Investor Cathie Wood, known for her innovative investment strategies, has made notable adjustments to the holdings of her Ark Innovation ETF. The fund, which currently boasts a net asset value of $8 billion, has delivered impressive returns of 40% in 2023 thus far. This article delves into the recent developments, shedding light on Wood’s decision to sell shares in electric vehicle giant Tesla while acquiring positions in artificial intelligence (AI) specialist Palantir Technologies.
Trimming Tesla and embracing AI
Cathie Wood’s Ark Innovation Fund has initiated a series of strategic adjustments to its portfolio, marking a shift in investment focus. On a recent Thursday, the fund executed the sale of 54,847 shares of Tesla, valued at approximately $14 million. These funds were subsequently reinvested, with more than $10 million utilized to acquire shares in Palantir Technologies, an AI-focused company.
This decision follows a consistent pattern initiated earlier in the year, culminating in the sale of a total of 739,637 Tesla shares since late April. However, despite these sales, Tesla has remained the largest holding in the Ark Innovation Fund’s portfolio, comprising nearly 11% of its assets, as of the most recent market close. This suggests that Wood may be trimming her Tesla holdings as its price rises, but the stock’s impressive surge of 108% in the year to date has more than compensated for the sales.
Moreover, Wood’s outlook on Tesla remains robust. The fund’s most recent Tesla valuation model forecasts that Tesla shares could reach $2,000 by 2027, implying potential gains of 682% over the next four years. This optimistic projection, alongside a bull case of $2,500 and a bear case of $1,400, underscores Wood’s enduring confidence in Tesla’s future prospects.
An opportunistic approach
Cathie Wood’s investment strategy appears to be opportunistic in nature. While she has been steadily reducing her holdings in Tesla, the ongoing success of the electric vehicle company has meant that its overall percentage in the portfolio has increased. In 2022, Tesla represented only 7% of the Ark Innovation Fund’s holdings. Nevertheless, the remarkable surge in Tesla’s stock price has offset the reduction in shares, showcasing Wood’s opportunistic approach to buying and selling Tesla stock.
Ark Innovation Fund’s overarching mission revolves around identifying and investing in companies capable of revolutionizing industries through disruptive innovation. Palantir Technologies, with its focus on big data analytics and AI, aligns perfectly with this mission. Palantir’s platform excels in mining vast datasets to discern hidden patterns, with extensive applications in both government security and commercial analytics.
Palantir’s CEO, Alex Karp, highlighted the potential of AI in the company’s first-quarter shareholder letter, emphasizing the transformative impact of large language models (LLM) on enterprise software. Wood’s strategic move to invest in Palantir aligns with this sentiment. Notably, Wedbush analyst Dan Ives recently referred to Palantir as the “Messi of AI,” assigning a buy rating and a $25 price target to the stock, suggesting a 79% upside potential compared to its recent closing price.
Palantir has defied expectations throughout the year, boasting second-quarter revenue of $533 million, a 13% year-over-year increase, and consistent profitability based on generally accepted accounting principles (GAAP). Wood’s recent investment in Palantir adds to her conviction, bringing the total stake in the company to over 6.7 million shares valued at $93 million, constituting approximately 1.3% of Ark Innovation’s total holdings.
Cathie Wood’s bullish stance on the continued potential of AI is a key driver behind her investment decisions. In Ark’s Big Ideas 2023 report, AI is recognized as a catalyst that permeates all other technologies, with the potential for annual growth rates of 40%.
The report forecasts that the AI industry could grow from its current $13 trillion valuation to $200 trillion by 2030. Given these market dynamics, it is unsurprising that Wood has chosen to reallocate capital from her sizable Tesla position to bolster her investment in generative AI, with Palantir representing one of the most promising pure-play AI stocks available.
