Wood has been a bull of Tesla for a long time.
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You’ve been Rickrolled by a mildly plausible article title. Those keyword-packed headlines work, don’t they?
But there’s no guaranteed market-beating stock idea here. Legendary growth investor Buckminister Goldshanks hasn’t found “the eighth wonder of the world,” preparing to mortgage his mansion and buy more.
It’s just The Motley Fool, back with an April Fool’s joke. And you bought it!
Let’s be honest, we ALL want that magical stock that’s cheap, poised for world domination, AND endorsed by investing legends. But as tempting as those headlines are, they’re usually a recipe for April Fool’s style disappointment.
While we at The Motley Fool are all for hunting down those magnificent, no-brainer stocks set to soar, it’s crucial to remember the Foolish principles of investing. Diversify, think long-term, and yes, even on April Fool’s Day — especially on April Fool’s Day — keep your skepticism handy.
To be clear, no stock is truly worthy of the breathless promotion that brought you here. Cathie Wood’s and Warren Buffett’s stock portfolios have some stocks in common, but none that match our headline. For example, one name that they have in common dabbles in AI-driven financial services, but it has nearly tripled in 52 weeks and trades at 56 times earnings, so there’s no “beaten-down” quality and we wouldn’t call it a “no-brainer” buy today. (If you must know, the stock in question is Nu Holdings. Interested? Here’s a Foolish primer on how to research stocks.)
The reality is that no single stock can deliver every investor’s dream scenario. Let’s say someone actually made an unbelievable number of eyeball-magnet promises about a single stock in a headline that wasn’t meant as a joke. You would probably assume they had a nice bridge to sell you. And the stock should do your dishes, too.
99% of the time, you’d be right.
The Motley Fool way
That doesn’t mean there aren’t fantastic opportunities out there. Instead of chasing the impossible, our analysts and contributors focus on a realistic set of tactics that add up to a healthy investing strategy.
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Diversification for the win: Serious investors should hold at least a couple of dozen stocks in their portfolios, spread across various industries, geographic markets, and company-size cohorts.
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Undervalued potential: Great companies that have hit a rough patch can create a buying opportunity for long-term investors.
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The right mix: It can pay off to find stocks with some of the qualities Buffett loves (solid fundamentals) and a dash of the growth potential that thrills Wood.
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A long-term mindset: Buffett’s favorite holding period is “forever,” and The Motley Fool tends to agree. The real magic of long-term buy-and-hold investing comes from compound returns over many years as you let your winners run.
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Doing your homework: No stock is worth a blind bet. Research is key to separating long-term winners from flash-in-the-pan hype. The more you know, the better you’ll get at picking great investments. Remember, Buffett has said he reads 500 pages of financial filings a day. He didn’t become the Oracle of Omaha by blind luck.
Find your Foolish treasure
Investing shouldn’t be about chasing get-rich-quick schemes. If you can focus on building wealth over time through smart choices, you’ll be much better off.
And there is plenty to be excited about in this market, even if there aren’t any magic-wand ideas ready to make everyone smarter, happier, and richer all at once. Wall Street entered an official bull market in January, stretching back to the last bear market’s bottom in October 2022. Everyone is excited about AI stocks, stock splits, and initial public offerings. Even the crypto market sprang back to life recently, driving the leading digital assets to fresh all-time highs.
Investors are feeling the joy. The American Association of Individual Investors’ (AAII) latest investment sentiment survey saw the market mood leaning heavily bullish. It’s springtime for stock investors, and there’s no telling how far this bull market will run. Just keep a Foolish mindset and do your homework before hitting the “buy” button on any particular stock idea. Remember, great investors aren’t trying to time the market — they just give their money a lot of time in the market.
Happy April Fool’s Day, and happy stock hunting!
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Are You Looking to Buy a Beaten-Down, Magnificent, No-Brainer Stock Owned by Warren Buffett and Cathie Wood That’s Set to Soar Like an AI-Powered Rocket Today? was originally published by The Motley Fool
The “Magnificent Seven” is a group of the world’s largest technology stocks. They delivered an average return of 112% last year, led by Nvidia, which gained a whopping 239%.
