Cathie Wood Says Software Is the Next Big AI Buying Opportunity -- And These 4 Stocks Could Skyrocket

Artificial intelligence (AI) is all the rage on Wall Street these days -- and much of the excitement has rightfully centered around leading semiconductor companies. Nvidia's blockbuster first-quarter results and forward guidance have spurred huge gains for its share price and helped trigger an upswing in bullish momentum across the broader market, but Ark Invest CEO Cathie Wood believes that the biggest AI investing opportunity actually lies in software right now.

In a May 31 interview with Bloomberg TV, Wood said that here company was looking beyond semiconductor stocks when it comes to capitalizing on revolutionary AI trends. Based on statements in the interview and comments made earlier in the week, Ark's CEO believes that valuations for top AI chip stocks have gotten stretched to unfavorable levels.

Instead, Wood believes that top software-as-a-service companies with significant AI components present the best buying opportunities right now -- and the influential growth investors singled out four stocks in particular that could see powerful benefits.

Cathie Wood isn't dazzled by Nvidia stock right now

Wood's Ark Innovation ETF actually reduced its holdings in Nvidia at the beginning of this year. While the semiconductor company's fantastic Q1 earnings results and new growth outlook in AI have undoubtedly improved its valuation picture, the Ark CEO thinks the chip leader's valuation has gotten ahead of what the business's fundamentals and growth outlook can justify right now.

As Wood noted in the Bloomberg TV interview, the semiconductor industry has historically been cyclical and prone to boom-bust trends. There are risks that come with buying into huge rallies even when there are real, underlying catalysts worth being excited about.

With Nvidia trading at record highs, the famously growth-oriented Wood may be right to look to other companies that can benefit from AI trends. Rather than investing in the hardware that will power new AI applications, Wood sees more promise in investing in the software that will be made possible by powerful processors.

This is Wood's favorite AI stock

Across its various exchange-traded funds (ETFs), Tesla (NASDAQ:TSLA) stands as Ark's biggest bet in the AI space. But while the electric-vehicle (EV) company still generates the large majority of its revenue from vehicle sales, Wood sees self-driving software as being the driving component of its long-term growth story.

Through advances in autonomous vehicle technologies, Tesla will have the opportunity to roll out robotaxi services. Ark's CEO expects that this new business opportunity will power huge sales and earnings momentum for the EV leader.

Remarkably, Wood believes that Tesla stock will reach a price of $2,000 per share in 2027. With the stock currently trading at roughly $204 per share, her target implies potential upside of roughly 880%. The EV stock still trades down roughly 50% from its lifetime high, but Ark is betting that the foundations for a massive rally are in place.

Ark is making other big bets on AI software

Ark's ETFs are heavily focused on growth stocks in the technology and fintech industries, and performance for many of the core holdings in its funds will be shaped by the progression of the artificial-intelligence revolution. In particular, Wood recently said she believes three beaten-down software stocks will be huge beneficiaries of the AI trend.

• UiPath is a provider of automation and low-code application development tools that could benefit from new AI-focused features.
• Twilio is already providing chatbot tools and other machine-learning powered communication and customer-management tools, and artificial intelligence could bolster the value of its offerings.
• Teladoc is a provider of online health services that could benefit from advances for AI-driven diagnostic capabilities.

As of this writing, UiPath, Twilio, and Teladoc's stock prices are down 79%, 84%, and 92% from their respective peaks.

Should you buy Wood's top AI picks?

Investors should weigh their own personal risk tolerance and portfolio goals before making big stock purchases based on Wood's picks. While Tesla, UiPath, Twilio, and Teladoc all trade at significant discounts compared to their previous highs and potentially stand to see strong tailwinds from AI, they might not be a great fit for every investor and could also face some disruptive impacts from the tech trend.

If your approach to investing is in line with the high-risk, high-reward style favored by Wood and Ark, building positions in some or all of these stocks could make sense for your portfolio. Just keep in mind that it's a good idea to do some thorough research before going all in on any of these AI software plays.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Teladoc Health, Tesla, Twilio, and UiPath. The Motley Fool has a disclosure policy.