Cathie Wood is bullish about artificial intelligence (AI). Her ARK Invest “Big Ideas 2023” report, released last month, stated, “Artificial Intelligence is the most important catalyst, its velocity cascading through all other technologies.”
It’s not surprising in the least that Wood has loaded up on several AI stocks. However, there’s at least one AI leader that she seems to be less enthusiastic about these days.
Wood has steadily reduced ARK Invest’s position in Nvidia (NVDA -2.79%) over the last four months. Between November 2022 and January 2023, her flagship ARK Innovation ETF (ARKK -0.38%) completely exited its stake in the microchip stock.
So far in February, Wood has also significantly trimmed the positions of Nvidia held by two other ARK Invest ETFs. ARK Fintech Innovation ETF (ARKF -1.23%) still owns 48,272 shares of the stock. ARK Next Generation Internet ETF (ARKW -0.79%) still owns 81,054 shares. After the sales, Nvidia ranks as the 22nd- or 23rd-largest holding in both of these ETFs.
Wood’s activity isn’t because Nvidia isn’t performing well. Actually, the stock has soared close to 50% so far in 2023. Several stocks that she has bought this year haven’t delivered comparably impressive gains.
Why Wood is selling Nvidia stock
This isn’t the first time that Wood has sold shares of Nvidia. Back in November 2021, she completely exited all of ARK Invest’s positions in the stock. At the time, Wood appeared to be simply taking profits off the table to reinvest in other stocks.
That’s likely what she has been doing recently as well. Nvidia’s momentum didn’t just begin this year. Since mid-October 2022, the stock has skyrocketed more than 90%.
Wood’s interview with Yahoo! Finance earlier this month seems to support the idea that she believes there are better opportunities in AI than Nvidia. She acknowledged that Nvidia was a “pick-and-shovel” play in AI. However, she added, “But we believe that the hidden gems that will benefit perhaps the most from artificial intelligence are those companies with proprietary datasets.”
What are examples of AI stocks that Wood likes better than Nvidia? She singled out Tesla and Exact Sciences. In her view, Tesla is poised to be the leader in autonomous taxis thanks to its vast amount of real-world driving data. Exact Sciences has a lot of genomic data it can use in developing new diagnostic tests and therapies. Interestingly, though, Wood has been selling shares of Exact Sciences in recent weeks.
Follow the leader?
Should other investors follow Wood’s lead and sell Nvidia, too? I don’t think so.
Yes, Nvidia’s shares trade at more than 51 times expected earnings. It is admittedly hard to swallow such a nosebleed valuation, especially with the uncertainty about whether a recession is on the way. Nvidia is scheduled to announce its fiscal 2023 fourth-quarter results on Wednesday of this week. I’m not betting on great news.
However, Nvidia’s long-term prospects remain exceptionally good, in my view. New AI tools such as OpenAI’s ChatGPT and Alphabet‘s soon-to-be-launched Bard should increase demand for Nvidia’s chips.
Nvidia continues to blaze the trail with new technologies. Its new Grace CPU superchip stands out as a good example of the company’s innovation.
My view is that the ChatGPT craze is only the beginning of a new era of AI. I fully expect that the advances in AI over the next several years will usher in changes that we can only imagine right now. There will be lots of winners, and Nvidia will almost certainly be one of them.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Tesla. The Motley Fool recommends Exact Sciences. The Motley Fool has a disclosure policy.