Nvidia continues to lead the group higher in 2024, but shares of electric vehicle (EV) giant Tesla (NASDAQ: TSLA) are heading in the opposite direction:
Tesla stock is now trading 57% below its all-time high. The company is suffering from a slowdown in electric vehicle sales — where it generates most of its revenue — which is forcing investors to adjust their growth expectations for the future.
But the head of Ark Investment Management, Cathie Wood, thinks Tesla is more than an EV company. She says it’s the biggest opportunity in the artificial intelligence (AI) space thanks to its industry-leading autonomous self-driving software, and it could propel the company to an astronomical valuation in the future.
Ark’s price target for Tesla stock implies a 1,140% upside over the next three years, but is that realistic?
Tesla faced challenges in 2023, but 2024 could be worse
Tesla delivered a record 1.8 million EVs in 2023, and its Model Y became the best-selling car in the world. However, with consumers struggling under the pressure of elevated inflation and rising interest rates, the company slashed the price of its EVs by an average of 25.1% throughout last year to spur demand.
Given the uncertain economic climate, Tesla chose not to issue a sales forecast for 2024. Investors don’t like uncertainty, and the lack of guidance is a key reason Tesla stock is down in the early stages of 2024. Some analysts believe the company will deliver around 2.2 million cars this year, representing 22% growth compared to 2023. That’s less than half the long-term annual growth target of 50% consistently forecasted by CEO Elon Musk.
There is some concern that demand for EVs is fading across the industry. Late last year, Ford postponed $12 billion worth of investments in its EV operations, citing weak demand. General Motors scrapped a $5 billion deal with Honda to produce an affordable EV model, and the company abandoned its long-standing production forecast for 2024. EV start-up Rivian Automotive issued a very weak production forecast for 2024 while announcing plans to cut 10% of its workforce in February.
In its conference call with investors for the fourth quarter of 2023, Tesla offered investors some details about an affordable EV model it plans to produce starting in 2025. It will feature an entry-level price point of around $25,000 to entice consumers at the lower end of the income spectrum, who would otherwise choose a gas-powered car. It could be an important growth driver for Tesla, but it won’t solve the company’s short-term woes.
Slowing sales and falling prices sent Tesla’s earnings plunging in 2023
Tesla’s revenue came in at a record-high $96.7 billion in 2023, which marked an increase of 19% compared to 2022. Revenue grew much slower than Tesla’s vehicle deliveries, largely because of the price cuts I mentioned.
But those price cuts had an even greater impact on the company’s profitability. Taking in less revenue per EV sale led Tesla’s gross profit margin to decline to 18.2% in 2023, from 25.6% in 2022. As a result, its non-GAAP (generally accepted accounting principles) earnings per share fell 23% to $3.12.
That has serious implications for the valuation investors apply to Tesla stock.
Ark’s prediction for Tesla stock doesn’t rest on EV sales alone
Ark believes Tesla stock could jump to $2,000 per share by 2027, not only because of its EV sales, but also because of its autonomous self-driving software. In 2023, EV sales accounted for 85% of the company’s total revenue, but Ark believes that will shrink to 47% by 2027, with 44% of its revenue coming from that new technology.
Tesla’s self-driving software remains in beta mode, but it completed more than 500 million miles of real-world testing with participating customers. It could eventually transform the company’s economics in a number of ways.
First, Tesla will earn a subscription fee from each customer who buys the self-driving software. Second, Musk says Tesla might consider licensing it to other carmakers. Software typically carries a high gross profit margin of up to 80%, so those two revenue sources could send the company’s earnings skyward once it achieves scale.
Finally, Musk wants to build a self-driving ride-hailing network so Tesla customers can monetize their cars when they aren’t using them. It would operate similarly to Uber, with Tesla earning a split of the revenue in exchange for maintaining the network.
