Cathie Wood is the founder and CEO of Ark Invest, an asset management company focused on disruptive technologies, like artificial intelligence (AI). After struggling in 2022, the firm has had a spectacular 2023. Its flagship Ark Innovation ETF is up 73% year to date, easily outperforming the broad-based S&P 500 and the technology-heavy Nasdaq Composite.
Yet, some readers may be surprised to learn that Ark has been selling Nvidia stock throughout the fourth quarter, unloading 33,900 shares since the end of September. Investors should not misinterpret that as a lack of confidence in the AI chipmaker. Nvidia stock has more than tripled in 2023, and Ark is likely rebalancing its portfolio.
In any case, Wood and her team have been redistributing capital across two other AI stocks, Palantir Technologies (PLTR +2.54%) and The Trade Desk (TTD 1.36%). Both now account for roughly 1% of Ark's $16 billion portfolio. Here's what investors should know about these growth stocks.
NASDAQ: PLTR
Key Data Points
1. Palantir Technologies
Palantir helps businesses turn big data into actionable intelligence. Its software integrates data and models to create an ontology, a map defining the relationships among digital assets. For instance, hospital employees could be linked to credentials, timetables, and open shifts. Users could then run that data through analytics and AI applications to match workers with open shifts in a way that considers their qualifications and availability.
Palantir also supports the development, evaluation, and optimization of machine learning (ML) models, a discipline known as model operations or ModelOps. In fact, the company was recently recognized as a leader in ModelOps and AI/ML platforms by independent research groups. Palantir is leaning into that functionality with AIP (Artificial Intelligence Platform), a new product that adds generative AI support to its existing platforms.
Palantir looked strong in the third quarter due, in part, to a new go-to-market strategy intended to drive demand for AIP. Its customer count increased 34% to 453, revenue increased 17% to $558 million, and net income, according to generally accepted accounting principles (GAAP), improved to $72 million. Palantir has now been profitable on a GAAP basis for four consecutive quarters, and the company is well positioned to maintain its momentum as more businesses turn to AI to augment productivity.
On that topic, Chief Revenue Officer Ryan Taylor spoke optimistically on the earnings call: "The potential market for AIP and the trajectory of possible AIP growth for our business is massive." Morningstar analyst Malik Ahmed Khan agrees. He thinks Palantir could increase sales by 26% annually over the next five years. That makes its current valuation of 18.3 times sales seem reasonable.
I would like to see another quarter or two of encouraging momentum surrounding AIP. However, investors eager to put Palantir stock in their portfolios could buy a very small position today.
NASDAQ: TTD
Key Data Points
2. The Trade Desk
The Trade Desk operates a demand-side platform that helps advertisers buy ad inventory and manage campaigns across digital channels, such as mobile and connected TV (CTV). Its platform leans on what management calls "industry-leading AI" to automate and optimize campaign performance.
Consultancy Quadrant Knowledge Solutions recently corroborated that claim when it ranked The Trade Desk as the best adtech platform on the market in terms of both technological excellence and customer impact. One reason for that recognition is its independent business model, meaning The Trade Desk does not own media content that could bias ad placement.
Independence differentiates the company from peers like Alphabet's Google, which has a clear incentive to steer ad buyers toward inventory on Google Search and YouTube. That edge has helped The Trade Desk earn a leadership position in CTV advertising, and Morgan Stanley believes it will translate into leadership in offsite retail media simply because brands are more willing to share data with an independent company.
Indeed, The Trade Desk sources data from 80% of the largest U.S. retailers, including Walmart and Target, providing advertisers with measurement capabilities unavailable on other adtech platforms. That could be a key growth driver in the years ahead because CTV and retail media are the two fastest-growing components of the digital ad market.
The Trade Desk delivered a solid performance in the third quarter. Revenue rose 25% to $493 million, easily beating the 9% ad revenue growth reported by Alphabet. And GAAP earnings jumped 144% to $39 million. There was only one blemish. Management provided disappointing guidance that led to a rather sharp decline in the stock, but the company remains well placed to benefit from growth in digital ad spending.
Morningstar analyst Ali Mogharabi believes The Trade Desk could grow sales at 22% annually over the next five years. In that context, the stock looks a little pricey at 20.7 times sales, though the current multiple is a discount to the three-year average of 27.4 times sales.
Personally, I would hold out for a lower price before buying, but I say that as a shareholder satisfied with my position size. Investors looking to build their positions could add a few shares right now, provided they are prepared to hold for at least five years.
