In this article, we will take a detailed look at Cathie Wood’s 11 Favorite AI Stocks.
Cathie Wood’s flagship fund is continuing to face steep losses amid a broader pullback in technology stocks. Wood’s flagship fund ARK Innovation ETF (NYSEARCA:ARKK) is down about 18% so far this year and has lost about 75% of its value since hitting its peak in 2021. However, the latest data shows that the innovation-focused investor bought the dip on tech stocks after the latest selloff that shook financial markets globally.
Investors have pulled about $2.2 billion from ARK funds in 2024. The fund is on track to post its worst year of investor exodus since 2014. But Cathie Wood is doubling down on her innovation bets and is hopeful the upcoming rate cuts will be positive for the stock market.
Cathie Wood Says “Something Is Changing” and the Fed is Now on “High Alert”
Talking about the market situation, Cathie Wood said in a latest video on her YouTube channel that the recent selloff shows the market is going through a “cathartic” phase and “something is changing.”
“I do believe that the Fed now is on high alert because the stock market seemed to be encouraging the Fed to hold tight, higher for longer, make sure that the inflation was out of the system.”
Cathie Wood said that corporations are now in a weaker position amid high rates and they will initiate layoffs to cut costs and increase productivity. This weak employment situation could encourage the Federal Reserve to start cutting rates, according to Wood.
“Interest rates coming down should be very positive for the equity markets, but they will not arrest a recession very quickly. In fact, if consumers and businesses know that interest rates and maybe prices will be coming down, what will they do? They will wait.”
Cathie Wood’s ARK has posted its latest stock holdings data as of the end of the June quarter. For this article we scanned the fund’s latest portfolio and picked 11 AI stocks it has positions in. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Cathie Wood of ARK Investment Management
11. Microsoft Corp (NASDAQ:MSFT)
Cathie Wood’s Latest Stake Value: $15,279,433
Microsoft Corp (NASDAQ:MSFT) shares recently fell following its latest quarterly results which showed the company’s Cloud business growth was lower than expected. For the ongoing quarter, Microsoft Corp (NASDAQ:MSFT) expects revenue in the range of $63.8B and $64.8B, compared to the $65.07B estimate. Microsoft Corp (NASDAQ:MSFT) Azure revenue is expected to grow by 28% and 29% year over year.
But what about AI? While Microsoft does not mention specific AI numbers, analysts believe Copilot is already playing a key role in growth at several segments of the company. Microsoft Corp (NASDAQ:MSFT) Office’s commercial customer sales soared to $48 billion, significantly up from last year’s 10% growth, likely driven by Copilot Pro subscriptions. Office for individual users also saw a boost, with sales reaching $6.2 billion, a 4% increase compared to last year’s 2% growth, indicating accelerating growth from Copilot integration. Dynamics ERP and CRM software sales hit $6.3 billion, up 19%, surpassing last year’s 16% growth. This uptick is likely due to customers switching to Dynamics for the Copilot integration in the Dynamics Contact Center platform, which provides automated customer service chatbots and significant cost reductions. Bing sales jumped 3% year over year as more users switched to the search engine from Google Search, thanks to AI features.
While Microsoft Corp (NASDAQ:MSFT) expenses are expected to remain elevated, its investments are working and would bear fruit in the long term. The stock is down about 11% over the past month. It trades 26x next fiscal year’s earnings. MSFT could be an attractive buy on the dip for long-term investors.
Polen Focus Growth Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“The top absolute contributors were Alphabet, Microsoft Corporation (NASDAQ:MSFT), and Amazon. Microsoft was another top absolute contributor in the quarter, speaking to a growing appreciation for all the ways the company has an opportunity to monetize GenAI, be it in its Office suite or Azure cloud business. In the latter case, it contributed 7% to Azure’s revenue growth in the most recent quarter. We believe Microsoft remains a highly advantaged business with many secular tailwinds driving durable growth for the foreseeable future, even at its immense scale.”