Interestingly, Ark’s forecast doesn’t factor in a revenue contribution from Tesla’s new humanoid robot, Optimus. Sales could begin in 2027, and Musk intends to eventually ship millions of units at $20,000 each, so it could be an enormous opportunity. Optimus could, theoretically, replace many human jobs in industries like manufacturing to enable plants to operate around the clock.
Can Tesla stock really surge 1,140% from here?
Let’s circle back to Tesla’s $3.12 in earnings per share for a moment. Based on that figure and its current stock price, Tesla trades at a price-to-earnings (P/E) ratio of 56.2.
Therefore, despite the 57% plunge in its stock price since late 2021, Tesla is still nearly twice as expensive as its peers in the tech sector, represented by the Nasdaq-100 index, which trades at a P/E ratio of 32.9.
Ark’s prediction that Tesla stock will jump to $2,000 by 2027 hinges on the company generating $1 trillion in annual revenue by then. In other words, the company’s revenue will have to grow more than tenfold from here, or by 80.2% compounded annually.
Remember, Musk himself is only targeting a 50% annual increase in EV deliveries going forward, and the company will likely fall significantly short of that in 2024. Plus, even though self-driving software could eventually transform Tesla’s economics for the better, it’s still in beta mode, with no firm release date. It’s unlikely mainstream adoption will occur at scale by 2027.
The probability that Tesla stock soars 1,140% to reach $2,000 by 2027 appears low. However, it might still be a great long-term investment on the back of its autonomous driving software, its Optimus robot, and its affordable EV — just not yet.
Investors might do well to buy Tesla stock upon further updates on those fronts — perhaps near the end of this year or in 2025, depending on the company’s progress.
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The Biggest Loser in the “Magnificent Seven” Could Soar 1,140%, According to Cathie Wood’s Ark Invest was originally published by The Motley Fool
Cathie Wood is the chief investment officer at Ark Invest, an asset management company that runs thematic index funds focused on disruptive technologies like artificial intelligence. Wood and her team currently manage a $13.5 billion portfolio, 3.1% of which is invested in Zoom Video Communications (NASDAQ: ZM).
Ark published a valuation model for Zoom in 2022 that outlined three possible trajectories the stock could follow through 2026. The base-case scenario, or the most optimistic plausible trajectory, posited a per-share price of $1,500, which now implies about 2,170% from the current price of $66 per share in the next two years. The odds of that happening, I think, are virtually zero, but Zoom still warrants closer consideration.
Here’s what investors should know.
Zoom’s growth continued to slow last year, but reacceleration is possible
Zoom shares jumped on better-than-expected financial results in the fourth quarter, though growth continued to slow throughout fiscal 2024 (ended Jan. 31, 2024). Full-year revenue rose 3.1% to $4.5 billion, down from 7% growth one year ago and 55% two years ago. However, non-GAAP net income jumped 19% to $5.21 per diluted share due to disciplined expense management.
The investment thesis for Zoom centers on its ability to simplify communications. The company is best known as the market leader in videoconferencing software (Zoom Meetings), but its platform also includes phone system, contact center, and team chat applications. Businesses can often reduce cost and complexity by consolidating their communications tools through a single vendor.
Zoom also has monetization opportunities with adjacent artificial intelligence (AI) products. Specifically, its portfolio includes virtual agent technology that automates customer service interactions in Zoom Contact Center, and conversational intelligence software that analyzes interactions in Zoom Meetings and Zoom Phone to improve sales team productivity.
Currently, the company makes most of its money through Zoom Meetings. But Zoom Phone surpassed 10% of total revenue in the first quarter of fiscal 2024, and Zoom Contact Center will probably reach that milestone in the not-to-distant future given that licenses increased nearly threefold over the past year. Add-on AI solutions could also become a meaningful revenue stream as core communications products see greater adoption.
On that note, Zoom recently debuted generative AI software that can summarize conversations, draft messages, and answer questions on meeting content, among other functions. CFO Kelly Steckelberg, on the fourth-quarter earnings call, said, “Zoom AI Companion has grown tremendously in just five months, with over 510,000 accounts enabled.” The product is currently free, but Zoom could monetize it in the future.
