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ARK Is Investing in Space Exploration: These 2 Tech Stocks Could Blast Off

By Trevor Jennewine - Apr 17, 2021 at 7:30AM

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Cathie Wood has earned a reputation as one of Wall Street's most savvy investors.

Cathie Wood's ARK Invest recently launched its ARK Space Exploration & Innovation ETF (ARKX -1.75%). This is the firm's latest actively managed exchange traded fund, and it's designed to give investors exposure to various tech and aerospace companies that enable or benefit from space exploration.

NVIDIA (NVDA -3.82%) and Trimble (TRMB -0.22%) are two of the top 10 holdings in this relatively new ETF, and both of these companies look like good long-term investments. Here's why.

1. NVIDIA: Computing power

NVIDIA pioneered the graphics processing unit (GPU), a type of semiconductor (or chip) designed to process lots of data very quickly. GPU technology makes it possible to accelerate heavy workloads like artificial intelligence, data analytics, and scientific computing.

An astronaut on the surface of Mars.

Image source: NVIDIA.

While rivals have released their own GPUs, NVIDIA's chips remain the gold standard in the industry, as evidenced by their widespread adoption. For example, every major public cloud provider -- from Amazon Web Services to Alibaba Cloud -- uses NVIDIA GPUs in their data centers.

In addition to various terrestrial applications, NVIDIA's chips have already been instrumental in space exploration. NASA, for example, is using NVIDIA's DGX-2 supercomputing platform to plan a manned mission to Mars.

Landing on the red planet will be complicated and dangerous: Starting from an initial descent rate of 12,000 miles per hour, the spacecraft will have just six minutes to slow down before reaching the surface. During the descent, complex fluid dynamics will affect the vehicle in unknown ways, and simulating those conditions on other computing platforms would take up to six months, according to NASA computer scientists. But with NVIDIA's computing platform, it takes just one week to run six simulations simultaneously.

Driven by unrivaled processing power, NVIDIA products have benefited from high demand in recent years. As a result, the company has posted solid financial results, despite inventory headwinds in 2019.

Metric

2018

2021

CAGR

Revenue

$9.7 billion

$16.7 billion

20%

Free cash flow

$2.9 billion

$4.7 billion

17%

Data source: NVIDIA SEC filings. Note: Fiscal 2021 ended Jan. 31, 2021. CAGR = compound annual growth rate.

Of course, scientific research is just one use case. NVIDIA's GPUs are also well suited for other high-performance computing applications. In fact, according to management, NVIDIA's total addressable market in the data center space will reach $100 billion by 2024. That leaves this tech company with plenty of room to grow.

2. Trimble: Geospatial systems

Some investors were probably surprised by Cathie Wood's decision to make Trimble the top holding in ARK's latest ETF. Trimble isn't growing as quickly as NVIDIA, and its aspirations aren't as flashy as enterprises like Virgin Galactic. That being said, Trimble stock has outperformed the S&P 500 over the last one, five, and 10 years.

Child's silhouette pointing toward a series of panel, each depicting a beautiful scene from space.

Image source: Getty Images.

The company provides hardware and software solutions to millions of customers across some of the world's largest industries like construction, agriculture, and transportation. For example, Trimble's Connected Supply Chain platform helps improve fuel efficiency and safety in long-haul trucking and freight transport, providing real-time data and analytics to back-office administrators. Likewise, Trimble's Connected Farm platform optimizes agricultural workflows, helping farmers improve crop performance and profitability.

Many of Trimble's products integrate real-time positioning technologies -- this includes global positioning systems (GPS) and global navigation satellite systems (GNSS), as well as systems that use laser and optical technology to establish location. Trimble also provides data collection platforms that simplify management of this geospatial information. These technologies, in particular, lend themselves to space exploration.

Not surprisingly, the coronavirus pandemic hit Trimble hard, as it disrupted supply chains and suppressed the global economy. As a result, the company's revenue dropped 4% in 2020. Even so, Trimble's gross margin has expanded in recent years, driving solid growth in free cash flow.

Metric

2017

2020

CAGR

Revenue

$2.6 billion

$3.1 billion

6%

Gross margin

52.1%

55.8%

N/A

Free cash flow

$386 million

$615 million

17%

Source: Trimble SEC filings.

Trimble estimates its market opportunity at $50 billion, leaving it with plenty of room for growth. Moreover, Trimble targets industries that have been historically underserved by technology, offering solutions that help clients improve productivity, quality, and safety. That should drive demand as those enterprises turn to technology to boost operational outcomes.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Amazon and NVIDIA. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Amazon, NVIDIA, and Virgin Galactic Holdings Inc. The Motley Fool recommends Trimble Inc. and recommends the following options: long January 2022 $1920.0 calls on Amazon and short January 2022 $1940.0 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Trimble Inc. Stock Quote
Trimble Inc.
TRMB
$68.09 (-0.22%) $0.15
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$171.13 (-3.82%) $-6.80
ARK ETF Trust - ARK Space Exploration ETF Stock Quote
ARK ETF Trust - ARK Space Exploration ETF
ARKX
$15.14 (-1.75%) $0.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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