10. Amazon.com Inc (NASDAQ:AMZN)
Cathie Wood’s Latest Stake Value: $19,170,400
Amazon.com Inc (NASDAQ:AMZN) shares fell as investors digested the company’s latest quarterly report where revenue missed estimates and guidance came in soft despite AWS growth.
AWS’s revenue growth accelerated from 17.2% in Q1 to 18.8% in Q2, driven by a shift from on-premises infrastructure to cloud solutions and increasing demand for AI capabilities. Amazon.com Inc (NASDAQ:AMZN) advertising segment added over $2 billion in revenue year-over-year, indicating significant potential in video advertising and opportunities within Prime Video offerings.
Like other tech companies, fears stemming from high CapEX are keeping investors on the sidelines. Amazon.com Inc (NASDAQ:AMZN) spending is expected to rise amid broadband project Project Kuiper and AI growth. Investors are still figuring out whether AI monetization and ROI will come anytime soon. Amazon.com Inc (NASDAQ:AMZN) is also facing a slowdown in consumer spending, especially for higher-ticket items like electronics and computers.
Based on Amazon.com Inc (NASDAQ:AMZN) Q3 guidance, its revenue growth would be 11%. The stock is trading 35x its fiscal 2025 earnings estimates set by Wall Street. This shows the stock is fairly priced and investors looking for strong growth could look elsewhere.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
9. Alphabet Inc Class C (NASDAQ:GOOG)
Cathie Wood’s Latest Stake Value: $23,359,454
Alphabet Inc Class C (NASDAQ:GOOG) shares slipped recently following reports that OpenAI is working on a web search product called SearchGPT. Before that, the stock fell following earnings despite posting strong numbers. Revenue in the second quarter jumped 14% year over year driven by search and Cloud. At a forward P/E of 22, analysts believe Alphabet Inc Class C (NASDAQ:GOOG) continues to be one of the cheapest AI stocks in the market as its valuation remains depressed amid fears caused by an overreaction.
Despite constant alarms going off about its search business, Alphabet Inc Class C (NASDAQ:GOOG) search revenue jumped about 13.7% in the second quarter year over year. As of the end of June, Google has about 91.06% share of the search engine market, just 1.65% lower than the December 2019 levels. With AI overviews and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to stave off any competitors given its dominance in the market.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. During the second quarter, Alphabet’s Cloud revenue rose 28.8% to $10.35 billion, crushing past analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on the path to reach a $100 billion revenue run-rate from YouTube Ads and Google Cloud by the end of 2024.
The London Company Large Cap Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) – GOOG was a top performer this quarter as it reported strong Search revenue, tighter cost controls, and momentum in Cloud. Both direct and brand Search ads were better than expected and the strength in YouTube monetization continues. Expense controls have translated to 700bps of margin improvement. Management is removing layers to improve efficiency, which should drive margins higher. GOOG also provided details on paths to monetize Al for advertisers. GOOG initiated a dividend during the quarter to return additional cash to shareholders. It has a solid balance sheet, significant market share, and generates strong returns.”
8. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Cathie Wood’s Latest Stake Value: $38,411,004
Morgan Stanley’s Joseph Moore said while he likes AMD’s story, he sees “limited upward revision potential for AI from here and we move to EW, with a preference for NVDA and AVGO among large cap AI semis.”
Advanced Micro Devices, Inc (NASDAQ:AMD) impressed Wall Street with solid second-quarter results amid strong data center revenue. Data center revenue in the period grew 49% year over year.
But can Advanced Micro Devices, Inc (NASDAQ:AMD) continue gaining in the coming months? Analysts are hopeful amid the launch of its Instinct™ MI300 Series accelerators that are designed for AI and HPC workloads. The new chip competes with Nvidia’s H100 AI chip. Advanced Micro Devices, Inc (NASDAQ:AMD) now plans to release new AI chips annually, including the MI325X in Q4 this year, the MI350 in 2025, and the MI400 in 2026. Advanced Micro Devices, Inc (NASDAQ:AMD) said MI350 would be a competitor to Nvidia’s Blackwell.
