When Cathie Wood makes a move, investors take notice. That's because the chief executive officer of Ark Invest has a good eye for innovation and spotting tomorrow's success stories today. She often bargain-hunts, getting in on a stock when others are selling, then holds on for the long term to fully benefit from that particular company's growth. The strategy is paying off, with her flagship Ark Innovation fund climbing 100% over the past three years, outpacing gains of the S&P 500.
Considering all of this, investors may want to note that this famous investor has been buying shares of Cerebras Systems (CBRS +19.04%) in recent days -- an artificial intelligence (AI) chip stock that completed its initial public offering just two weeks ago. Should you follow Wood into this dynamic new AI player? Let's find out.
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Cathie Wood's recent purchases
So, first, let's start out with the details of Wood's purchases. On May 22, May 26, and May 27, she added shares of Cerebras to the Ark Innovation fund and to the Ark Next Generation Internet fund. These moves make Cerebras No. 30 out of 44 stocks in Ark Innovation, with a 1.13% weighting. And the purchases make it the No. 27 out of 38 stocks in the internet fund with a 1.22% weight.
By comparison, Nvidia, the world's leading AI chip designer, is the 26th biggest holding in the Ark Innovation fund, with a weighting of 1.23%. And in the internet fund, Nvidia is the 30th biggest position at a weighting of 1.07%. So Wood is making bets of similar sizes on both of these stocks right now.
Wood took advantage of a small dip in Cerebras' stock in recent days, as it slipped 14% from its market close on May 14 -- the day of the IPO -- through May 27. That said, Cerebras soared 68% during that first day of trading, and, raising $5.5 billion, represented the biggest IPO of the year so far.
NASDAQ: CBRS
Key Data Points
Why are investors buying Cerebras?
Why are investors, including Wood, excited about Cerebras? The company has built a supersize chip, and that size helps it to deliver faster speeds than other chips on the market -- even market-leading graphics processing units (GPUs) on certain occasions. Cerebras' chip offers greater memory bandwidth, something that helps it operate at tremendously high speeds.
Customers clearly like this as Cerebras is seeing impressive growth, with revenue climbing from about $24 million in 2022 to $510 million last year. And just this year, the company's chips became available through Amazon's cloud business, Amazon Web Services (AWS), the world's leading cloud services provider. This could be big for Cerebras, offering it the opportunity to reach a great number of new potential customers.
Meanwhile, it's important to note that Cerebras does come with some risk. It's not yet profitable on an operational basis and must continue to spend heavily to advance its technology. At the same time, its key rival, Nvidia, has tremendous resources, a strong relationship with big tech customers, and a full portfolio of products and services, including the CUDA parallel computing platform that makes it easy to apply GPUs to many different industries and uses. This doesn't mean Cerebras won't carve out share of the market however, as demand for compute is high and customers often choose to use chips from more than one player, particularly if they may gain in efficiency.
Should you follow Cathie Wood?
Considering all of this, should you follow famous investor Cathie Wood into Cerebras post IPO? This depends on your comfort with risk. If you're a cautious investor, you're better off choosing a long-established AI player such as Nvidia or even a chip manufacturer such as Taiwan Semiconductor Manufacturing. The advantage of investing in TSMC is that it's the producer of many companies' chips, so it's likely to see growth regardless of which chip designer leads in market share. You also may consider a cloud player like Amazon, which not only benefits from AI but also from non-AI business.
However, if you're an aggressive investor looking to diversify with a new innovator, you might consider picking up a few shares of Cerebras on the dip today -- or even during another similar opportunity down the road.
