Do These 3 Stocks Signal Cathie Wood's Boldest Move Yet in Artificial Intelligence (AI)?

Cathie Wood mastered an ability to make headline news. Perhaps the biggest reason for this is due to her high-conviction stances in otherwise risky and speculative opportunities.

Wood is the CEO of Ark Invest, an investment management firm offering a series of exchange-traded funds (ETFs) that are mostly comprised of businesses in emerging markets such as biotech and artificial intelligence (AI).

Although Wood does own some blue-chip stocks, the majority of her largest positions are held in smaller companies that she and her team believe have the potential to disrupt legacy incumbents.

Let’s discuss three stocks that Wood holds in her portfolio and detail why these companies could signal a big bet on an under-the-radar opportunity in the AI realm.

Stocks that stick out in Cathie Wood’s portfolio

Wood has positions in Kratos Defense & Security Solutions (KTOS 0.87%), Lockheed Martin (LMT 0.67%), and L3Harris Technologies (LHX 1.57%).

Just to be upfront, none of these stocks is a top-10 position among Ark’s ETFs. Yet despite their relatively small weightings, it’s notable that Wood owns a number of defense contractor stocks. Each is held in either the ARK Space Exploration & Innovation ETF, the ARK Autonomous Technology & Robotics ETF, or The 3D Printing ETF.

Considering Kratos, Lockheed, and L3Harris are all leaders across a variety of areas in government contracting, it makes sense that Wood would own these stocks for specific thematic ETFs that have exposure to the defense industry in particular. With that said, there’s another theory as to why Wood may be investing in these stocks.

Why would Wood invest in government contractors?

Ark’s ETFs hold a number of obvious AI stocks in the “Magnificent Seven” as well as peripheral opportunities in areas such as cybersecurity and data analytics. But the defense sector as a massive opportunity in the AI realm — albeit one that’s mostly overlooked right now.

According to Mordor Intelligence, the total addressable market for AI analytics in the defense arena will reach $16.4 billion by 2029. Furthermore, Mordor estimates that AI robotics in the aerospace industry will become a $46 billion market by the end of the decade.

Perhaps Wood’s most obvious position at the intersection of defense and AI is Palantir (PLTR 23.47%). It’s pretty well-known that Palantir works closely with the U.S. military and other Western government agencies.

However, what many investors probably don’t realize is that Palantir isn’t the sole vendor on many of its government deals. The company works alongside the likes of L3Harris and adjacent contractors, suggesting that AI investment in the defense sector is being spread across a host of different companies.

Given AI’s ubiquitous nature in the defense realm — including robotics, analytics, logistics, budgeting and fraud, and autonomous systems — it makes sense to invest in traditional government contractors in addition to more tech-focused businesses like Palantir if you’re looking to add exposure to defense tech in your portfolio.

The bottom line

To be clear, Wood’s positions in Kratos, Lockheed, and L3Harris may represent nothing more than owning mainstream defense industry stocks for her aerospace and robotics funds.

Nevertheless, the defense sector as a compelling and unique opportunity in the AI market. And AI defense stocks are not reserved purely for enterprise software or cybersecurity businesses.

Incumbent government contractors such as the ones in Ark’s portfolio, or even companies such as Northrop Grumman, General Dynamics, and RTX are also businesses you might want to have on your radar if you’re intrigued by the prospects of AI in aerospace and defense.