Cathie Wood says software is the next big opportunity for artificial intelligence — two big stocks you’ll wish you’d bought today if she’s right

Software stocks may offer a greater opportunity for artificial intelligence (AI) than chip stocks like Nvidia.

Ark Investment Management manages eight exchange-traded funds (ETFs) that invest primarily in innovative technology stocks. Last year, Ark CEO Cathie Wood said software companies would be the next big opportunity in artificial intelligence (AI), and predicted they could generate $8 in revenue for every dollar spent on chips from suppliers like Nvidia.

Ark ETFs reflect this situation. Tesla The stock is the largest holding in the flagship Ark Innovation ETF Because Wood described its self-driving program as the world’s biggest AI opportunity. Additionally, Wood recently acquired stakes in leading AI software companies such as OpenAI, Anthropic, and Elon Musk’s xAI through the Ark Venture Fund.

If Wood is right about AI software, many stocks could be set for big gains in the coming years. this is the reason Amazon (Amzn 1.60%) And Duolingo (Ragdoll 3.73%) He may be among them.

1. Amazon: AI software is just the beginning

Amazon is one of the most diversified AI stocks investors can buy. It weaves technology into many of its existing businesses, from e-commerce to live streaming, and its Amazon Web Services (AWS) cloud division is developing everything from AI chips to AI-powered chatbots.

Amazon uses artificial intelligence to power its recommendation engine on It learns what products customers want to buy so it can promote more of them to increase sales. In addition, the company has developed a suite of AI software tools for sellers, which helps them craft product descriptions and create more engaging ads to increase conversions.

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But Amazon Web Services (AWS) is the beating heart of Amazon’s AI ambitions. Its data center chips are designed for training and inference of AI models, and have become popular with developers because they can reduce costs by up to 50% compared to Amazon’s other infrastructure (running more expensive Nvidia chips, for example).

Then there’s Amazon Bedrock, where developers can access a set of ready-made large language models (LLMs) in the cloud from leading startups like Anthropic. It also includes a suite of LLM degrees designed in-house by Amazon, called Titan. Developers can build AI applications for their business much more quickly with off-the-shelf LLM degrees than by building their own applications, which requires a significant amount of time, data, and money.

Finally, AWS offers the ultimate AI applications like the new Amazon Q, an all-in-one virtual assistant that can be tailored to fit the needs of almost any organization. It can scan, analyze, and even write computer codes to speed up product development, as well as answer employee questions on a wide range of topics.

Amazon’s value may soon exceed $2 trillion, a feat achieved by only four other US technology companies. Here’s the kicker: Wall Street expects Amazon to generate a record $638 billion in revenue through 2024, far more than each of those other four companies will achieve. apple It is closest to the mark with revenue estimated at $386 billion in its current fiscal year.

From this perspective, Amazon stock looks cheap right now. The company is rapidly improving its profitability through cost-cutting, efficiency initiatives, and artificial intelligence, which could be the final key to unlocking a higher stock price in the long term.

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2. Duolingo: Enhancing language learning with artificial intelligence

Duolingo isn’t an enterprise software company, but its app-based language learning platform is set to benefit from a new subscription-based revenue stream thanks to artificial intelligence. Before we dive into that, let’s examine her current work.

As of Q1, Duolingo served 97.6 million monthly active users, an increase of 35% from the same period last year. It also had 7.4 million users who were paying a monthly subscription to accelerate their learning, and those paying users boasted a 54% faster growth rate. This is very impressive when you consider that up to 90% of the platform’s users are acquired organically (no paid ads).

So, where does AI fit into the picture? Duolingo users complete 10 billion exercises every week, meaning the company collects more data than any other language learning platform in the world. This is important when it comes to training AI models, which Duolingo has done since 2013 in an attempt to create a learning experience that rivals human teachers.

The launch of the Max subscription last year brought it closer to that goal. It has introduced two new AI-powered features: Explain My Answer, which gives users personalized feedback based on their mistakes in each lesson, and Role Play, a chatbot that chatbots can speak to in the language of their choice to improve their conversation skills. These new AI features work on a combination of Duolingo’s own models and OpenAI’s latest GPT-4 models.

The company is also using AI to craft lesson content, giving employees more time to work on other important initiatives like new features instead.

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Duolingo increased its revenue 45% year over year to $167.5 million last quarter. It also posted a profit with net income of $26.9 million, proving to investors that it doesn’t need to burn large amounts of cash to achieve strong revenue growth.

The new AI-powered Duolingo Max subscription is still in the early stages of its rollout, but it’s selling at a higher price than the company’s other paid tiers, which could see its strong financial results continue into the future.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Bizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Duolingo, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

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