Cathie Wood has made a name for herself by investing in innovative companies. Her Ark Invest exchange-traded funds (ETFs) have ranked among the top performers in the past.
However, Wood's reputation as a premier stock picker seems to have taken a hit recently. As a case in point, she dodged Nvidia (NVDA -3.33%) stock before its enormous surge this year. Is this a warning for investors considering buying her Ark Invest ETFs?
Is Ark leaving investors high and dry?
Ark Invest used to own a much greater stake in Nvidia. But in the months before the chip stock skyrocketed, Wood's investment firm sold nearly 1 million shares. That decision proved to be a costly one: Ark Invest's shareholders missed out on over $200 million in gains.
Sure, two of Wood's ETFs still own positions in Nvidia. It's the 10th-largest holding of the Ark Autonomous Technology & Robotics ETF (ARKQ 1.27%). The Ark Next Generation Internet ETF (ARKW -0.56%) also owns a small stake in Nvidia. But her flagship Ark Innovation ETF (ARKK 0.07%) completely exited its position in Nvidia in early January 2023.
Wood's timing for selling so much of Nvidia stock could raise big questions for investors thinking about putting their hard-earned money in Ark Invest ETFs. That's especially the case considering how her funds have performed, especially compared to Nvidia.
Note that in the chart, the two Ark Invest ETFs that no longer have major positions in Nvidia have lost money over the five-year period. Without Nvidia, the Ark Autonomous Technology & Robotics ETF, which still has a larger stake in the chipmaker, wouldn't have performed nearly as well.
In Wood's defense
To be fair, Wood saw the potential for Nvidia in artificial intelligence (AI) relatively early. In 2014, Ark Invest recognized that the company was, in her words, "the premier equity play" in AI. Many at the time viewed Nvidia only as a way to profit from the gaming market. Ark Invest made a lot of money off of its investments in Nvidia.
However, Wood thinks now that Nvidia is "priced ahead of the curve." With shares trading at 25x forward revenue, plenty of other investors would agree with her.
She also recently argued on Twitter that some investors "seem to think [Nvidia] is the only AI play." She added emphatically, "It is not!" And she's obviously right.
Ark Invest's newsletter published on May 30 stated, "In our view, while Nvidia still has substantial runway for growth, its competitors are well armed with resources and strategic incentives to challenge its reign." That perspective is no doubt correct.
A warning sign?
Should investors view Wood's ill-timed sales of Nvidia as a warning sign to avoid her Ark Invest ETFs? Not necessarily. Every investor makes mistakes. Even Warren Buffett has acknowledged on numerous occasions that he regretted some of his decisions.
On the other hand, investors pay not-so-insignificant expense fees to Wood's ETFs for the fund managers to make smart decisions on their behalf. Ark Invest's sell-off of Nvidia before the stock exploded does seem to reflect an inability to read where the AI market is going.
Also, Wood's valuation argument rings a bit hollow in one way. Nvidia's shares traded at an even higher forward price-to-sales multiple in early 2022 than it did when Ark Invest dumped a big chunk of its position in the stock. Why didn't Wood raise the valuation issue back then?
Some investors might still want to bet on Ark Invest, despite the spectacularly poor timing of the Nvidia sales. However, others might prefer to check out other ETFs or make their own stock picks.
Either way, Wood is right about one thing: There are plenty of other AI stocks beyond Nvidia that should be on your radar.
