Among all the growth-minded investors who saw their portfolios soar thanks to the rise of AI this year, one familiar name outperformed the rest.
Cathie Wood’s Ark Innovation ETF (ARKK) is up 87.1% over the past year, outperforming all other ETFs and mutual funds tracked by the American Association of Individual Investors as of the end of September, with the exception of single-stock funds. Its gains were largely driven by AI-related stocks such as Palantir Technologies, Advanced Micro Devices, Tempus AI and its largest holding, Tesla, which Wood tells Forbes is the “biggest AI project in the world,” marveling at its work developing robotaxis.
The last time Wood was this high was after his flagship fund’s 157% return in 2020, but his idealism and dogged conviction soon backfired, leading to a 14% loss in 2021 and a terrifying 67% drop in 2022. Even after tripling in value since then, it remains 42% below its February 2021 high. The flagship fund manages 8,300 million dollars, up from 17 billion at the end of 2020, indicating that most investors abandoned their fund during its decline. Wood dismisses any idea that she is being swept up in another bubble like the Covid-19 stock surge.
“Companies that invest in AI are among the most profitable in the world,” says Wood. “Reasoning models amaze people with how much they can accomplish if given time. I think many expected that at some point performance would plateau. It’s not plateauing at all.”
Almost all AI stocks performed well this year, but Wood, Ark’s 69-year-old founder, CEO and chief investment officer, had a good nose for big winners, even compared to her competitors. Ark owns more AMD shares than its largest competitor Nvidia, two semiconductor stocks that account for 4.0% and 1.1% of ARKK’s portfolio, respectively. A wise move, as AMD doubled in value this year compared to Nvidia’s modest 36% gain.
Wood says AMD’s lower valuation of less than $400 billion while Nvidia’s market capitalization is $4.4 trillion makes its growth prospects more attractive, and its superiority in higher-capacity memory chips is becoming an increasingly important differentiating factor.
Palantir performed much better, up 337% since last November. Its data analytics technology helps government agencies and commercial clients combine and find patterns in massive data sets, and its sales over the past 12 months grew 39% year-on-year to $3.4 billion, with a net profit of $763. However, Palantir is the perfect example of the AI stock bubble, according to most value-oriented investors. Its market capitalization of $430 billion is a staggering 126 times its sales.
Although Wood made profits in Palantir, selling 70% of Ark’s stake since August 2024, it still represents 4.2% of his flagship fund, his ninth largest holding.
“If Palantir weren’t at their current valuation, given their position in the platform-as-a-service (PaaS) sector, and we believe they effectively dominate that sector, they would be right up there with Tesla (in our portfolio),” says Wood, referring to his company’s 11.9% stake in the electric vehicle giant. “There is nothing like it.”
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High praise from Wood, who has been a Tesla owner and fan for almost a decade. It was a key factor in his performance in 2020, with a 731% gain that year, and subsequently mirrored his fund’s decline in 2022, with a 68% loss.
Last year, Ark raised its price target for the stock to $2,600 per share by 2029, implying a market value of around $9 trillion. Tesla shares are currently trading at $443 and have a market capitalization of $1.4 trillion. Ark estimates that by 2029, 86% of Tesla’s profits will be attributable to its robotaxis business, which it launched in Austin, Texas, in June.
“Electric vehicles are a unique business: you sell a car and expect the customer to come back in five years, and they are very low margin,” says Wood. “When analysts look at what robotaxis are, they have to use a different model. It’s more of a subscription or recurring revenue model, with a very high margin.”
With $1 billion in ARKK invested in Tesla, this investment doubles the weight of its second largest position, Coinbase. However, aside from that investment, Wood doesn’t typically invest much in tech giants with a $1 trillion market capitalization. Amazon, Meta and Nvidia are in its portfolio, but not in the top 15.
Ark’s most notable companies
Electric vehicle maker Tesla still dominates the Ark Innovation ETF’s 10 largest holdings, but Wood says AI and robotaxis will drive its growth.
Avoiding megatech stocks and betting short on smaller caps turned out to be a serious mistake for Wood in 2022. Virtual health business Teladoc Health lost 88% in 2021 and 2022. Video game development company Unity Software fell 80% in 2022. Bets on biotech and life sciences companies such as Ginkgo Bioworks, Exact Sciences, Beam Therapeutics and Intellia Therapeutics all failed.
“We had no idea that we were going to find ourselves with a circular saw. Many people think it was interest rates, and of course, all long-lived assets were affected,” reflects Wood. “But our biggest problem was the supply chain disruptions that went on for so long. Because what drives our models is unit growth. The higher the unit growth, the faster costs can be reduced with new technologies.”
In retrospect, Wood admits that the “right” thing to do would have been to seek refuge in larger capitalization innovative companies, more resilient to supply chain problems and rising interest rates, but believes that the current political environment is much more favorable to his strategy. A longtime supporter of Donald Trump, she applauds his January decision to rescind parts of an executive order from Joe Biden that sought to set standards for AI regulation. The new depreciation schedules in Trump’s One Big Beautiful Bill also eased the corporate tax burden.
“The magnitude of deregulation happening under this administration is staggering,” he enthuses. “I don’t like tariffs, but I would accept them if they also gave me what this administration has given with deregulation and much lower tax rates.”
Investors’ opinion of Wood largely depends on when they invested. ARKK’s three-year annualized return of 31.8% as of September 30 is better than the S&P 500 Index’s 24.9%, but its five-year -0.8% is disastrous compared to the market’s 16.5% annualized gains. However, going back a little further, an annual return of 15.3% since its inception in 2014 has once again outperformed the market by two percentage points. It’s below the Nasdaq 100 index’s 16.9% annualized return over that period, but it’s closing that gap.
It’s difficult for any investor to recover from an 80% loss from peak to trough, but the Nasdaq also lost about 80% during the dot-com crisis and gained about 2,000% in the quarter century since. Wood is hopeful that, decades from now, its 2022 crash will similarly be seen as a small dot on ARRK’s long-term stock chart.
This article was originally published in Forbes US
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