Cathie Wood's Next Big AI Opportunity: Software Stocks to Buy Now

Investment visionary Cathie Wood, the head of Ark Investment Management, has been making waves with her bold predictions about the transformative potential of artificial intelligence (AI) in the software industry. In an interview with Bloomberg TV earlier this year, Wood expressed her belief that software companies could generate up to $8 in revenue for every $1 they spend on chips from suppliers like Nvidia. With Ark's recent investments in AI start-ups like OpenAI, Anthropic, and xAI, it's clear that Wood is backing up her words with decisive action. If Wood proves to be right about AI software companies, here are two super stocks you'll wish you'd bought if you haven't already.

1. C3.ai (AI -4.26%)

C3.ai, founded in 2009, is the world's first enterprise AI company, offering over 100 ready-made AI applications for businesses. Its software is particularly popular in industries not typically associated with AI innovation, such as energy, manufacturing, and financial services. C3.ai's partnership with major cloud providers, Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud, facilitates the adoption of its AI applications by businesses. During C3.ai's fiscal 2025 second quarter (ended Oct. 31), 62% of its deals were closed through its partnership network, demonstrating the critical role these partnerships play in the company's sales strategy.

C3.ai's shift to consumption-based revenue has significantly impacted its growth and customer acquisition. The streamlined onboarding process, increased revenue, critical sales channel, customer engagement surge, and robust balance sheet all indicate that this strategic move has been beneficial for the company. In the recent quarter, C3.ai generated a record $94.3 million in revenue, marking the seventh consecutive quarter of accelerating growth.

C3.ai's focus on industries not typically associated with AI innovation contributes to its competitive advantage. As the world's first enterprise AI company, C3.ai has had a head start in these industries, allowing it to establish a strong foothold and gain a competitive edge. By offering solutions tailored to the specific needs of these industries, C3.ai can help businesses accelerate their AI adoption and drive meaningful business outcomes.

2. Microsoft (MSFT -1.73%)

Few investors would have associated Microsoft with AI prior to 2023, but thanks to sizable investments in companies like OpenAI and Builder.ai, it's quickly becoming the largest distributor of the technology. Microsoft has integrated OpenAI's ChatGPT chatbot into its Bing search engine and its Office 365 document suite to boost productivity and transform the way its customers seek information. In the fiscal 2023 fourth quarter (ended June 30), the company said users had completed over 1 billion chats and generated 750 million images on the new ChatGPT-powered Bing.

Microsoft's cloud platform, Azure, is where its AI portfolio really comes to life. Its Azure platform now offers its business customers a choice of several large language models for them to build upon, from Meta Platforms' LLaMA 2 open-source model to OpenAI's latest GPT-4. The Azure OpenAI Service alone had 11,000 customers in the recent quarter, up from just 2,500 three months prior, so uptake has been rapid.

Microsoft's integration of Copilot AI into its productivity suite, such as Word and PowerPoint, significantly improves user efficiency and creativity. Copilot can generate text and image content based on user prompts, helping users create presentations, reports, or other documents more quickly. It can also provide detailed and accurate answers to complex questions, making research more efficient. Additionally, Copilot can suggest appropriate formatting, design elements, and layouts for documents, enhancing their visual appeal and professionalism. This integration has led to a significant increase in daily active users of Copilot for 365, with Microsoft reporting a more than doubling of users in the first quarter of fiscal 2025.

Microsoft's partnership with OpenAI and access to advanced AI models like GPT-4 have contributed to the success of Copilot AI. This collaboration has allowed Microsoft to leverage OpenAI's advanced AI models, such as GPT-4, to enhance its software applications. Microsoft's vast user base, with over 400 million 365 licenses sold worldwide, ensures that Copilot AI has a wide audience. This scale allows Microsoft to gather more data and feedback, which can be used to improve and refine the AI model continuously.

In conclusion, Cathie Wood's prediction that software companies could generate up to $8 in revenue for every $1 they spend on chips from suppliers like Nvidia presents an exciting opportunity for investors. If Wood proves to be right, C3.ai and Microsoft could be two of the biggest winners in the coming years. By focusing on industries not typically associated with AI innovation and leveraging strategic partnerships, these companies are well-positioned to capitalize on the growing demand for AI software solutions.