There is arguably no investor more committed to the high-flying tech and crypto sectors than Cathie Wood, the founder and CEO of Ark Invest, which manages several exchange-traded funds (ETFs).
Wood's flagship fund, the Ark Innovation ETF (ARKK -1.44%), is focused on disruptive innovation. Along with the rest of the tech sector, the Ark Innovation ETF has had a volatile couple of years, experiencing huge gains in late 2020 and 2021 only to give up those gains in 2022 after soaring inflation and rapidly rising interest rates really cut into the sector.
But the Ark Innovation ETF is off to a hot start in 2023, already up about 25% amid hopes the Federal Reserve will soon end its rate-hiking campaign. Interestingly, 35% of the Ark Innovation ETF is invested in just five tech and crypto growth stocks.
Tesla: $721.7 million (9.3% of portfolio)
Like many high-flying tech and growth investors, Wood loves the large electric carmaker Tesla (TSLA -1.06%), which is run by the famous billionaire entrepreneur Elon Musk. Just this month alone, Wood snapped up more than 806,000 shares valued at more than $105 million and made the bold prediction that Tesla's stock could jump by 500% over the next five years.
Tesla is the largest electric vehicle maker in an industry that is poised to explode as the world continues to shift away from fossil fuels in an effort to address climate change.
In 2022, the company grew deliveries by 1.31 million vehicles from 2021, while production jumped 47%. Musk has recently launched aggressive price cuts to boost demand for Tesla vehicles and said that deliveries could hit two million this year.
Zoom Video Communications: $629.5 million (8.1% of portfolio)
Video conferencing company Zoom Video Communications (ZM -0.34%) took off during the pandemic as COVID-19 pushed many workers remote, and there was a huge need for workflow tools that could help employees communicate. Shares of Zoom at one point hit $559 before coming back down to about $72 as of this writing.
Surging expenses in Zoom's fiscal year 2022, driven particularly by sales and marketing and research and development, have really hammered profits, although the company is still profitable, which not all high-growth tech companies can say.
But with working from home now so mainstream, competition has emerged in the space, which could really challenge Zoom as it tries to maintain its growth. The company still trades at more than 19 times forward earnings estimates.
Roku: $516.9 million (6.7% of portfolio)
The video streaming company Roku (ROKU -0.40%) is another tech stock that absolutely took off during the pandemic. The company offers a digital platform that includes most streaming and entertainment apps, including Netflix, Hulu, and Amazon Prime Video.
The market for television streaming is still growing. In the U.S., streaming time still only makes up about 40% of total television viewing time, and it's much lower than that in other countries.
Still, Roku's losses have been growing in 2022, and the company is projecting a big loss in the year-end quarter. The market is not terribly interested in tech companies that are losing hundreds of millions of dollars right now, but that doesn't mean the stock won't bounce back in a more favorable macroeconomic environment.
Block: $494.9 million (6.4% of portfolio)
Formerly known as Square, Block (SQ 0.51%) has created an ecosystem for merchants and consumers, offering a broad range of payment solutions and e-commerce tools. Its two main business segments are Block's technology solutions for merchants, which help them process payments and conduct business more efficiently, and the Cash App, which is largely for peer-to-peer payments between consumers.
Block continued to see gross payment volume (GPV) rise across its platform in 2022, but investors are worried about how a severe recession might impact volume this year. The Cash App has also seen good momentum and had 18 million active users in September, but the company lost a lot of money last year.
Trading at 46 times forward earnings, Block already has a premium growth valuation, but it is building a platform with significant scale that should give it an advantage and make it a good long-term buy.
Coinbase Global: $366.0 million (4.7% of portfolio)
Cathie Wood has been a huge bull for Bitcoin, predicting that the price of the token will hit more than $1 million by 2030, so it's no surprise that Wood has purchased a significant stake in the large U.S. crypto exchange, Coinbase Global (COIN -2.31%).
As Bitcoin and crypto have taken a beating in the past year, Coinbase has not been spared. Its stock is down more than 84% since going public in April 2021. The bankruptcy of FTX and alleged fraud by its founder and CEO Sam Bankman-Fried has not helped the matter, either, with the industry experiencing a crisis of confidence.
But with Bitcoin rallying lately on hopes the Federal Reserve will end its rate-hiking campaign, Coinbase stock has climbed more than 63% in 2023, and Wood has been buying the dip. Although conditions are tough, Coinbase is uniquely positioned to ride out the crypto winter. At the end of the third quarter of 2022, the company still had more than $5 billion of cash and cash equivalents and has been conducting broad layoffs to prepare the company for a sustained industry slowdown.
A more measured approach for individual investors
Cathie Wood is undoubtedly committed to disruptive, high-growth names in the tech industry, a volatile strategy as investors have seen over the last few years. While such a focus carries lots of potential, retail investors shouldn't abandon proper diversification in their own investing strategies. With that in mind, many of Wood's top choices for the Ark Innovation ETF are still tremendous long-term buys -- my top choices from this group are Tesla and Block.