In short, Zoom once again reported sluggish revenue growth in fiscal 2024, and management expects that trend to continue next year, as guidance implies 1.6% revenue growth in fiscal 2025. However, Zoom is well positioned to drive adoption of adjacent communications and AI products given its leadership position in videoconferencing software, so revenue growth could accelerate in the future, especially in a more favorable economic environment.
Zoom stock could be a hidden gem at its current price
Ark Invest’s valuation model for Zoom builds on the idea that adoption of core communications software and adjacent AI products could push sales to $52 billion in 2026. Even if we apply that figure to fiscal year 2027, most of which will take place during calendar year 2026, that forecast implies annual revenue growth of 125%. That is beyond the realm of possibility.
Wall Street has a more dour outlook. Analysts expect Zoom to grow revenue at 3.9% annually over the next five years. That estimate aligns with the sluggish growth we’ve seen in recent quarters, but it also leaves room for upside depending on how successful the company is with newer products like Zoom Phone, Zoom Contact Center, and add-on AI software.
With that in mind, the stock currently trades at 4.5 times sales, near its all-time low of 4 times sales. That valuation is a bit pricey if Wall Street is correct in its expectations. But should revenue grow more quickly — say, 10% annually over the next five years — the current valuation would be a bargain in hindsight.
So, investors who think Zoom could meaningfully top the Wall Street consensus should consider buying a small position in this stock today, provided they understand that the odds of a 2,170% return by 2026 are essentially zero.
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1 Artificial Intelligence (AI) Stock to Buy Before It Soars 2,170%, According to Cathie Wood’s Ark Invest was originally published by The Motley Fool
Ark Invest’s Cathie Wood is a big believer in Bitcoin (CRYPTO: BTC). She launched Ark’s first spot price Bitcoin exchange-traded fund (ETF) in January once regulators gave their approval.
Earlier this year, Wood raised her price target from $1 million to $1.5 million by 2027 — which would represent a whopping 2,139% jump from Bitcoin’s recent price of about $67,000. Wood expects that explosive growth to be driven by three tailwinds: the approvals of Bitcoin ETFs, institutional purchases of those ETFs, and the expected halving next month, which will cut the rewards for mining Bitcoin in half.
We should take those estimates with a grain of salt, since Wood has a habit of making wildly bullish predictions and not necessarily delivering; her flagship Ark Innovation ETF, for example, has only risen 13% over the past five years as the S&P 500 rallied 88%. That said, we should still consider whether Wood’s bullish thesis makes sense and if Bitcoin is worth buying.
The bull case for Bitcoin
The bulls believe Bitcoin will eventually join gold, silver, and other precious metals as a hedge against long-term inflation. Like the gold bugs, Bitcoin’s bulls believe that fiat currencies are destined to depreciate, and the trend will drive more governments, businesses, and investors to adopt the cryptocurrency. Up until this January, most of those people invested in Bitcoin in three ways: through direct purchases on a crypto exchange like Coinbase, through a trust like Grayscale Bitcoin Trust, and through ETFs that were pinned to Bitcoin futures.
But all three methods had drawbacks. Crypto exchanges were disconnected from the public stock exchanges, prone to sudden disruptions and outages, and frequently targeted by regulators. The collapse of FTX and the recent criminal charges against Binance also rattled investors’ confidence in stand-alone cryptocurrency exchanges.
Crypto trusts were more secure and could be actively traded on the stock market, but they charged high fees. Bitcoin future ETFs also charged high fees, but they often failed to keep pace with the cryptocurrency’s actual spot prices. The Securities and Exchange Commission’s approvals in January of the first 11 spot price Bitcoin ETFs resolved those issues; the ETFs charge low fees, are directly tied to Bitcoin’s spot price, and can be easily traded on the open market.
Wood believes those new ETFs will drive institutional investors to buy more Bitcoin. Back in December 2021, Wood predicted that if institutional investors allocated an average of 5% of their portfolios to Bitcoin, it would boost its near-term price by about $500,000. Wood reiterated that bullish view earlier this month and said that institutional buyers would drive Bitcoin’s price to $1.5 million as it’s recognized as a new asset class.
