When the history books are written, 2023 could go down as a turning point for artificial intelligence (AI). Multiple companies rolled out impressive AI chips, large language models, and AI applications.
Cathie Wood stands out as one big winner from the AI explosion. Her Ark Invest exchange-traded funds (ETFs) have been heavily invested in many high-flying AI stocks. Here are Wood’s best AI stocks this year — and whether or not they’re good picks for 2024.
There’s no surprise about which AI stock is Wood’s best performer in 2023. Nvidia’s shares are on track to end the year up close to 230% thanks to soaring demand for the company’s graphics processing units (GPUs).
Sure, Wood isn’t as big of a fan of Nvidia as she used to be. She has reduced Ark Invest’s stake in the chipmaker quite a bit. Wood thinks that Nvidia stock is now really expensive after its huge gains this year.
However, Nvidia remains the eleventh-largest holding in Wood’s Ark Autonomous Technology & Robotics ETF. Ark Next Generation Internet ETF and Ark Fintech Innovation ETF also still own small positions in Nvidia.
Another well-known AI leader isn’t too far behind Nvidia. Shares of Meta Platforms have vaulted 190% higher as 2023 comes to a close. It’s been Meta’s best performance ever.
Meta’s improving profitability has been a key factor behind its success this year. AI played a major role in the bottom-line improvement by helping increase the monetization of its platforms. The company’s open-source AI strategy could reap further benefits over the long term.
To be sure, Meta isn’t a big holding for Ark Invest. However, the stock is in the portfolios of two of Wood’s ETFs — her flagship Ark Innovation ETF and Ark Next Generation Internet ETF.
Palantir Technologies ranks as Wood’s No. 3 best AI stock of 2023. Shares of the software maker appear to be headed to end the year up close to 170%. As was the case with Meta, this performance is the best that Palantir has delivered in its history.
Investors seem to have appreciated Palantir’s AI innovations. The company’s expertise was also recognized by Dresner Advisory Services, which named Palantir the top vendor in its 2023 AI, Data Science, and Machine Learning Wisdom of Crowds Market Study.
Three of Wood’s ETFs own positions in Palantir: Ark Innovation ETF, Ark Fintech Innovation ETF, and Ark Next Generation Internet ETF. All three of these funds have scooped up more shares of Palantir in December.
I think that all three of Wood’s biggest AI winners of this year could also perform well in 2024. My view, though, is that Palantir is probably the weakest link among the group.
The stock trades at nearly 61 times expected earnings and almost 19 times trailing 12-month sales. Palantir’s revenue growth of 17% year over year in its latest quarter makes that valuation hard to justify, although its future growth prospects should help ease some investors’ minds.
As previously mentioned, Wood thinks that Nvidia’s valuation is a bit too frothy. Some would argue otherwise, but there’s no question that the company is facing increased competition. I don’t expect Nvidia to deliver the kind of gains in the new year that it has in 2023. The stock should remain a solid winner over the long term, though.
That leaves Meta. Valuation isn’t as much of an issue with this stock. Meta’s forward earnings multiple of 20.5 isn’t unreasonable. More importantly, the stock looks like a relative bargain factoring in its growth prospects. I view Meta as a great AI stock for investors to buy and hold.
