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Tech-focused asset manager Ark Invest has named a handful of companies as part of its “Sleeper Wave” of promising investment opportunities surrounding artificial intelligence.
Household names like Apple, Alphabet, Microsoft, and Nvidia were not among them. In fact, Cathie Wood’s company specifically advises against thinking that “mega cap” tech stocks will be the strongest beneficiaries of the “AI revolution.”
“While they have benefited disproportionately from the AI boom thus far, our research suggests that many of the blue-chip, mega-cap stocks are sporting high relative valuations and are, themselves, at risk of disruption,” wrote Ark in a research paper published on Monday.
Stocks like Nvidia (NVDA) have exploded during the AI boom, now up 216% year-to-date. The company is a popular provider of processing chips needed for deep learning workloads.
According to Ark, many of its initial gains were driven by “checking the box” on AI investment by deploying money toward well-known indices to fetch quick exposure to the industry. Though still a beneficiary of the tech breakthrough, Ark said there are many less understood opportunities trading at lower valuations that may soon deliver significant “earnings surprises.”
One is Replit—a San Francisco-based coding platform and embedded AI coding assistant. Ark predicted coding will be the “next frontier for collaborative tools,” and that Replit will likely lead the development side of the movement.
Another is the customer communications API provider Twilio, which is “best positioned to introduce artificial intelligence into customer communication channels,” according to Ark.
By contrast, legacy tech giants may face disadvantages compared to their smaller competitors as they try to innovate in the space. Not only are such firms at risk of approaching market saturation, but their growth may be stunted by political obstacles such as privacy and anti-trust considerations.
“Companies with proprietary data, distribution advantages, and strong leadership should be best positioned to capitalize on the productivity gains and new markets created by artificial intelligence,” concluded Ark. The company did not respond to Decrypt’s request for comment.
AI already appears to present eye-watering growth opportunities for Bitcoin miners, whose existing infrastructure may be able to score far better revenue per unit of power than AI itself, according to research from JP Morgan.
Ark’s research suggested that every dollar spent on AI hardware could net $21 of software revenue over its useful life.