Advanced Micro Devices, Inc (NASDAQ:AMD) data center business doubled its revenue but this growth was not at the cost of profits. The segment’s operating income increased by 405% compared to the year-earlier period. However, Advanced Micro Devices, Inc (NASDAQ:AMD) data center business is still very small compared with NVDA. It generated about $2.8 billion in revenue vs. $22.6 billion in quarterly revenue for NVDA. However, Advanced Micro Devices, Inc (NASDAQ:AMD) CPU and GPU businesses are also thriving. Ryzen CPU sales increased 49% over year and slightly quarter over quarter. Although gaming revenue declined 59% due to decreased PlayStation and Xbox sales, Advanced Micro Devices, Inc (NASDAQ:AMD) Radeon 6000 GPUs saw a year-over-year sales increase.
Advanced Micro Devices, Inc (NASDAQ:AMD) is trading 17% below its 3-year average P/E ratio. The company is estimated to grow its EPS by 43% in the long term, compared to 33% for Nvidia. During the third quarter, its revenue growth is expected to come in at 15% on a QoQ basis. Amid growth forecasts based on new chips and an expected increase in AI spending by other companies, Advanced Micro Devices, Inc (NASDAQ:AMD) forward P/E of 38 makes the stock undervalued at the current levels.
Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”
7. Crowdstrike Holdings Inc (NASDAQ:CRWD)
Cathie Wood’s Latest Stake Value: $38,484,921
Crowdstrike Holdings Inc (NASDAQ:CRWD) shares have been battered after a system update at the company was one of the factors that caused the massive global tech outage in July.
However, analysts believe the fundamental story of Crowdstrike Holdings Inc (NASDAQ:CRWD) remains unchanged, despite short-term damages. Wedbush Securities estimates that less than 5% of CrowdStrike’s customers might switch providers, potentially impacting revenue by $150 million out of the projected $3 billion in sales for fiscal year 2024 (FY-24). This would lower the company’s forward revenue growth from 30.6% to 25.6%, but even at this adjusted rate, Crowdstrike Holdings Inc (NASDAQ:CRWD) would remain well above the IT sector median.
The company has $3.7 billion of cash versus $793 million of debt and its FCF margins exceed the IT median by a hefty 250%.
BofA Securities recently highlighted several tech stocks that are presenting attractive entry points amid their latest declines. Crowdstrike Holdings Inc (NASDAQ:CRWD) was among these stocks. CRWD’s generative AI security platform Charlotte AI is seeing a lot of traction. In the June quarter, the platform saw a whopping 90% POV close rate. During the quarter, Crowdstrike Holdings Inc (NASDAQ:CRWD) saw a dramatic surge in deals involving cloud, identity, or Falcon Next-Gen SIEM, more than doubling year-over-year. Management emphasized that customers are reaping substantial cost savings by adopting more modules, a development that bodes very well for Crowdstrike Holdings Inc’s (NASDAQ:CRWD) top-line growth. The strategic expansion of its modules has also tapped into the burgeoning AI-related demand, driving higher adoption rates. The stock’s forward P/E is 60, much higher than the industry average of 24, but 76% lower than the company’s five-year average. Wall Street expects revenue of Crowdstrike Holdings Inc (NASDAQ:CRWD) to grow 26% next year and earnings by 23%.
TimesSquare Capital U.S. Focus Growth Strategy stated the following regarding CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its first quarter 2024 investor letter:
“The high demand for cybersecurity systems is unlikely to abate, which benefited CrowdStrike Holdings, Inc. (NASDAQ:CRWD). The company’s expansion beyond endpoint security to offering security on all cloud workloads, along with its growing product suite in areas such as identity and security information & event management, is driving strong demand for its platform among customers amidst a very active cyberthreat environment. That lifted its shares by 25% this quarter, and we trimmed our position.”
6. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Cathie Wood’s Latest Stake Value: $44,569,924
TSM is one of the top AI semiconductor stocks in Deepwater Asset Management’s portfolio.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the best AI semiconductor stocks big tech funds are piling into, and for the right reasons. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the biggest foundry that makes chips for fabless companies, enjoying an over 50% market share. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is behind some of the world’s most advanced chips, including 2nm and 3nm nodes. It supplies chips to major players like Apple (AAPL), Qualcomm (QCOM), and Nvidia (NVDA).
Despite these growth catalysts, analysts believe Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) valuation is depressed amid the Taiwan factor — any conflict between China and Taiwan would hamper Taiwan Semiconductor Mfg. Co. Ltd.’s (NYSE:TSM) business due to its huge reliance on international supply chains. The stock is trading at a forward P/E of 27, much lower than peers like ASML, NVDA and AMD. But some believe these concerns are overblown and there are no short-term risks to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) from this perspective. Bank of America’s Brad Lin recently increased his earnings estimate and price target for the stock, saying TSMC is the “key beneficiary and enabler of AI prosperity.” Lin set a $180 price target on TSMC. Lin thinks Apple’s latest plans revealed at the WWDC event would bode well for Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) since TSMC makes 25% of its revenue from the Cupertino giant.
Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was a top contributor to performance during the quarter. The Company’s revenue growth continued to accelerate due to the rollout of its leading-edge N3 manufacturing node along with strong demand for chips used in artificial intelligence applications. Unlike in traditional CPUs, the Company has blue-chip customers, monopoly market share for manufacturing AI chips, such as GPUs. The Company’s aggressive investment in capital equipment several years ago should continue to pay off as fabless chip designers proliferate and require a manufacturing partner to shoulder capex risk. The Company’s continued aggressive investment and deployment in semiconductor manufacturing equipment is not an easily replicable competitive advantage.”
5. NVIDIA Corp (NASDAQ:NVDA)
Cathie Wood’s Latest Stake Value: $51,601,052
Cathie Wood missed on the NVDA opportunity as she sold about 62% of her stake in the last quarter of 2022, when the AI rally was just getting started. As of the end of June she still owns a $51.6 million stake in the company.
NVIDIA Corp (NASDAQ:NVDA) shares are on the decline amid valuation concerns. However, Morgan Stanley re-added the stock to its top picks list. Analyst Joseph Moore said:
“Visibility will actually increase as demand moves from Hopper to Blackwell, as the constraint will shift back to silicon; H100 lead times are short, but H200 lead times are already long, and Blackwell should be even longer,” the firm said.
However, the latest big tech earnings have raised some concerns on NVIDIA Corp (NASDAQ:NVDA) future growth trajectory. The company’s major customers including Meta Platforms and Alphabet have indicated that they may be overbuilding and overspending on AI chips. NVIDIA Corp (NASDAQ:NVDA) is selling about 2 million of its GPUs on an annual basis based on 2023 data. As demand moderates and competitors up their production, the company won’t be able to sustain its current growth trajectory.
Raymond James analyst Javed Mirza recently said in a report that NVDA has “triggered a mechanical sell signal” based on a moving average convergence/divergence indicator. In a technical analysis report, he stated that the stock is trading below its 50-day moving average and exhibiting early signs of selling pressure. This, according to Mirza, shows there is a looming corrective phase lasting 1-3 months. He added that a sustained break below the 50-day moving average could lead to a decline towards 94.94, representing a further 16.9% drop from current levels.
Patient Capital Opportunity Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) continued to lead both the market and the portfolio, remaining a top performer in the period gaining 36.7%. Nvidia is the market leader in designing and selling Graphics Processing Units (GPU), which has recently benefited from the insatiable demand of artificial intelligence (AI) models. The company currently captures 92% market share of data center GPUs and grew revenue, earnings and free cash flow (“FCF”) an astounding 126%, 392%, and 610%, respectively, over the last year. While we expect competition to increase, we think NVDA can continue to maintain top market share. While many are concerned with backlog times shortening, we think the rollout of the B100, which promises 2.5x better performance for only 25% more cost, later this year will create more shortages. With leading edge technology, an increasing innovation cycle and strong cash generation, the company is well positioned for the increased adoption of artificial intelligence (AI).”
