Cathie Wood says software is AI’s next big opportunity — if she’s right, here are 2 super stocks I wish I’d bought today

Ark Investment Management runs eight exchange-traded funds that invest primarily in innovative technology stocks. Last year, Ark CEO Cathie Wood said software companies were the next big opportunity in artificial intelligence, predicting that every dollar spent on chips from suppliers like: NVIDIA.

Ark’s ETFs reflect that stance. Tesla Stocks are the largest holding among the core products Ark Innovation ETF Wood calls his company’s self-driving software the world’s biggest AI opportunity, and through his Ark Venture fund, he recently acquired stakes in leading AI software companies, including OpenAI, Anthropic, and Elon Musk’s xAI.

If Wood’s views on AI software turn out to be correct, several stocks could be in for big gains over the next few years. Here’s why. Amazon (AMZN 1.60%) and Duolingo (Duol 3.73%) It could be among them.

1. Amazon: AI software is just the beginning

Amazon is one of the most versatile AI stocks investors can buy: The company is incorporating AI technology into many of its existing businesses, from e-commerce to streaming, and its Amazon Web Services (AWS) cloud division is developing everything from AI chips to AI chatbots.

Amazon uses AI in its recommendation engine on Amazon.com to learn what products customers want to buy so it can promote those products more and drive sales. Additionally, the company has developed a suite of AI software tools for sellers that can help them refine product descriptions and create more compelling ads to increase conversions.

But Amazon Web Services (AWS) is at the heart of Amazon’s AI ambitions: the company designs its own datacenter chips for training and inference of AI models, and they’re becoming increasingly popular among developers because they can reduce costs by up to 50% compared with other Amazon infrastructure (which features more expensive Nvidia chips, for example).

Additionally, Amazon Bedrock gives developers access to a suite of off-the-shelf large language models (LLMs) in the cloud from leading startups like Anthropic, as well as a family of LLMs called Titan designed in-house by Amazon. By using off-the-shelf LLMs, developers can create AI applications for their business much faster than building their own LLMs, which would require significant time, data, and expense.

Finally, AWS offers completed AI applications such as the new Amazon Q, a comprehensive virtual assistant that can be customized to fit the needs of almost any organization. It can scan, analyze, and even write computer code to accelerate product development, as well as answer employee questions on a wide range of topics.

Amazon could soon surpass $2 trillion in market capitalization, a milestone that only four other U.S. tech companies have achieved. Even more notable, Wall Street expects Amazon to bring in a record $638 billion in revenue in 2024, far more than each of the other four companies will bring in. apple The company is closest to its target, with projected revenue of $386 billion for the current fiscal year.

From that perspective, Amazon’s stock looks cheap right now, and the company is rapidly improving its profitability through cost cutting, efficiency initiatives, and AI, which could be key to driving the stock higher in the long term.

2. Duolingo: Enhancing Language Education with AI

Duolingo isn’t an enterprise software company, but its app-based language-teaching platform stands to benefit from new subscription-based revenue streams thanks to AI. Before we get into the details, let’s look at the company’s existing business.

As of Q1, Duolingo had 97.6 million monthly active users, up 35% year over year. Additionally, 7.4 million users were paying a monthly fee to accelerate their learning, and the growth rate of these paying users was even higher, at 54%. This is extremely impressive, considering that up to 90% of the platform’s users are acquired organically (without paid advertising).

So where does AI fit in? Duolingo’s users complete 10 billion exercises every week, meaning the company collects more data than any other language education platform in the world. This is extremely useful for training AI models. Duolingo has been working on training AI models since 2013, trying to create a learning experience that rivals that of a human teacher.

With the launch of its Max subscription last year, the company moved one step closer to that goal. The company introduced two new AI-powered features: Explain My Answer, which gives users personalized feedback based on their mistakes in each lesson, and Roleplay, a chatbot that can converse with users in the language of their choice to improve their conversational skills. These new AI features run on a combination of Duolingo’s own models and OpenAI’s latest GPT-4 model.

The company also uses AI to create lesson content, freeing up employees to focus on other important initiatives, like new features.

Duolingo saw its revenue grow 45% year over year to $167.5 million last quarter, and its net income was profitable at $26.9 million, proving to investors that it doesn’t need to burn through a ton of cash to achieve significant revenue growth.

The new AI-powered Duolingo Max subscription is still in the early stages of rollout, but it’s priced higher than the company’s other paid plans, which could help keep it going strong.