Key Points
When a popular stock drops, some investors flee — but Cathie Wood does just the opposite. The founder and chief executive officer of Ark Invest instead takes a closer look at the down but probably not out player, and in many cases, she will pick up shares at a bargain price. This is all part of the famous investor’s strategy. She aims to get in on innovative companies at reasonable or cheap prices and hold on for the long term to benefit from their growth.
This technique has helped Wood’s flagship Ark Innovation fund advance more than 50% over the past three years. And considering that the fund includes many of tomorrow’s potential winners, this could be just the beginning of Ark Innovation’s long-term growth story.
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In recent days, artificial intelligence (AI) stocks have faltered, and that hasn’t escaped Wood’s eye. It was the perfect opportunity for this savvy investor to go bargain hunting, and as she did, she bought a stock that recently crashed 17% in one trading session and a stock that’s dropped 50% from its peak. Let’s zoom in for a closer look.
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1. Advanced Micro Devices
Cathie Wood bought shares of Advanced Micro Devices (NASDAQ: AMD) as it tumbled 17% on Feb. 4. This was in the trading session after the company announced earnings that beat analysts’ estimates — but investors were disappointed that, considering demand for AI chips, the company’s forecast for the first quarter wasn’t even higher. AMD expects $9.8 billion in revenue for that quarter.
Wood loaded up on AMD shares, adding them to five of her funds: Ark Innovation, Ark Autonomous Technology, Ark Next Generation Internet, Ark Blockchain and Fintech, and Ark Space & Defense. AMD is the sixth-biggest holding in Ark Innovation, representing nearly 3.9% of the fund.
AMD is a rival of AI chip leader Nvidia, as it makes graphics processing units (GPUs) that power the most crucial of AI tasks. These chips are necessary in the early stages of AI, as they fuel the training of models, but they are also an integral part of the functioning of AI as it does its job of problem-solving. This makes them a constant part of the AI growth story.
Though AMD’s forecast wasn’t as strong as some analysts expected, it’s important to look at the long-term opportunity — it remains significant. The AI market is forecast to reach into the trillions of dollars, and this chip giant is very likely to benefit from that.
This Cathie Wood buy is a steal today, trading for 29x forward earnings estimates — down from more than 60x a few months ago.
2. CoreWeave
Wood also bought shares of CoreWeave (NASDAQ: CRWV) last week. The company didnt reportearnings — its next quarterly report is set for Feb. 26 — but the stock has dropped about 50% from its peak, representing a buying opportunity.
The famous investor added shares of CoreWeave to two of her funds on Feb. 4 — Ark Innovation and Ark Next Generation Internet. CoreWeave made its market debut last March, wowed investors with gains of more than 300% in just a few months, then gradually pulled back. It’s still up more than 80% since its initial public offering, however.
CoreWeave has been a popular buy because it offers customers capacity for AI workloads, something that’s in great demand. The company sells them access to its Nvidia GPUs so they don’t have to invest in their own infrastructure. This business has resulted in strong growth, with revenue surging in the triple digits in the latest quarter. Demand has been so high that CoreWeave must invest aggressively in infrastructure to keep up.
The stock has suffered amid concerns about AI stock valuations and the sustainability of high spending in the AI market. These elements remain risks, but they don’t necessarily alter the company’s long-term prospects. Wood saw this price drop as a fantastic opportunity — and other aggressive investors may choose to follow her lead.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.