Catherine Wood (Trades, Portfolio) and her ARK Innovation Fund (ARKK, Financial) continue to roll with the punches after an incredibly tough year. Though many investors may be inclined to pull money out of her funds as tech turns again, I do think it is worth keeping an eye on ARKK and Wood as we move deeper into the age of advanced generative artificial intelligence.
Wood's focus on disruptive innovation
Undoubtedly, Wood is all about disruptive innovation. And though she has been quite vocal about the broader basket of disruptive technological trends, including genomics and next-generation internet, it is artificial intelligence that may be what powers Cathie Wood's rise to glory again. And as you'd expect, there is an ARK exchange-traded fund for that! The ARK Autonomous Technology & Robotics ETF (ARKQ, Financial) is an intriguing way for AI-hungry investors to get a front-row seat to autonomous opportunities on Wood's radar.
Of course, there is quite a bit of overlap between the ARK Autonomous Technology & Robotics ETF and the flagship ARK Innovation Fund. In any case, I do think investors should give themselves the opportunity to look at what's underneath the hood.
Investment opportunities in ARK funds
In this discussion, I will look at one intriguing technology stock in Wood's ARK funds that I believe may be a worthy pick-up going into the last quarter of 2023. And if you would rather be a buyer of the ETFs themselves, I am certainly not against that, as I do think Wood and the ARK constituents are poised for a major comeback alongside the rest of tech as AI's ascent continues.
Tesla: A Wood stock to stay the course with
Tesla Inc. (TSLA, Financial) is one of the classic Wood stocks. She likes the company (and the long-term opportunity at hand) that the electric vehicle maker is in both the flagship ARKK and the autonomy-focused ARKQ. Though it has been a roller-coaster ride over the past year (shares are off more than 11% in the last year), recent year-to-date momentum behind the name, I believe, makes shares worth another look.
Undoubtedly, a potential recession in the U.S. could pull the brakes on EV demand. However, as next-generation AI tech continues to fuel the "fourth industrial revolution," I do think Tesla will, once again, prove itself as a stock that you simply cannot ignore. Wood sees Tesla as more than just an EV play. Over the next decade and beyond, competition in the space will compress the multiple. If Tesla is to retain its huge premium to the peer group (shares currently trade at more than 78 times trailing price-earnings, which is above most other automakers, it needs to keep its foot on the research and development gas.
Tesla's potential in the AI revolution
Wood believes Tesla could be one of the bigger winners of the AI revolution. In fact, she thinks the company will be one of the winners once "robotaxis" are a thing. If you are like many, it is hard to imagine the company could be in for even more multi-bagger gains from here. It has had its run as an EV maker. And with a $870 billion market cap, further gains will definitely be harder to come by.
Still, I have to side with Wood when she says Tesla's full self-driving tech is "almost there." There is no question Elon Musk's empire has been investing heavily in full autonomy. If the big bets pay off, the potential upside could be massive.
With the recent founding of AI company xAI, Musk is not just serious about getting a favorable position in the AI race. The man wants to win the AI race. And Tesla stands out as a Wood stock to watch as shares continue to power their way to gains.
At writing, Tesla's stock is still down around 32%. If the company's full self-driving capabilities move closer to prime time, I do view the stock as capable of further AI upside.
The bottom line for investors: Tesla may have underappreciated AI upside
At this juncture, it seems like Tesla stock's best days are behind it. Over the past five years, shares have soared by over 1,200%. And with the wild swings in share price over the past few years, it certainly seems like the EV tailwind is beginning to fade.
As the AI revolution continues, though, I do think Tesla could surprise and impress once again. Remember, the stock is valued like a tech company, not a traditional automaker. In due time, the company's technological (specifically AI) capabilities could help drive the next leg higher.
There is no question that Tesla stock is one of Wood's biggest winners. However, she is not yet ready to eliminate her stake, as she still thinks the company has more pathways to greater growth. As AI and self-driving tech take off, I view Tesla as more than capable of delivering an encore for investors after an incredible five years of market-crushing performance.
In short, Tesla is a Wood stock that still has room to run if it plays its AI cards right. I think it will.
