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Cathie Wood Can Only Watch as Nvidia Rides AI Wave She Foresaw

In Business
February 23, 2024

(Bloomberg) — Cathie Wood made a wild prediction almost two years ago: Annual economic growth could accelerate to as much as 50%, thanks to breakthroughs in the world of artificial intelligence.

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Yet as the AI frenzy intensifies across Wall Street thanks to Nvidia Corp.’s stellar earnings report, Wood’s flagship ARK Innovation ETF (ticker ARKK) is missing out in epic fashion — down nearly 8% so far this year.

Despite Wood’s professed faith in the disruptive technologies of tomorrow, the main strategy at ARK Investment Management hasn’t held shares of its biggest winner, Nvidia, since early 2023, according to data compiled by Bloomberg. Meanwhile, its smaller ETFs have recently trimmed their already modest holdings in the Jensen Huang-led firm that’s just added $256 billion in market value in Thursday trading alone.

The world’s third-most valuable stock extended its 2024 gain to 57% after its sales forecasts beat estimates. The S&P 500 and Nasdaq 100 are each up about 6% this year, respectively.

In the telling of Wood’s firm, it’s all by design. ARK expects the AI-fueled market gains to broaden, and prefers to have exposure outside the main indexes, researchers wrote on its website in August. The asset manager also judged stocks like Nvidia as over-priced.

Ark Investment Management didn’t respond to a request for comment.

Wood herself last year described Nvidia as “easy,” “really expensive” and “very obvious,” adding that she is focused on names that are less talked about like software companies UiPath Inc. and Twilio Inc. She also likes to stress that her firm invests with a five-year horizon.

One thing ARK can count on is its loyal following, says Mohit Bajaj, director of ETFs at WallachBeth Capital.

“I don’t think a single name has really hurt their brand,” he said. “It’s just a matter of performance with the fund. Things might perform better as Bitcoin appreciates.”

ARKK’s largest holding is the crypto exchange Coinbase Global Inc., followed by Tesla Inc. — both of which are down in 2024. Against that backdrop investors have pulled $769 million from the fund, data compiled by Bloomberg show.

Wood is hardly alone in struggling to keep up with this top-heavy market. Any manager running a concentrated active portfolio runs a high risk of missing out in an environment where gains are dominated by just a handful of mega-caps, as they have been in recent months.

In any case, ARK’s conspicuous absence from the list of big Nvidia winners underscores the challenge of predicting disruptive breakthroughs and judging which stocks stand to benefit — and when to jump in and out.

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