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Discussions about Cathie Wood being a better investor than Warren Buffett feel like a distant memory. Still, her flagship Ark Innovation ETF (NYSEMKT: ARKK) has produced an annualized 15.5% return over the past decade. However, that also includes an annualized 9.1% loss over the past five years, showing the volatile nature of the fund.
Consistent with high volatility, she has quickly turned Space Exploration Technologies (NASDAQ: SPCX) into her second-largest holding, behind only Tesla (NASDAQ: TSLA). Elon Musk has a big say in how Wood's fund performs, but is that the right move? Here's what investors should consider.
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You won't find the slightest bit of value investing in Wood's portfolio, unless you count Nvidia (NASDAQ: NVDA) as a value stock. While that's a fair argument due to its relatively low P/E ratio, it's hard to call companies like Coinbase (NASDAQ: COIN), Tempus AI (NASDAQ: TEM), and OpenAI value stocks. These three companies make up the fund's top 10 holdings, and they are extremely volatile.
Consistent with its annualized five- and 10-year returns, investors can expect a volatile ride with dramatic price action. SpaceX fits the mold, with many 10% upswings and downswings since its June IPO.
A 0.75% expense ratio certainly works against the fund's desirability, but it is well positioned for the most high-risk, high-reward AI opportunities.
A $1.8 trillion market cap implies a lofty valuation and may limit future growth opportunities compared to smaller AI stocks. However, the business is undeniably growing at a rapid pace. Revenue surged by 161% year over year, with net operating income of $2.8 billion as a major highlight.
The super intelligence segment is doing the heavy lifting. That part of the business grew by 830% year over year to $7.56 billion. Growth almost tripled sequentially. Space revenue was also up 84% sequentially, showing that it's not just an AI data center stock. For now, though, AI is still firmly in the driver's seat of SpaceX's future growth.
The primary concern is whether most of future growth is already priced in at a $1.8 trillion market cap. However, SpaceX's earnings results and Musk's desire to have up to 20 gigawatts of power by the end of 2027 suggest that more gains are possible. Granted, Musk will have to achieve that 20-gigawatt total, which may be more difficult due to midterm election results.
Ark Innovation holders should watch closely for any AI developments. The tone of the industry will directly impact Wood's fund in a meaningful way since it is heavily exposed to the industry. However, a 0.75% expense ratio is a bit too high for me.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Space Exploration Technologies, Tempus AI, and Tesla. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.
Can Cathie Wood's Ark Invest ETF Make a Comeback With Its Large SpaceX Position? was originally published by The Motley Fool
