Shery Ahn, Rebecca Sin, Edwin Chan and Peter Elstrom.

(Updates with more information on Wood’s software choices beginning in the sixth paragraph)

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