Financial News Digest June 30, 2023: Cathie Wood’s AI Stocks Insight

AI stocks have been the talk of investors since the beginning of the year. This week’s edition of MoneySmart’s Financial News Digest will delve into Ark’s disruptive innovation investment fund to see which stocks Cathie Wood is watching in the realm of AI.

There’s more to come. The Fed pumped the brakes on rate hikes last month, but the Fed Chair confirmed that two more hikes are in store this Thursday. Lastly, the crypto market is back in the limelight, with BlackRock and Fidelity vying for a spot in the bitcoin ETF arena.

Which AI stock is Cathie Wood buying right now?

Cathie Wood, the founder of Ark Invest, is famous for investing in disruptive innovation. She has made some big moves in the field of artificial intelligence (AI), which is considered one of the most game-changing technologies of the century.

When it comes to AI stocks, it’s hard to ignore Nvidia Corp. (NASDAQ: NVDA). Shares of the chip-making giant have surged 187% this year, and the company has crossed $1 trillion in valuation.

In a recent interview with Bloomberg Television, Wood said that Nvidia “will do well over time.” However, she sees a new group of stocks that will “benefit from the foundation that Nvidia has laid.” and Ark Invest’s flagship fund, Ark Innovation ETF (NYSE: ARKK), exited its position in Nvidia in January.

So, what is the keyword for Ark’s investment? Software is the answer.

According to Cathie Wood, for every dollar of hardware Nvidia sells, software and SaaS providers are predicted to generate $8 in revenue. The focus is now on finding software providers with the same potential as Nvidia when it was first purchased. Moreover, she identified 4 companies that are poised to benefit from AI, along with a company she considers to be “the biggest artificial intelligence play.” The following are her 4 best choices:

Teladoc Health Inc. (NYSE:TDOC)

Wood’s flagship fund currently owns $300.43 million worth of Teladoc Health, a telemedicine company that connects patients with healthcare professionals through video, phone, and messaging.

During the peak of the COVID-19 pandemic, when nonemergency medical care was temporarily halted, the demand for telehealth services skyrocketed. Teladoc attracted a lot of investor attention in 2020 as its revenue shot up 98%. Despite the epidemic being mostly over, Teladoc’s business is still growing, as seen by an 11% increase in first-quarter sales compared to the same period last year.

Unfortunately, the stock has not been able to maintain its upward momentum. Despite reaching an all-time high in February 2021, Teladoc is currently trading at US$25.80 per share, down more than 90%.

UiPath Inc. (NYSE:PATH)

Wood’s Ark Innovation ETF currently holds 28,363,938 shares of UiPath, valued at US$486.73 million, composing the fund’s fifth-largest holding.

UiPath is an innovative company that creates automation solutions for businesses using robotic process automation software. Their UiPath Business Automation Platform is powered by artificial intelligence, which allows it to understand, automate, and operate end-to-end processes.

In the first quarter of 2023, UiPath’s revenue increased by 18% year over year to reach $289.6 million. It’s worth noting that their dollar-based net retention rate was an impressive 122%. Although UiPath’s stock has experienced a 36% year-to-date surge, it hasn’t always been a hot commodity. In 2022, UiPath shares took a 70% plunge.

Twilio Inc. (NYSE:TWLO)

Ark Innovation ETF currently holds 4,771,968 shares of Twilio, which have a market value of $304.50 million.

Twilio’s cloud communications platform allows businesses to integrate various communication channels into their applications. Its application programming interfaces enable developers to incorporate voice, messaging, and video seamlessly, thereby enhancing customer engagement.

During Q1, Twilio surpassed 300,000 active customer accounts, with revenue rising 15% YoY to $1.01 billion.

During Twilio’s latest earnings conference call, Co-Founder and CEO Jeff Lawson expressed his belief that artificial intelligence “will be a material accelerant over time for Twilio’s business.”

Tesla Inc. (NASDAQ:TSLA)—a potential 670% rise in 5 years

Despite composing 11.59% of ARKK’s holdings, Tesla Inc. (NASDAQ:TSLA) is a company not typically viewed as an AI stock. This is due to Tesla’s autonomous driving technology, which is the electric car company’s specialty.

With Tesla’s capabilities in this area, Wood believes that the company is poised to dominate the burgeoning autonomous taxi market and potentially reach new heights in share price. She anticipates that autonomous taxi platforms will generate $8 to $10 trillion globally in revenue by 2030, starting from virtually nothing at present.

She added, “Our research indicates that by 2027, in just five years, it may be a US$2,000 stock,”, which will make a 670% potential increase from the current price of US$257 per share.

The Fed’s Chair expects 2 more rate hikes in 2023

Following a fresh wave of stronger-than-expected US economic data, Fed Chair Jerome Powell announced in a meeting on Thursday that the rate hike campaign is likely to continue this year.

US Economic Data released on Thursday showed that the US labor market is still very tight, with unemployment at 3.7% and new claims for US unemployment benefits unexpectedly falling by 26,000 last week. Furthermore, the first quarter’s gross domestic product growth was revised to a 2% annualized pace, which is much stronger than in earlier estimates.

Given such strong data, Powell also noted that underlying inflation, although down from its peak last year, still runs at more than twice the Fed’s 2% target. Thus, the rate pause last month most likely would not mark the end of this rate hike journey but instead at least twice more by year’s end.

According to the CME Group’s Fed Watch tool, the market is expecting an 86.8% chance of a further 0.25% rate hike from the current Fed rate range of 5.00%–5.25%.

The Fed will hold four more policy meetings this year, with the next one on July 25–26. Mark it down on your calendar so you can stay informed.

Fidelity refiled for Spot Bitcoin ETF, following BlackRock’s footsteps

It seems the crypto market has been getting attention recently after financial giant BlackRock’s application for its own spot bitcoin ETF 2 weeks ago. And this week, another asset management firm, Fidelity, is seeking to enter the spot Bitcoin ETF game, following in the footsteps of BlackRock.

Fidelity had attempted to apply to launch its spot bitcoin ETF, Wise Origin Bitcoin Trust, in 2021 but was rejected by the US Securities and Exchange Commission (SEC) in 2022. The company is now making another attempt.

This time, Fidelity’s filing, similar to the BlackRock filing, includes a “surveillance sharing agreement” with an unnamed U.S. spot-based bitcoin trading platform. The purpose of the agreement is to help ease SEC concerns about market manipulation, which is believed to increase the chance of getting a green light from the SEC.

However, the SEC has not yet made a decision regarding any of the new applications. While many are optimistic about BlackRock’s application, the company has received approval for all of its previous 575 ETF applications except one. The spot bitcoin ETF game has started since BlackRock’s initial move; other fund companies such as Invesco and WisdomTree have followed suit and are vying for a piece of the spot bitcoin ETF market.

If the first spot bitcoin ETF is greenlit, it would pave the way for institutional funding to flood the crypto space through such ETFs, bringing in a huge influx of capital to kickstart another bull market. It’s definitely worth keeping an eye on this development.

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