Meanwhile, Bitcoin will undergo its next halving in April. That process, which occurs every four years, cuts in half the reward for miners like Marathon Digital to mint new Bitcoin — but it might help boost Bitcoin’s price as market demand outstrips its slowing supply growth.
At the same time, persistent inflation and escalating geopolitical conflicts could drive more countries to adopt Bitcoin as a mainstream currency. That trend could accelerate Bitcoin’s transformation into a reliable, safe asset like gold and silver.
But is Bitcoin really headed to $1.5 million?
Cathie Wood isn’t alone in her bullish view for Bitcoin’s future. The British bank Standard Chartered says its price will hit $100,000 by the end of 2024, while the financial services giant Fidelity predicts its price will reach $100 million by 2035 and $1 billion by 2038. It’s impossible to say if those predictions will come true, but the approvals of the first spot Bitcoin ETFs could set a floor under its volatile price.
So instead of wondering if Bitcoin will deliver a 2,000% gain in just three years, investors should simply ask themselves if they believe the bullish argument. If Bitcoin sounds like a promising investment, then it might be smart to accumulate some Bitcoin or shares of a low-fee spot price ETF as a long-term growth play.
Should you invest $1,000 in Bitcoin right now?
Before you buy stock in Bitcoin, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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1 Top Cryptocurrency to Buy Before It Soars 2,139%, According to Cathie Wood was originally published by The Motley Fool
Cathie Wood is the founder and CEO of Ark Invest, an asset management company focused on disruptive technologies like artificial intelligence (AI). In a somewhat contrarian move, the company has been paring down its position in Nvidia for months and continued to do so throughout February.
Investors may find that surprising. Nvidia graphics processing units (GPUs) are the compute engines behind the most advanced AI systems, and the company holds an estimated market share in machine learning chips that exceeds 80%, according to The Wall Street Journal. But the stock is up some 400% over the last 18 months, so Wood and her team have been redeploying profits across other AI stocks.
For instance, Ark purchased shares of Palantir Technologies (NYSE: PLTR) and Pinterest (NYSE: PINS) throughout February.
1. Palantir Technologies
Palantir delivered better-than-expected results in its fourth quarter (ended Dec. 31, 2023). Its customer count jumped 35% to 497, and the average customer spent 8% more. In turn, top-line growth accelerated sequentially for the second straight quarter, with revenue rising 20% to $608 million. The company also achieved its fifth straight quarter of GAAP profitability, with net income tripling to reach $93 million.
Management attributed those strong results to momentum with its Artificial Intelligence Platform (AIP) product, which launched last year. CEO Alex Karp’s shareholder letter stated that demand for AIP is “unlike anything we have seen in two decades.” He also mentioned that the company has a more robust product pipeline today than at any point in history.
Palantir sees its software as fundamentally different from other products on the market. Its primary platforms (Gotham and Foundry) let customers integrate data and machine learning (ML) models to build ontologies, maps that link digital data to physical assets. Users can surface ontology data through analytical applications that improve decision-making. AIP brings support for large language models to those platforms.
Forrester Research has recognized Palantir as a leader in AI/ML platforms, and Dresner Advisory Services has recognized Palantir’s leadership in model operations (ModelOps), a discipline that deals with managing the development, deployment, and optimization of analytical models. Those accolades tell investors the company is doing something right but also tell prospective customers that Palantir’s software is worth consideration.
Turning to the future, Palantir has powerful tailwinds behind its business. A recent survey from Morgan Stanley showed that data analytics and AI/ML solutions are the two IT categories likely to see the largest spending increases in 2024. Wall Street analysts expect Palantir to grow sales at 21% annually over the next five years.
However, the stock looks expensive after climbing 50% in the past month. Shares currently trade at about 25.7 times sales, a significant premium to the three-year average of 17.9 times sales and a pricey multiple relative to the sales growth forecast by Wall Street. I’m passing on Palantir right now but am keeping the stock on my watchlist.
