Software Stocks: The Next Big Opportunity in Artificial Intelligence (AI)

Software stocks may present a greater artificial intelligence (AI) opportunity than chip stocks like Nvidia, according to Ark Investment Management CEO Cathie Wood. Wood predicts that software companies could generate $8 in revenue for every $1 spent on chips, leading to significant gains for investors in the coming years.

Ark’s ETFs reflect this belief, with Tesla stock being the largest holding in the flagship Ark Innovation ETF due to its self-driving software being seen as a major AI opportunity. Wood has also acquired stakes in leading AI software companies like OpenAI, Anthropic, and Elon Musk’s xAI through the Ark Venture Fund.

Two stocks that could benefit from the rise of AI software are Amazon and Duolingo. Amazon is integrating AI into its various businesses, from e-commerce to cloud services, and is developing AI chips and chatbots through Amazon Web Services. The company’s AI-powered recommendation engine and suite of software tools for sellers are driving sales and conversions, while Amazon Bedrock offers developers access to ready-made large language models for AI applications.

Duolingo, on the other hand, is leveraging AI to enhance its language education platform. The company’s AI-powered features, such as personalized feedback and chatbots, aim to create a learning experience that rivals human tutors. The launch of its Max subscription, which includes new AI features running on Duolingo’s own models and OpenAI’s GPT-4 models, could drive further revenue growth.

Both Amazon and Duolingo have seen strong financial results, with Amazon expected to surpass a $2 trillion valuation and Duolingo increasing revenue by 45% year over year. As AI continues to play a crucial role in the tech industry, these software stocks could be poised for substantial gains in the future.