• NVIDIA stock up sharply
• Cathie Wood and other experts find the US chip company overpriced
• Wood sees other companies as AI winners
NVIDIA stock has staged a strong recovery since hitting its 52-week low of around $108 last October. It has risen by around 168 percent since the beginning of the year alone (status: closing price on June 5, 2023), and on the day after the balance sheet was presented alone, the share certificate even jumped by almost 25 percent. The reason for this was the surprisingly good figures and business prospects of the US chip company, which is benefiting greatly from the current hype about artificial intelligence (AI). According to boss Jensen Huang, the group has received “incredible orders” for upgrading data centers that are to be more strongly geared towards AI applications.
One NVIDIA share currently costs $391.71, and the company has a total market capitalization of around $971.38 billion (as of the closing price on June 5, 2023). However, experts warn that the paper is likely to be overvalued at the current level. Short-seller Jim Chanos spoke of too high expectations of the group and fears artificial inflation at NVIDIA and other AI values, which will ultimately lead to a rude awakening. David Trainer, founder of the investment research firm New Constructs, made a similar statement. He slammed NVIDIA’s astronomically high P/E as pure fantasy. Because even if the group could double its income in the second quarter, this would still be almost 80. For comparison: The P/E of the electric car maker Tesla, which is often considered overvalued, is less than 40, about half as low as that of NVIDIA. Tech investor and ARK Invest boss Cathie Wood recently rated NVIDIA shares as overpriced and was convinced that there would be “dozens of AI winners” in the near future, including one of her all-time favorite companies.
Cathie Wood no longer relies on NVIDIA
“Since 2014, ARK Invest has believed that NVIDIA saw the AI future ahead of most other chipmakers, and now we believe NVIDIA will continue to drive the AI era. With 25x expected revenue for this year, the price too far ahead of NVIDA,” Wood wrote on Twitter in late May. According to “Finanzmarktwelt”, it is extremely rare for star investor Cathie Wood to describe a darling of the innovation economy as too expensive, but with reference to NVIDIA this is not the first time. Back in February, Wood described the company’s valuation as “very high,” justifying ARK Invest’s divestment of much of its NVIDIA stock.
In fact, Cathie Wood has been dumping NVIDIA shares from her flagship fund ARK Innovation ETF since the fall of 2022, when they were near the bottom of their slide, i.e. historically cheap. The ARK Innovation ETF no longer contains NVIDIA shares, but the smaller funds ARK Next Generation Internet ETF, ARK Fintech Innovation ETF, ARK Autonomous Tech & Robotics ETF and ARK Genomic Revolution ETF still contain shares from the chip manufacturer, but each of which only accounts for a small single-digit percentage of the fund portfolio. As such, Cathie Wood’s funds, by and large, failed to benefit from NVIDIA’s stock rally.
ARK Invest sees strong competition for NVIDIA
In her recent tweets, Cathie Wood doesn’t mention that her funds have divested almost entirely of NVIDIA holdings in recent months. However, her statements can certainly be interpreted as a defense of this step, because, among other things, she writes on Twitter that ARK Invest sees “dozens of AI winners” based on research in recent years. “Investors seem to think NVDA is the only AI game. It’s not!” said Wood. “Other companies with visionary leaders, strong global sales, and perhaps most importantly, large, high-quality pools of proprietary data are likely to be big AI winners, with sales and profits well ahead of expectations for years to come,” the company said Star investor further.
Other companies with visionary leaders, strong global distribution and, perhaps most important, large high-quality pools of proprietary data should be big #AI winners, with revenues and earnings surprisingly significant on the high side of expectations during the years ahead.
– Cathie Wood (@CathieDWood) May 29, 2023
An ARK Invest newsletter from late May also states that while NVIDIA still has significant growth opportunities, the competition is well equipped to challenge the US company for dominance. In addition, the investment company assumes that in five to ten years every US dollar generated with AI hardware will be matched by eight times the sales of software, “because companies buy AI hardware to make AI-supported products and provide services”.
Cathie Wood sees Tesla as a big AI winner
But which company Cathie Wood sees as the “most obvious beneficiary of the recent breakthroughs in AI” comes as a surprise on the one hand, since it is not actually an obvious company from the tech or AI areas, but on the other hand it also suits the investor, because it Her absolute favorite stock is Tesla.
In our view $TSLA – at 6X revenues – is the most obvious beneficiary of the recent breakthroughs in #AIas it aims for an $8-10 trillion revenue TAM in autonomous mobility by 2030. But, based on our research for the last five to six years, @ARKInvest sees dozens of AI winners!
– Cathie Wood (@CathieDWood) May 29, 2023
“In our view, the most obvious beneficiary of recent breakthroughs in AI is TSLA – with 6x revenue – as the company expects $8-10 trillion in autonomous mobility revenue across the entire addressable market by 2030 aspires to,” Wood wrote on Twitter. Tesla is thus valued much more favorably than NVIDIA and also has a Elon Musk about a visionary leader that Cathie Wood identified in a previous tweet as one of the conditions for AI winners.
This may also be a reason why Tesla shares – unlike NVIDIA – are not only represented in the ARK Innovation ETF, but also account for the largest position there. The star investor also relies heavily on the electric car manufacturer for the ARK Next Generation Internet ETF and the ARK Autonomous Tech & Robotics ETF. To what extent AI will enable the fully self-driving Teslas Elon Musk is aiming for – and above all how quickly – remains to be seen.
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