Cathie Wood Is Buying Shares of This Bargain “Magnificent Seven” Stock Before Oct. 21. Should You?

Investors often watch the moves of Cathie Wood as she's known for identifying tomorrow's winners today. The chief of Ark Invest focuses on innovation, aiming to buy companies working on cutting-edge technology early in their growth stories -- and for a good price. Then she holds on for the long term as the company benefits from its years of research and development.

Just this week, Wood went bargain hunting and picked up shares of a cheap "Magnificent Seven" stock. And she did this ahead of Oct. 21, which represents a potential catalyst for the stock. Should you follow her lead? Let's find out.

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Cathie Wood added shares to a key technology ETF

So, first, let's check out the moves this famous investor made recently. And these moves concern Meta Platforms (NASDAQ:META), a social media giant and potential artificial intelligence (AI) winner.

On Oct. 13, Wood added 20,125 shares of Meta to her Ark Next Generation Technology ETF, or exchange-traded fund. And the following day, she bought 9,577 more Meta shares for the fund. The company is the second-biggest position in this ETF, with a weight of 5.7%. (Tesla, another "Magnificent Seven" company, is the largest holding with a weight of more than 7%.)

It's not surprising to see Wood adding to her Meta position as she is bullish on AI, and Meta has made this technology an area of focus. You probably think of social media when you see the name "Meta" since the company owns the most successful of apps, from Facebook to Instagram. This leadership has translated into a revenue stream that Meta can count on -- and this is thanks to advertising.

Advertisers pay to promote their goods and services across Meta's apps, and this has helped grow Meta's earnings over time. The company's financial strength offers it the ability to invest billions of dollars in AI, and in recent weeks, it's reached significant milestones. Meta launched its personal AI agent, Muse, last month, and downloads soared -- in fact, they reached the level of 5 million ahead of ChatGPT and Claude after their launches. And just this week, Meta released Muse Wonder and Muse Wonder Full, models for personal and professional agentic AI.

On track to monetize the AI investment

This represents a step for Meta toward monetizing its investments in AI -- of course, we can't expect the return on investment to happen immediately, but the company is moving in the right direction. Meta aims to generate AI revenue through products, such as these new models, as well as through increased advertising. Meta's AI is improving its social media apps and the advertising experience, and all of this should encourage advertisers to spend more across the platforms over time. So, essentially, Meta may benefit from its AI investments in at least two ways: through new products that bring in revenue and through ad spending potentially increasing across its apps.

Now, let's consider the catalyst that's just ahead, on Oct. 21. Meta is scheduled to report third-quarter earnings, and investors surely will be looking at the company's level of capital spending and any comments regarding AI monetization. This recent launch of new products may stir up optimism, as it suggests we're moving toward fresh revenue streams, and the AI investment may eventually pay off.

So, should you follow Cathie Wood and buy Meta stock right now? A look at the company's valuation shows that it's trading at 24x forward earnings estimates, which is higher than it was in recent months, but it remains pretty inexpensive considering Meta's well-established business and potential to win in the AI boom.

This means it's a great time to pick up shares, but you don't have to rush to get in ahead of Oct. 21. It's important to keep in mind that timing the market isn't necessary when you're investing for the long term. A gain or loss over a matter of days or weeks won't have much impact on performance over five or 10 years, for example. So, you can easily follow Cathie Wood's move today or after Meta's upcoming earnings report -- and still potentially set yourself up for a long-term win.

Adria Cimino has positions in Tesla. The Motley Fool has positions in and recommends Meta Platforms and Tesla. The Motley Fool has a disclosure policy.