Cathie Wood's Clever Move: How Ark CEO Stayed Cool Amid Arm IPO Hype

Cathie Wood, one of the most renowned female investment professionals on Wall Street, manages nearly $60 billion in assets through her investment management firm ARK Invest. 

Her flagship fund, Ark Innovation ETF ARKK, has delivered average returns of 45% annually over the past five years and was one of the best-performing exchange-traded funds (ETFs) in 2021, driven by the tech boom. Nonetheless, Wood's ETFs took a big hit last year amid the tech rout.

British chipmaker Arm Holdings plc's public debut was one of the most talked about events on Wall Street last month, as it signaled a comeback in the initial public offering (IPO) space. The stock rose by 25% during the first trading session to hit an all-time high of $66.28, rejuvenating the hopes for a  resurgence of startup IPOs. 

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But the momentum fizzled soon after, with the stock plummeting sharply since then. ARM is trading just above $52, marking a roughly 20% decline from its all-time high. 

Wood's, whose portfolios are concentrated on disruptive tech stocks, seems to have dodged a bullet by avoiding Arm's IPO hype. 

"As far as Arm, I think there might be a little bit too much emphasis on AI (artificial intelligence) when it comes to Arm and maybe not enough focus on the competitive dynamics out there," Wood said. "So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view, on the high side, and we see within our portfolios much lower-priced names with much more exposure to AI."

Artificial intelligence is poised to change the world as it underscores technological capabilities that could revolutionize industries worldwide. Companies that have sizable exposure to AI are experiencing an unprecedented bull run, as investors believe these firms can capitalize on the AI adoption. 

Wood believes this hype is justified, as "innovation is undervalued given the enormous opportunities that we see ahead, catalyzed very importantly by artificial intelligence."

But Arm stock seems to have a tough time maintaining its prowess on Wall Street, as inflation and continued macroeconomic headwinds continue to maintain pressure on the company's growth prospects. 

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In addition, Arm faces stiff competition from Nvidia Corp. NVDA, which crossed the $1 trillion market cap earlier this year, thanks to its generative AI chips. The rising tensions between the U.S. and China are also a cause for concern, as Arm's business has substantial exposure to the Chinese cell phone market. 

Cathie's Ark: Future Prospects 

As the tech sector rebounds, Wood's portfolio has been showing promise, as reflected by Ark Innovation ETF's 25% surge so far this year. Top holdings in the ARKK ETF include Tesla Inc., Shopify Inc., UiPath, Unity, Zoom Video Communications Inc., Twilio, Coinbase Global Inc., Roku Inc., Block Inc. and DraftKings.

Following a period of vulnerability during the recent aggressive interest rate hikes initiated by the U.S. Federal Reserve, Wood's Ark Invest experienced a resurgence this year, driven by increased investor interest in stocks with artificial intelligence connections. 

As inflation recedes in significant global economies, and with the anticipation of central banks initiating the gradual reversal of their intense monetary policy tightening in the next year, the current environment is favorable for innovation and global megatrend investment strategies.

"The appetite for innovation is stirring here, and I think one of the reasons is because many investors and analysts are starting to look over the interest rate hike moves we've seen, record-breaking in the last year or so, and to the other side," Wood said.

Capitalizing On European Tech: Wood's Latest Power Play

On Sept. 20, Wood purchased Rize ETF, a British thematic ETF provider, for £5.25 million ($6.5 million). This acquisition represents ARK Invest's inaugural foray into the European passive investment market.

"The cost of technology, especially with artificial intelligence now, is collapsing, and therefore it's going to be much easier to build and scale tech companies anywhere in the world. This is no longer just the purview of Silicon Valley," Wood said. "We are very open-minded about technologies flourishing throughout the world, including Europe."

Until this point, European investors had not been able to directly invest in the company’s U.S.-based ETFs, even though they have accounted for approximately 25% of the demand for Ark's research since the firm's establishment in 2014. This acquisition is expected to propel Cathie's Ark to the next level, as the investment firm leverages the booming European markets. 

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