Cathie Wood's Ark missed Nvidia tech rally but eyes other AI wins

Cathie Wood's Ark missed Nvidia tech rally but eyes other AI wins
Fund sold Nvidia at $400, missing the surge to $1200.
JUN 06, 2024
By  Bloomberg

Cathie Wood said Ark Investment Management is well positioned in artificial intelligence assets, even after her company trimmed back on Nvidia Corp. shares before the rally last year. 

Wood said her private fund has “a lot of exposure to up and comers” during a video interview at the Greenwich Economic Forum in Hong Kong Thursday. She added that her firm still owns Nvidia in more specialized portfolios and the flagship fund.

The Wall Street money manager known for high-profile calls on disruptive technologies said she bought into Nvidia in 2014 when it traded at about $4 on a share-split adjusted basis. The flagship ARK Innovation ETF fund held the stock until it hit around $400. 

She sold out most of her position before the company’s rally last year. The chipmaker at the center of the AI boom saw another 15% share price gain since May 24, when sales in the first quarter beat analyst estimates and its second-quarter forecast also topped projections. Its share price has more than octupled since late 2022 to about $1,224. Its market value has hit $3 trillion, leapfrogging Apple Inc. 

 “We were saying to ourselves if Nvidia is going to keep running like this, the only reason it should deserve to do that is if it’s going to benefit a lot of other companies, and we began to look at what those other companies might be,” said Wood. “We did pull away and I suppose it was a bit of a statement.” 

While she doesn’t think the semi-conductor play is over, there is a pause as companies assess their strategic approach to AI. Some other companies that Ark had expected to see a revenue tailwind from AI in this earnings season had failed to do so, she added, citing Salesforce Inc. as the most notable example.

Meantime, Wood said that autonomous driving is the “biggest AI project on earth,” defending her bet on Tesla Inc. 

Ark added to its Tesla position again in the first quarter, when sentiment cooled on the stock on concerns about a slowdown in electric vehicle consumption. Threats to its leadership position from cheaper models of Chinese rival BYD Co. also weighed on the shares. However, Wood has said that Tesla is primed to grab more market share, as peers like General Motors Co. and Ford Motor Co. step back from EV plans over profitability concerns. 

In a 2023 analysis, Ark estimated Tesla to reach $2,000 per share in 2027, with its bull and bear cases at $2,500 and $1,400 per share, respectively.

Late in May, the Ark Venture Fund also disclosed a stake in Elon Musk’s artificial intelligence startup xAI, representing about 2% of its holdings. It came a month after revealing a position in OpenAI, accounting for about 4% of its holdings. It also owns a stake in Anthropic. 

Wood shot to fame during the height of the pandemic for her bold calls over pandemic darlings like Tesla, Zoom Video Communications Inc. and Roku Inc. Retail traders embraced some of her views, pushing the funds to more than $60 billion in assets at their peak in early 2021. 

Her ARK Innovation ETF, which has around $6.4 billion, has declined nearly 16% this year, with its largest position Tesla losing nearly 30% of its value.

The fund outperformed benchmarks with a 68% gain last year, on the hint that interest rates had peaked and there could be as many as six cuts by the of 2024, she said. Then the expectation shifted to no cut at one point of this year before swinging back.

“I think we are going to see surprisingly large rate cuts this year,” she said, citing rolling recession that has been sweeping through the US, hidden underneath the headline statistics and rate cuts in emerging markets, Switzerland, Sweden and Canada. “Housing, autos, non-residential construction, including multi-family, now consumer, is going to drive rates down in this election year in the United States.”

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