2. Pinterest
Pinterest reported encouraging financial results in the fourth quarter. Monthly active users increased 11% to 498 million, reflecting user growth across all three geographic groupings (North America, Europe, and rest of world). Revenue rose 12% to $981 million, marking the fifth consecutive quarter of accelerating top-line growth. And non-GAAP net income soared 80% to $366 million due to disciplined expense management.
Looking ahead, digital ad spending is expected to increase at 15% annually through 2030, according to Grand View Research. Wall Street expects Pinterest to grow revenue at the same pace over the next five years. But that forecast leaves room for upside if the company continues to make progress on its strategic priorities: (1) growing users and deepening engagement; (2) improving monetization per user; and (3) driving profitable growth.
The company is tackling those goals by investing in artificial intelligence. The machine learning models that power recommendations on the platform have increased 100-fold in size in the last two years, improving its ability to surface relevant content. That undoubtedly contributed to the strong user growth Pinterest reported in the fourth quarter.
It also helped the company monetize its platform more successfully. Average revenue per user rose 2% to $2 in the fourth quarter.
Pinterest is still investing in AI product development. The company is currently experimenting with generative AI search guides that help users narrow broad queries into specific ideas, and it recently added an AI-powered organization feature that automates content curation. Those innovations could drive more engagement, thereby feeding more data through the machine learning models that power recommendations and improving their ability to identify relevant content.
In addition to investments in AI, Pinterest has partnered with Amazon and Alphabet‘s Google to bring third-party advertising to its platform. Brands that use ad tech software from Amazon and Google can now reach consumers through Pinterest. Those partnerships are already boosting sales by allowing the company to tap demand beyond its ecosystem. But the partnership with Amazon, in particular, could improve the user experience in the future by simplifying the transition from browsing to shopping.
Pinterest shares recently traded at 8.2 times sales, a sensible valuation given that Wall Street analysts expect 15% annual sales growth over the next five years. But there’s a chance Pinterest could grow more quickly, and shareholders could see a windfall. In either scenario, now is a good time for patient investors to buy a small position in this stock.
Should you invest $1,000 in Palantir Technologies right now?
Before you buy stock in Palantir Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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Cathie Wood’s Ark Invest Is Selling Nvidia Stock and Buying These 2 Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool
While many have made claims on where they see Bitcoin going in the future, very few are as notable as the predictions made by Ark Invest CEO Cathie Wood. Her base case for 2030 is a Bitcoin price of $600,000, almost 10 times that of the current price. In her bull case, she sees Bitcoin reaching $1.5 million by 2030. If Bitcoin were to reach a $1.5 million price level, the market cap would be more than $30 trillion.
Her initial bull case prediction was $1 million, but she upped it to $1.5 million after the approval of the Bitcoin spot ETFs, among other factors. Specifically Wood pointed to more long-term and institutional holders, more holders in general, a rising hash rate and the ETFs.
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ARK and 21Shares launched one of the ETFs (ARKB). The ETF has the third lowest expense ratio out of the active spot ETFs and has garnered net assets of over $2 billion in less than 2 months.
The ETF has largely been a success, attracting huge inflows and performing well against the market, up nearly 60% in the past month alone.
ETFs as a whole have also changed the dynamics of Bitcoin supply. Before, a handful of institutions were involved in Bitcoin, and prices were a bit more skewed towards retail trader sentiment. However, with new buying activity, some predict a supply squeeze could be on the horizon.
Inflows to the ETFs hit an all-time high last week, seeing nearly $680 million of inflows in one day. This means that the funds are buying more Bitcoin every day, which is eating away at the liquidity provided by sellers.
Additionally, the ETFs have seen net inflows of several billion dollars since they began trading. The trend has been one of continuous buying. If this trend of daily buying were to continue, the entire liquid supply of Bitcoin (~1.3 million BTC) would be under ETF management by September 2024.
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Trending: Large boom in cryptocurrency and metaverse interest as BTC skyrockets — has Apple Vision Pro increased the demand for virtual real estate?
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While this is extremely unlikely to happen as more traders would take profit if the price of Bitcoin continues to go higher and ETF inflows are likely to slow down, it still shows how close the market is to reaching the capacity of liquid sellers in the order books.
