Cathie Wood's Ark Invest misses out on Nvidia's powerful rally — dumped stock too early, citing high valuation

Published Tue, May 30 202311:06 AM EDTUpdated Tue, May 30 20231:55 PM EDT

Ark Invest's Cathie Wood, known for her investments in next-generation technologies, missed out on the jaw-dropping rally in Nvidia — the biggest winner in artificial intelligence this year. Her flagship Ark Innovation ETF (ARKK) exited Nvidia entirely in early January, before the chipmaker went on to enjoy a powerful rally that propelled it to a $1 trillion market capitalization. She even trimmed Nvidia holdings in her smaller funds on Thursday when the stock spiked 26% on a huge forecast beat driven by AI chip demand. The ARK Autonomous Tech. & Robotics ETF (ARKQ) now has 4.4% in Nvidia, while its biggest holding is Tesla with a 14% weighting. ARKK and ARKQ are up 8.9% and 5.8% this month, respectively, compared to Nvidia's 40% gain. Wood revealed that her reason for dumping Nvidia was its high valuation. Typically though, growth investors like Wood aren't fazed by how expensive a stock is. "At 25x expected revenue for this year, however, $NVDA is priced ahead of the curve," she said in a Twitter post on Monday. NVDA YTD mountain Nvidia Meanwhile, ARKK doesn't own any of the semiconductor names and other AI-related stocks that had a big move up recently alongside Nvidia, including AMD , Taiwan Semiconductor or C3.ai . "Active management seeks to find potential winners but can often miss out with security-selection decisions," said Todd Rosenbluth, head of research at VettaFi. "This is why some investors are turning to broad-based thematic index ETF strategies." Rosenbluth said Global X Artificial Intelligence & Technology ETF (AIQ) , iShares Robotics and Artificial Intel Multisector ETF (IRBO) , and ROBO Global Artificial Intelligence ETF (THNQ) are three AI-focused exchange-traded funds that have benefited from owning Nvidia. AI winners elsewhere? Wood said she believes better opportunities to ride the AI boom are elsewhere. She called Tesla "the most obvious beneficiary of the recent breakthroughs in AI." The innovation investor said the Elon Musk-led electric vehicle company is trading at six times revenue. She said she's betting on its autonomous-driving ambitions as Tesla aims for a total addressable market of $8 trillion to $10 trillion in revenue in self-driving mobility by 2030. Wood previously said biotech firm Exact Sciences , ARKK's seventh-biggest holding, is also a leader in AI in terms of its data on cancer and its molecular diagnostic-testing franchise. In its base case, Ark believes Exact Sciences could compound at an average annual rate of 25%, reaching $140 by 2027. The stock traded around $83 a share on Tuesday.