Ark missed the Nvidia boat
Cathie Wood cautions investors to be wary of a stock that she sold too soon.
Last week, Ark Invest founder Cathie Wood warned investors to be cautious with Nvidia, comparing the chip maker’s recent performance to Cisco in the 90s:
Cisco Systems (CSCO) offers a good history lesson. I remember well the stock's behavior at a similar technology moment in time. In the three and a half years leading to March 9, 1994, CSCO soared ~31-fold from $0.07 to $2.24 split-adjusted, as its routers, switches, and other equipment dominated the buildout of the internet backbone globally. The capital markets began to fund competitors, even those with systems inferior to Cisco’s, which confused strategic planners in corporations and cast a short-term pall on spending. In the four months leading up to July 15, 1994, CSCO dropped 51% as companies—already worried about a potential recession—reassessed their spending commitments and deliberated. After the coast cleared, CSCO entered another ~73-fold run into the peak of the internet bubble during 2000.
Today, Nvidia (NVDA) is that company. Central to the AI age, NVDA has soared ~117-fold in the roughly nine years since February 8, 2015, when analysts were beginning to understand that breakthroughs in Deep Learning were accelerating the pace of AI change, to the benefit of GPUs (graphic processing units). NVDA also had appreciated 23-fold in the five years since its last inventory correction, one triggered by a crypto winter that hit it in October 2018 and trounced the stock by 56% in three months.
Wood’s argument is fair: Nvidia’s revenue growth will likely decelerate as supply catches up with demand and key customers continue developing their own chips in-house. It was, however, surprising to hear such prudence from Wood, whose firm predicted less than a year ago that Tesla could reach an $8 trillion market cap by 2027 primarily driven by $613 billion in robotaxi revenue (reality check: Tesla currently generates $0 in robotaxi revenue). So, why the sudden caution about Nvidia?
It feels, to me, like a justification for missing the $2 trillion disruptive innovation of the last few years: Nvidia.
In September 2022, Ark owned 757,481 Nvidia shares. However, between October 2022 and January 2023, they sold their entire stake in the chip maker, despite the AI goldrush kicking off in November when OpenAI launched ChatGPT. Had Ark held their entire stake, it would be worth $677 million at today's prices.
Nvidia’s stock is up 4.9x since Ark closed their position, while Ark’s Innovation ETF is up 1.3x. Sure, it's wise to be cautious when a stock has climbed 700% in 18 months, but this "warning" feels a lot like self-justification.
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