A better idea to consider is thinking about the point at which traders will begin to sell. While some believe that the current ATH of around $69,000 could serve as a point of resistance and take-profit level, others are looking at high prices, such as $100,000. Few are venturing even higher, such as Wood.
The price of Bitcoin is determined by the laws of supply and demand. It will be interesting to see how the new demand brought by the ETFs will impact the supply of sellers in the coming months and years.
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This article Bitcoin Supply Squeeze? ARK Invest’s Cathie Wood Predicts $1M+ Bitcoin Price originally appeared on Benzinga.com
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Cathie Wood is the founder and chief investment officer at Ark Invest, an asset management company focused on disruptive innovation. Ark manages several thematic index funds built around burgeoning technologies like artificial intelligence (AI), but the firm continued to sell down its position in Nvidia (NASDAQ: NVDA) throughout February.
That may strike readers as strange given that Nvidia graphics processing units are synonymous with AI infrastructure. But the stock has advanced 236% over the past year, so Ark is taking profits and reinvesting capital into other AI companies. For instance, the firm bought shares of Pinterest (NYSE: PINS) throughout February. The social media company now accounts for a little more than 1% of Ark’s $14 billion portfolio.
Here’s what investors should know.
Pinterest failed to impress with its fourth-quarter results
Pinterest reported mixed financial results for the fourth quarter. Global monthly active users (MAUs) increased 11% to 498 million and average revenue per user (ARPU) increased 2% to $2.00. Wall Street analysts anticipated slightly slower MAU growth, but slightly faster ARPU growth.
As a result, Pinterest missed top-line estimates. Revenue increased 12% to $981 million, but Wall Street was looking for $991 million. Despite that shortfall, the company beat bottom-line estimates due to effective expense management. GAAP net income reached $201 million in the fourth quarter, up from $17 million in the prior year.
Pinterest shares declined about 10% following the release of the report, and the stock is still 60% below the record high it reached in early 2021. But the company is executing on a sensible growth strategy by investing in artificial intelligence (AI) and partnering with third-party advertisers. Those moves could create value for patient shareholders in the years ahead.
Pinterest is executing on a sensible growth strategy
Pinterest operates a social media platform that lets users explore and curate visual content to discover new products and ideas. Its monthly user base trails that of Meta Platforms‘ Facebook and Instagram, ByteDance’s TikTok, and Snap‘s Snapchat, but Pinterest still ranks among the 15 largest ad tech companies in the world. That positioning is a product of its ability to collect consumer data and influence shopping decisions, and ongoing investments in AI help make that possible.
In the first quarter, Pinterest CEO Bill Ready said:
Nearly a year ago, we began moving to next-gen AI capabilities, enabling us to use recommender models that were 100x larger than before. We combined our first-party proprietary data with our AI-based computer vision and search technologies to improve perceived relevance for recommendations on related pins, driving perceived relevance up by nearly 10 points from a year ago to 94%.
In the fourth quarter, Pinterest added generative AI search guides to help users refine queries and take action (make purchases) more easily. It also debuted an AI-powered organization feature that automates content curation for users. Management says those innovations create a powerful flywheel. Specifically, Pinterest’s ability to make relevant recommendations improves as user engagement improves, simply because engagement creates data the company can feed into its machine learning models.
In addition to AI innovation, Pinterest has partnered with Amazon and Alphabet‘s Google to bring third-party advertising to its platform. Specifically, Amazon ads are live in the U.S. on Pinterest search and the home feed, and Google ads are live in international markets. Those partnerships let Pinterest tap advertising demand beyond its own ecosystem, and its partnership with Amazon in particular makes it easier for users to buy products they see on the platform.
Pinterest stock trades at a reasonable price
Going forward, digital ad spending is projected to grow at 15% annually through 2030, according to Grand View Research. How quickly Pinterest grows depends on its ability to generate demand among advertisers, which itself depends on its ability to engage users with relevant content and drive desirable outcomes for brands.
