Admittedly, some of the more audacious analyst predictions can sound too good to be true. Relatively few stocks grow at triple-digit rates over a medium- or long-term time horizon, and such growth far exceeds the S&P 500's average annual return of around 10% per year.
However, before dismissing predictions involving the stocks picked by Cathie Wood and her team at Ark Invest, investors should keep its track record in mind.
Ark Invest first bought Bitcoin below $250 per coin and Tesla (TSLA 12.06%) when it typically sold for a split-adjusted price of approximately $13 per share. That history may justify taking the more daring analyst predictions seriously with Tesla, as well as Wood investments like Coinbase Global (COIN -5.10%) and Roku (ROKU 0.15%).
She's made critics eat crow before. Will she be right again?
Jake Lerch (Tesla): Wood really believes in Tesla. So much so that the fund manager expects Tesla shares to hit $2,000 by 2027. That would represent an increase of 927% from its current level and value the company at $6.3 trillion.
So, what is it that has Cathie Wood so excited about Tesla? In a nutshell, it's a combination of three factors:
- Increasing production figures
- Full self-driving
- Robotaxis
Each of these characteristics builds upon one another.
It starts with expanding production numbers. With each Tesla that rolls off the assembly line, the company acquires a new platform for the technology that Wood sees as the next chapter in Tesla's story.
Once a Tesla is on the road, consumers can enable full-service driving (currently in beta). And while the system remains far from perfect, Tesla and Wood are quick to note that full-service driving is already safer than human-only controlled vehicles.
Finally, once Tesla can break through the final barrier of removing a human driver from the vehicle altogether, an enormous opportunity presents itself: autonomous robotaxis.
A fleet of self-driving robotaxis could revolutionize transportation -- and blow Tesla's stock price sky-high. And while there are plenty of naysayers when it comes to full-service driving and robotaxis, Wood isn't worried. After all, she (and Tesla) have proved the critics wrong before. Remember, she bought her first shares of Tesla at a split-adjusted price of $13 per share. So, while owning Tesla shares isn't for everyone, I think Wood might be onto something.
Coinbase is a crucial component of Cathie Wood's flagship fund
Justin Pope (Coinbase Global): Wood is also big believer in cryptocurrency, especially Bitcoin, which she believes could reach $1.48 million per coin by 2030. Investors typically buy and sell Bitcoin and other cryptos on exchanges, and Wood has thrown her fund's money behind Coinbase. The exchange currently makes up about 6.7% of The Ark Innovation ETF, its fourth-largest position.
You could think of Coinbase as a picks-and-shovels investment for exposure to the crypto economy. As a crypto exchange, Coinbase makes money in several ways, including transaction fees when customers trade (both individuals and institutions), subscription services, staking and custody of crypto assets, and more. The company's trailing 12-month revenue is $2.8 billion, but you can see that it's down significantly, mainly due to a bear market in cryptocurrencies.
COIN Revenue (TTM) data by YCharts
Coinbase isn't a risk-free investment. The company is working through a challenging regulatory landscape, including butting heads with U.S. regulators about how cryptocurrencies should be governed. This is only more glaring after the high-profile collapse of its competitor FTX. On top of that, Coinbase could be a volatile business at times because it essentially revolves around the crypto economy.
But the potential reward is bigger, too. Coinbase becomes a more distinguished industry leader as competitors like FTX fail, and the crypto economy could be enormous. Coinbase has fetched analyst price targets as high as $200, a 245% gain, but think bigger picture. Wood made Coinbase a core holding for a reason, and if her Bitcoin prediction comes anywhere close to happening, Coinbase could be a thrilling investment over the coming years.
The ad stock poised to stream outsize returns
Will Healy (Roku): At first glance, one can understand doubts about any rosy scenario for Roku. The stock has dropped by almost 90% from its July 2021 high, and a slumping ad market highlights struggles it could have with competitors such as Samsung, Amazon, and Google parent Alphabet.
But amid those headwinds, Ark Invest estimates a $605-per-share price target by 2026. This means Roku stock would rise 980% over a three-year period at its current price.
Wood's team believes its revenue growth will average 39% per year, with most of the increase coming from video advertising revenue. It makes that prediction amid a slump in advertising that dramatically slowed Roku's growth in 2022.
To this end, Wood and her team continue to double down on Roku. Share counts have climbed from a low of more than 3 million shares in the summer of 2021 to just over 11 million currently. Today, Roku makes up nearly 5% of Ark Invest's stock holdings.
The bet could pay off if Roku rises to Ark Invest's expected $605-per-share price or its bull case scenario high of $1,493 per share. Still, Ark Invest also outlined a possible bear scenario where its price rises to only $100 per share.
Admittedly, many investors may perceive the bear case as the most likely to occur. After increasing by 56% in 2021, revenue growth had slowed to just 1% by the first quarter of 2023. While consensus estimates point to a recovery, they forecast 17% revenue growth in 2024, well short of Ark Invest's 39% yearly revenue growth estimate.
But despite an ad slump, streaming hours rose 20% yearly in the latest quarter. Also, ad markets tend to act cyclically, and such growth should supercharge ad revenue as spending recovers. Also, Roku's market share, which stood at 31% in the second quarter of 2022, is the largest, according to Conviva. That would likely make Roku the largest beneficiary of a digital ad recovery.
Such attributes do not guarantee that Roku will meet Ark Invest's expected price target. Nonetheless, with an unstoppable trend toward more streaming and Roku's position in the ad market, Ark Invest's estimate may not be as far-fetched as it might seem.
