Artificial Intelligence mastery makes FANG stocks a buy: CIO

Three out of 4 FANG stocks are trading lower this year, but investors should take note of the advantage Facebook, Amazon, Google-parent Alphabet, and Netflix have in one key area, ARK Invest CEO Cathie Wood said Wednesday.

The big-cap tech innovators are poised to reap benefits from the commercialization of artificial intelligence and machine learning, she told CNBC's "Squawk Box." For that reason, long-term investors should not be concerned about the stocks' recent underperformance.

"We think the big are getting bigger. The winner takes most. We're seeing that time and again," said Wood, also chief investment officer at ARK, which offers four technology-focused exchange-traded funds.

Shares of Facebook are up nearly 11 percent year to date, but the remaining FANG stocks are in the red, with Amazon down about 12 percent, Alphabet slipping almost 2 percent and Netflix sinking nearly 9 percent.

The fact that consumers are already interacting with machine learning through Amazon's sleeper hit Echo, a voice-activated personal assistant, shows these technologies have the potential to generate revenue sooner than later.

Meanwhile, Netflix's mastery of big data is allowing it to beat cable providers in terms of how much it pays for content for each hour users view, Wood said. And Facebook is likely to launch a new AI product at its developer conference next month, she added.

On the enterprise business side, Wood noted that Alphabet announced last week it would challenge Amazon in artificial intelligence for cloud computing, a space the e-commerce giant dominates with Amazon Web Services.

Those who were monitoring Amazon Web Services before Amazon began marketing it recognized it would be even more profitable than the company's retail business, she said.

"I think Amazon has taught a lot of people a lesson, and that is if you have big idea, you have to tell investors about it, invest heavily against the opportunity, and you'll be rewarded for it," she said.

That same lesson should be applied to artificial intelligence, according to Wood. For example, ARK believes self-driving cars will be a $500 billion business, she said, noting that tech companies are dominating in that space.

Neil Doshi, technology analyst at Mizuho, said concerns about leadership conflicts at Alphabet subsidiaries are "a little overblown." He noted that companies other than Google contributed about one half of 1 percent of revenue last year.

On Tuesday, Re/code linked previous reports about leadership issues at robotics firm Boston Dynamics, smart appliance-maker Nest, and life sciences start-up Verily to establish a pattern of CEO problems within these subsidiaries and tension with Alphabet's top executives.

Last year, the tech giant announced it would adopt a new corporate structure, with Google operating as a subsidiary under parent company Alphabet. The core search and advertising business, as well as YouTube and Android, remained part of Google. Acquired companies such as Nest and moonshot projects like a self-driving car venture would be treated as separate units.

To be sure, the operating loss from the latter ventures — nearly $3.6 billion in 2015 — is more significant to Alphabet than is their revenue contribution, Doshi said on "Squawk Box." The prospect of talent bleeding from these companies is also a concern, he added.

"We do worry on the margin though that if they are really losing a lot of employees from these high-growth start-ups that are within Alphabet, what could that potentially do to the growth-run rate for some of these companies?" he said.

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