Cathie Wood, chief of Ark Investment Management, believes in tech stocks that will have a disruptive impact. She isn’t afraid to buy them on the way down — or up.
Sometimes her strategy works: The flagship Ark Innovation ETF (ARKK) has returned 9% this year as of Jan. 28, while the Standard & Poor’s 500 Index and the Nasdaq Composite Index have gained roughly 3% and 2%, respectively.
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This week, she bought two big names in the AI industry.
The purchases came after the Chinese AI company DeepSeek released its AI technology, which it says can perform nearly as well as OpenAI but at much lower cost.
The new system raised questions about whether the huge spending from the major tech companies on AI chips is worthwhile.
Opinions on Wood vary. Supporters see her as a tech guru while critics say she’s just an average fund manager.
Wood delivered an extraordinary 153% return in 2020. However, her longer-term performance has raised questions about the sustainability of her high-risk, high-reward strategy.
As of Jan. 28 ARK Innovation ETF, with $6.3 billion under management, has delivered an annualized three-year return of negative 3.5% and a five-year return of 3.74%.
In comparison, the Nasdaq Composite has a three-year annualized return of 13.65% and a five-year return of 17.23%.
Over the past year, Ark Innovation ETF has seen a net outflow of nearly $3 billion, with $380 million exiting the fund in the past month, according to VettaFi.
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Cathie Wood’s investment strategy explained
Wood’s investment strategy is straightforward: Her Ark ETFs typically buy shares in emerging high-tech companies in fields such as artificial intelligence, blockchain, biomedical technology, and robotics.
Wood says these companies have the potential to reshape industries, but their volatility leads to major fluctuations in Ark funds’ values.
Amy Arnott, portfolio strategist at Morningstar Research Services, calculated that ARK Innovation wiped $7.1 billion of shareholder wealth from its launch in 2014 through 2023.
That put the ETF third on the list of the biggest wealth-destroying mutual funds and ETFs for the decade ending in 2023. The analyst hasn’t updated the list for 2024.
Related: Cathie Wood’s net worth: The Ark Invest CEO’s wealth & income
But things might change as Donald Trump returns office.
Todd Sohn, ETF and technical strategist at Strategas Securities, noted that since Donald Trump was reelected president, the flagship ARKK has jumped 27.6%, while the Ark Next Generation Internet ETF (ARKW) is up 29.5%, according to MarketWatch.
“We still strongly believe that ARKW is about as good a proxy for Trump 2.0 as one might find, with heavy exposure to bitcoin, crypto derivatives, Tesla and defense,” Cohn said.
Wood recently expressed optimism about a shift to looser regulation under Trump’s presidency.
“What the new administration is doing is changing fear with optimism,” Wood told Bloomberg on Jan. 22. It’s “highly underestimated how important deregulation is going to be to unleashing animal spirits. We are pretty excited about this. Our strategies are starting to break out.”
Not all investors echo Wood’s confidence. Over the past year, Ark Innovation ETF has seen a net outflow of nearly $3 billion, with $380 million exiting the fund in the past month, according to ETF research firm VettaFi.
Cathie Wood buys AMD and Amazon
On Jan. 27 Wood’s Ark funds bought 42,554 shares of Advanced Micro Devices (AMD) . That chunk of stock was valued at roughly $5 million as of Jan. 29’s close.
AI is a big part of AMD’s business, but the company’s AI-market share remained significantly lower than that of Nvidia, which dominates the market for AI graphics processors. In 2024, AMD stock lost 18%.
The company is set to report Q4 results on Feb. 4. It beat Wall Street’s third-quarter earnings and revenue expectations in October. However, the company’s Q4 revenue estimate fell short of consensus expectations.
CEO Lisa Su suggested that chip supplies could be tight this year, but added that “but we’ve also planned for significant growth going into 2025.”
Wedbush lowered its price target on AMD to $150 from $200 after the DeepSeek model release, but maintained an outperform rating.
Related: Analysts turn heads with AMD stock price target
“We are moderating our outlook for AMD’s 2025 results with reduced expectations around AI GPU sales, albeit partially offset by increased PC/server CPU expectations,” the firm said.
Wood has made several big purchases of AMD recently, including buying 82,456 shares on Dec. 31 and 62,947 shares on Dec. 27.
Meanwhile, Wood added 48,799 shares of Amazon (AMZN) on Jan. 27-28. Those shares were valued at roughly $11.6 million as of Jan. 29’s close.
Amazon rallied 44% in 2024, driven largely by the growth of Amazon Web Services, its cloud-computing division. The company is building chips that it sees as a cheaper alternative to Nvidia’s equipment.
Oppenheimer analysts view the DeepSeek news as a positive signal for Amazon, thefly.com reported.
It is “very positive” for the overall AI ecosystem because DeepSeek is charging less than 1/20th of what OpenAI is, and this could lower inferencing costs, according to the analyst.
Wall Street veteran trader Chris Versace also sees the positive side of Amazon stock.
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“It is making strides, not only AWS with AI adoption but also its advertising business,” he told TheStreet.
Amazon is scheduled to report Q4 2024 earnings on Feb. 6.
As of Jan. 29, AMD and Amazon are not among the top 10 holdings in Ark Innovation ETF.
Related: Veteran fund manager issues dire S&P 500 warning for 2025
