Cathie Wood Sounds Alarm on Possible Market Bubble, Defends Exit From Nvidia

ARK Innovation ETF’s (NYSE: ARKK) Cathie Wood has raised concerns about potential bubbles in the market in her latest blog, particularly highlighting NVIDIA (Nasdaq: NVDA) as a point of contention.

Wood, whose ARK Innovation ETF saw growth from 2016 to early 2021, has recently drawn attention to the struggles faced by the fund in the past three years. Despite the Nasdaq hitting new highs, the ARK Innovation ETF still lags behind, sitting at 70% below its all-time highs.

One significant factor contributing to ARK’s challenges is its decision to sell off NVIDIA before the company’s recent surge. However, Wood has recently emphasized her firm’s stance on NVIDIA, likening its trajectory to stocks that crumbled during the 2000 Internet bubble.

In her blog post, Wood expressed optimism about the artificial intelligence market but cautioned against drawing parallels between NVIDIA’s current performance and past market collapses. Drawing comparisons to Cisco in 2000, Wood highlighted NVIDIA’s recent exponential growth, followed by a significant sell-off in late 2018, akin to Cisco’s historical trajectory.

“Well-funded startups have scrambled – likely double- and triple-ordering GPUs in the process – to acquire Nvidia’s hardware and train AI models. Today, Nvidia is guiding expectations to a sequential deceleration in growth and, reportedly, the lead time for its GPUs has dropped from 8-11 months to 3-4 months, suggesting that supply is increasing relative to demand,” she said.

Furthermore, Wood highlighted the looming threat of increased competition for NVIDIA, particularly from large customers like Meta, Facebook, and Google, who may opt to develop in-house AI chips.

Reflecting on ARK’s history with NVIDIA, it’s noted that the fund sold off a significant position in the company in November 2022 and completely divested from it by January 2023, citing valuation concerns. This decision, coinciding with the emergence of significant demand for AI hardware, has drawn comparisons to selling off Apple in January 2007.

Despite Wood’s critiques, NVIDIA’s recent earnings report provided reassurance to investors, with management addressing concerns about falling lead times and reaffirming strong demand. Additionally, the imminent launch of new AI chips suggests a potential explanation for declining lead times.

However, Wood’s warnings about long-term threats to NVIDIA’s dominance in the AI chip market are not unfounded. The concentration of NVIDIA’s customer base among major tech giants poses challenges, and forecasts of sustained profit margins above 50% may be optimistic in the face of potential competition and pricing pressures.

Wood, known for her controversial stances, relayed in October the intriguing strategy to allay concerns stemming from the significant losses the asset manager has incurred due to rising interest rates – an ingenious approach involving tax write-offs.

In the wake of these substantial losses, Ark is assuring its investors that they are unlikely to face tax liabilities on capital gains distributions through ARKK and Wood’s other actively managed ETFs for at least the next two years.

Information for this briefing was found via 24/7 Wall Street and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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