Ark Invest, which is led by CEO Cathie Wood, has been pouring money into semiconductor stocks lately and has made another notable purchase. According to portfolio updates published by the firm yesterday, Wood's company has increased its investment in Quantum-Si (QSI +8.19%) -- a small-cap biotech with a specialized, chip-based platform for protein sequencing.
Ark Invest regularly publishes information about stocks that have been bought and sold for its exchange-traded funds (ETFs), and a recent update showed it purchased more than 1.4 million shares of Quantum-Si stock for its Ark Genomic Revolution ETF (ARKG +2.45%) on Thursday. The purchase would have been valued at roughly $3.7 million based on the stock's price at market close yesterday, and is the largest investment that Ark has made in the healthcare-tech upstart's stock so far.
So the question is: Why is Wood excited about this little-known life sciences player?
Quantum-Si's tech could lead to research breakthroughs
Quantum-Si is aiming to revolutionize proteomics -- the study of the structures, compositions, and interactions of proteins. Through its semiconductor-based platform, the company hopes to bring forth major leaps forward in protein sequencing and analysis. These technologies could be influential in the development of new drugs, treating diseases, and better understanding what is happening in people's bodies.
The company's proprietary protein analysis technologies are innovative and complex. Proteins analyzed with its platform are first broken down by an enzyme so that individual peptides can be immobilized in storage wells on the company's computer chip. From there, a chemical reaction occurs and the fluorescence given off is recorded by the chip. This is then interpreted and used to sequence the entire peptide and finally processed in the company's automated, cloud-based platform.
Should investors follow Wood into Quantum-Si stock?
Quantum-Si had its initial public offering in June 2021 and has seen some volatile trading since its debut. While the stock has rallied roughly 36% year to date, it remains down approximately 82% from its high. Ark was an early investor in the company and has gradually been building its position in the biotech specialist.
NASDAQ: QSI
Key Data Points
While it's clear that Wood is bullish on the stock, it still constitutes a relatively small position in the company's Genomic Revolution ETF. As of the most recently available data, Quantum-Si is only the 23rd largest holding in the fund and accounts for roughly 1.6% of the total portfolio by weight.
As a highly specialized player in a niche biotech category, Quantum-Si isn't going to challenge top players in the semiconductor industry. But that's not something it needs to pull off in order to be successful and deliver strong returns for shareholders. With a market capitalization of roughly $350 million, the tech specialist remains squarely in small-cap territory and could see explosive stock performance if its technologies go on to enjoy mainstream adoption.
On the other hand, Quantum-Si may have a long way to go before that happens. It's hard to predict how the company might scale from here.
The business just started delivering its platform and posting sales in the first quarter, and it recorded just $254,000 in revenue and $449,000 worth of customer orders in the period. The gross margin of 48.8% that the company posted is encouraging, given the relatively small production size, but this is still a company that's very much in the early stages when it comes to bringing products to market.
Following a net loss of $23.6 million in Q1, Quantum-Si closed out the period with $322.1 million in cash and marketable securities. Based on that run rate, the company would have enough capital to continue operating with its existing cash pile through the next few years, but it remains to be seen how the business might ramp up.
At this stage, Quantum-Si's performance outlook remains highly speculative. As a potential home-run play for those willing to embrace companies with outsized risk profiles, shares may be worth a gamble. On the other hand, this is the kind of high-risk stock that probably only make up a small portfolio position, even for investors who are bullish on the biotech.
