Cathie Wood Says If She Could Only Invest in 1 Artificial Intelligence (AI) Stock, This Would Be It (Hint: It's Not Palantir)

Cathie Wood is the founder and chief investment officer of Ark Invest, which manages exchange-traded funds (ETFs) focused on themes such as biogenetics, artificial intelligence (AI), robotics, renewable energy, and cryptocurrencies.

While stocks such as Palantir Technologies, Robinhood, and Archer Aviation comprise some of the largest positions in Ark's portfolios, Wood recently revealed her highest-conviction pick. During an interview on The Diary of a CEO podcast, she said that if she could only invest in one stock, it would be Tesla (NASDAQ: TSLA), which is one of Ark's longest-standing positions and the top holding across all of its ETFs.

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Let's dig into why Tesla has earned so much confidence from Wood. From there, I'll dig into how Tesla is disrupting several pockets of the AI realm and assess the company's valuation to help determine if the stock is a good buy right now.

How is Tesla disrupting the AI market?

During the interview, Wood described Tesla as a "convergence" across three arenas that Ark targets across its investments: robotics, energy storage, and AI.

For much of its history, Tesla focused on two core segments: electric vehicles and energy storage. While these two opportunities remain enormous, AI is the pillar supporting its growth narrative.

The first layer of Tesla's AI ambitions involves autonomous driving technology, which the company could market to both businesses and consumers. For example, self-driving functionality would be a big value-adding amenity for buyers of Teslas, which could help it maintain its differentiation in a crowded and commoditized automobile market.

The more lucrative opportunity when it comes to autonomous vehicles is connected to Tesla's plan to build a fleet of robotaxis. That could potentially send shock waves across markets from ride-hailing to car rentals to delivery services.

Wood is particularly bullish on Tesla's robotaxi project. During her interview, she clarified that Ark's $2,600 five-year price target on Tesla stock doesn't even account for the company's potential successes in other areas of AI that it's focusing on, such as robotics.

Beyond autonomous vehicles, Tesla is also investing heavily into a plan to create fleets of humanoid robots. This initiative, dubbed Optimus, has the potential to bring next-level efficiency to labor-heavy environments such as factory work or even in retail settings. Tesla CEO Elon Musk sees Optimus as tapping into a multitrillion-dollar opportunity.

Image source: Getty Images.

Is Tesla stock a good buy right now?

One thing about Tesla is that the company never fails to find its way into headlines. Its stock price at any given time will be heavily dependent on the current narrative surrounding the company.

On the one hand, I personally view both the robotaxi and Optimus as exciting opportunities. Moreover, I am bullish about the potential of each of these businesses to transform Tesla from a carmaker and renewable energy business into more of a technology company.

With that said, however, I also understand that I need to be prudent when it comes to investing in businesses over storylines.

TSLA data by YCharts.

Tesla stock has been on a roll for a few months now. But its gains have had virtually nothing to do with the performance of the underlying business.

Instead, investors have been cheering on the stock for two peripheral reasons. First, Musk's departure from the Department of Government Efficiency (DOGE) gives him his time back to focus solely on Tesla and its various growth initiatives. Second, all signs are pointing toward a launch of Tesla's robotaxi service in its first market -- Austin, Texas -- this month.

The upward trajectory of Tesla stock right now isn't rooted in fundamentals. Rather, it is rooted in hype and excitement. It looks to me as if the good news of Musk's full-time return to Tesla and the robotaxi launch are priced into the stock already.

While I remain a Tesla bull for the long term, I would not buy into the momentum at these levels. Instead, I'd encourage investors to wait patiently and observe how the robotaxi service and Optimus begin contributing to Tesla's actual financial profile as those businesses launch and scale.

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Adam Spatacco has positions in Palantir Technologies and Tesla. The Motley Fool has positions in and recommends Palantir Technologies and Tesla. The Motley Fool has a disclosure policy.