Cathie Wood seems to have the worst timing on artificial intelligence stocks. She offloaded Nvidia Corp.’s shares in early 2023, failing to grasp the popularity and disruptive power of ChatGPT. In late February, she sold Taiwan Semiconductor Manufacturing Corp. for the first time in more than two years, thus missing out on the foundry’s recent melt-up as well.
Perhaps to defend her losses, the founder of Ark Investment Management has been sounding the alarm on chip stocks lately. She warned that a lack of explosion in software revenue will slow companies’ AI infrastructure spending and that the lead time for Nvidia’s graphic processing units was already coming down. And unlike dot-com era market darling Cisco Systems Inc., Nvidia could face intense competition. Elon Musk’s Tesla Inc., for one, is designing its own chips, she said. Ark has been purchasing the EV maker’s beaten-down stock lately.
Given her track record, one has to take Wood’s comments with a grain of salt. Among providers of mutual and exchange-traded funds, Ark topped the chart in wealth destruction. Its family of ETFs, which managed around $16 billion as of 2023, wiped out $14.3 billion in shareholder value in the past decade, according to Morningstar Inc.
Her caution nonetheless resonates with those who worry we are nearing another dot-com burst. Positioning among AI winners is getting crowded. In the fourth quarter, hedge funds increased their Nvidia holdings by $2 billion, as the likes of Rokos Capital Management and Bridgewater Associates chased after the GPU chip designer’s scorching rally.
Like the 1990s tech bubble or the Nifty Fifty optimism of the early 1970s, today’s market leader, Nvidia, is characterized by a soaring profit outlook. Notably, all of Nvidia’s price gains have been attributable to a higher stream of earnings, with its price-to-forward-earnings multiple largely unchanged since the start of 2023. But according to Goldman Sachs Group Inc., there’s one key difference. Nvidia has much higher profit margin and return on equity, which might just support its future earnings better.
Meanwhile, trading in TSMC spiked up this year, with the stock gaining 11% this month alone. Foreigners are purchasing equities in Taiwan again, where TSMC is the crown jewel, despite geopolitical tensions between China and the US over the island.
This is perhaps a sign that the AI rally is broadening. In recent weeks, investors are diversifying away from Nvidia and identifying new AI beneficiaries. It’s a healthy development.
Read the full article here by Shuli Ren of Bloomberg News, Advisor Perspectives
