Cathie Wood is the head of Ark Investment Management, a firm known for making big, long-term bets on some of the most innovative technology companies. It runs eight exchange-traded funds (ETFs) focused on different areas of the tech sector from robotics to space exploration, and they hold a total of 34 different stocks.
A panel of Fool.com contributors have selected three of those stocks that truly stand out, and together, those stocks account for 18.2% of Ark's entire holding. Here's why investors might want to follow Cathie Wood's lead by owning Tesla (TSLA +0.79%), Roku (ROKU +0.31%), and Zoom Video Communications (ZM 1.28%).
The future of green cars, and green energy
Anthony Di Pizio (Tesla): Cathie Wood owns many great companies, but perhaps none have as much long-term potential as Tesla. The company is already the global leader in the electric vehicle industry, and while that business is likely to drive the company's revenue for the foreseeable future, Tesla is also quietly building a presence in other high-impact segments.
By 2024, the company expects to have launched its robotaxi, which will run on fully autonomous, self-driving technology. It could be the future of the mobility industry, and one estimate suggests that opportunity could be worth over $2.1 trillion per year by 2030. Wood's Ark Investment firm is incredibly enthusiastic about this part of Tesla's business, predicting it could make up 60% of the company's value by 2026.
NASDAQ: TSLA
Key Data Points
But that's not all. Tesla also has a growing residential solar and battery storage segment that has already achieved great things. Since 2012, the company has deployed enough solar to account for all of the energy its cars and factories have chewed up over that period, combined.
The company is also currently ramping up toward an annual production capacity of two million electric vehicles thanks to its brand new gigafactories in Austin and Berlin. These facilities are expected to rapidly scale, and analysts predict Tesla could generate $119 billion in revenue in 2023, marking the first time the metric enters triple digits.
But CEO Elon Musk has his eye on the long term, which could involve 10 to 12 additional gigafactories by the end of the current decade, capable of making 20 million cars per year. It's little wonder Wood and her firm are so bullish on Tesla -- in fact, Ark thinks the stock could soar 437% to $1,533 per share between now and 2026.
This bargain-bin stock still dominates streaming
Jamie Louko (Roku): As of Sept. 7, Roku is one of the largest holdings across all of Ark Invest's ETFs. Wood has been actively adding to her position in the stock over the past few months, too. Since July 29, Ark Invest has bought more than 470,000 shares of Roku stock, likely because it trades at just around three times sales -- close to its lowest valuation ever since going public.
The company is cheap for a reason, however. Roku struggled in its second quarter, posting just 18% year-over-year revenue growth. Why? Businesses are cutting back on spending as budgets tighten, and advertising is an easy place to do so. What's even more disappointing is that the company sees continued headwinds ahead for the rest of the year: In the second quarter, the company gave third-quarter guidance that projects just 3% revenue growth on a year-over-year basis.
NASDAQ: ROKU
Key Data Points
That said, Cathie Wood and Ark Invest look for long-term opportunities. On that front, Roku still looks exciting. Streaming continues to gain steam with U.S. consumers aged 18 to 49 spending 50% of their TV time streaming last quarter, up from 40% in 2020. While consumers spend half of their time streaming, however, only 22% of TV ad budgets go toward it. Considering Roku is the largest streaming platform in terms of hours streamed in the U.S., Canada, and Mexico, the company has the potential to capitalize on this opportunity as advertisers ultimately shift more of their budgets toward streaming.
The most prominent risk to Roku is that it loses its leadership status and thus its spot as the preferred platform for advertisers to buy ad inventory. The company faces stiff competition, but Roku doesn't see any signs of losing its leadership position. The company has more than 63 million active accounts, which jumped 14% year over year, and the number of hours streamed on its platform increased steadily to 20.7 billion last quarter.
While the short term looks rough for this streaming stock, the long-term tailwinds are still in full swing. That's likely why Wood is adding to her position, and you might want to consider following suit.
A pandemic darling with plenty still to offer
Trevor Jennewine (Zoom Video Communications): Zoom specializes in cloud communications. The company is best known for Zoom Meetings -- the top videoconferencing application on the market -- but its portfolio also includes other enterprise pillars: a cloud phone system (Zoom Phone), an omnichannel customer support solution (Zoom Contact Center), and a corporate conferencing system (Zoom Rooms). Those products allow businesses to replace costly on-site hardware with cloud software and to unify communications spend on a single platform.
Building on that, Zoom Meetings earned a reputation for simplicity and reliability as its popularity soared during the pandemic, and its leadership position in the videoconferencing market has further cemented Zoom's brand authority. That competitive edge is the foundation of a strong land-and-expand growth strategy, and that strategy is starting to pay off.
NASDAQ: ZM
Key Data Points
During the latest earnings call, management noted "early traction for Zoom Contact Center and Zoom IQ for Sales," new artificial intelligence (AI) software that analyzes Zoom Meetings to surface insights that boost sales productivity. But Zoom Phone stole the show as it reached four million seats in Aug. 2022, up from just one million in Jan. 2021.
Of course, many investors have been disappointed with Zoom's financial results of late. Revenue rose just 8% to $1.1 billion in the fiscal 2023 second quarter (ended July 31), and earnings plunged 86% to $0.15 per diluted share. But unfavorable foreign-exchange rates and the war in Ukraine were a 200-basis-point headwind on the top line, according to management. And beyond that, Zoom is currently a victim of its own success. Many small businesses adopted Zoom Meetings through the self-service online portal during the pandemic, but those customers tend to be less sticky than enterprise customers (i.e., larger businesses engaged by Zoom's direct sales team or sales partners).
So management has doubled down on its enterprise sales strategy, and the early results are encouraging. Enterprise customers climbed 18% in the second quarter, and the average enterprise customer spent 20% more than they did a year ago. That momentum should continue as more enterprises adopt remote or hybrid work, but Zoom has other catalysts working in its favor as well.
The company puts its total addressable market (TAM) at $91 billion by 2025, and the vast majority of that figure comes from Zoom Meetings, Zoom Phone, and Zoom Contact Center. Right now, no product except Zoom Meetings accounts for 10% or more of revenue, though Zoom Phone is getting close. That means the company has a lot of room to expand with existing customers, and its comprehensive cloud platform means it's also well positioned to capture new customers.
Finally, Zoom IQ for Sales is a particularly exciting development. It marks the company's expansion into AI services, and it could dramatically enhance the value of Zoom Meetings, reinforcing its leadership. More broadly, that type of innovation paves the way to additional AI services in the future -- for example, Zoom IQ for Customer Service as an adjacent solution to Zoom Contact Center.
Currently, shares trade at 5.9 times sales -- just about their cheapest valuation since Zoom went public. And given the company's potential to reaccelerate sales growth, that valuation looks like a bargain. That's why this growth stock is worth buying right now.