On that front, management is making sensible decisions that could lead to market share gains. Wall Street expects Pinterest to grow sales at 15% annually over the next five years, so that consensus estimate leaves room for upside if the company does indeed gain share. In either case, its current valuation of 8.2 times sales seem reasonable.
As a caveat, Pinterest faces tough competition from larger, more popular social networks that could siphon advertising dollars away from its platform. But unlike Pinterest, those competing platforms are not purpose-built for product discovery.
In other words, Pinterest is undoubtedly an underdog, but it also has unique strengths that could make it more effective in driving social commerce. If the company harnesses that potential, it could create substantial value for patient shareholders. Investors comfortable with that risk should consider buying a small position in Pinterest today. Personally, I like Ark’s decision to allocate about 1% of its portfolio to the stock.
Should you invest $1,000 in Pinterest right now?
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Cathie Wood’s Ark Invest Is Selling Nvidia Stock and Buying This Artificial Intelligence (AI) Stock was originally published by The Motley Fool
Cathie Wood became an investing hero when her exchange-traded funds (ETF) that focus on disruptive technology stocks zoomed higher early in the pandemic, outperforming the market and delivering incredible gains for shareholders.
That changed in the bear market when investors dumped growth stocks and ran toward safe stocks. But as the market has swung back firmly into bull territory, many of Ark Invest’s funds are outperforming again.
Ark has been scooping up shares of digital bank SoFi (SOFI -0.56%) stock recently, adding more to two of its ETFs. Should you follow Cathie Wood’s lead?
How SoFi stands out
SoFi is in the rather interesting position of being a bank and a fintech. It has some stability due to its large cash reserves in the form of account deposits and a well-established credit business, but there’s risk — and reward — due to its youth and innovation mindset.
It began as a cooperative for student loans, and it grew from there as management recognized the need for a full financial services center geared toward the needs of students and young professionals.
Chief Executive Officer Anthony Noto spoke with Cathie Wood and called SoFi’s sweet spot “mass, affluent high earners.” He doesn’t think their needs are being met, and SoFi is going after this unfulfilled space with a one-stop shop to provide everything they need to manage their finances easily. This is a group that is educated and earning; more than 90% of SoFi’s accounts are direct deposit. These clients are making money, and these are sticky deposits.
SoFi’s goal now is to capitalize on this lucrative market. It’s developing all sorts of initiatives to run with this ball: IPO investments and alternative investments, all with an easy-to-use interface. These are customers who have some discretionary income but need some help to build it to a level of achieving their financial ambitions. When SoFi provides that, it gains their trust and leverages its accounts to generate fees and revenue, scaling its business and becoming more profitable.
SoFi just reported its first GAAP profit
SoFi has been demonstrating growth and momentum since it became a public company, but its stock tanked in the bear market when unprofitable growth stocks at high prices fell out of favor with investors. However, SoFi has continued to report remarkable growth and sustained momentum, capturing market share and demonstrating that it has a viable business meeting its customers’ needs. There are many digital banks that have sprouted that offer easy online banking, but SoFi has shown a keen understanding of its clientele and how to expand its business.
That’s why it has a range of products in three segments: the original lending products, financial services, and technology platform. Its strategy is to get clients in its affluent target market to sign up for an account, bringing them into the company’s ecosystem where it cross-sells other services to become their preferred financial services institution.
Management reiterated several times that it would report a profit in accordance with generally accepted accounting principles (GAAP) in the 2023 fourth quarter, and it came through with $48 million in net income off of $615 million in revenue. Even better, it’s anticipating another profit in the first quarter as well as a full-year profit of about $100 million.
SoFi’s price drop is an opportunity
Although Cathie Wood’s approach is often seen as the opposite of value investor Warren Buffett’s, they aren’t diametrically opposed. Wood recognizes a bargain as well as any savvy investor, and although she goes for growth and disruption, she isn’t passing up the chance to buy an incredible stock at a great price.
SoFi stock soared after its fourth-quarter report, but then it immediately plummeted, losing all of its gains. It’s now up only 9% over the past year despite its stellar performance. At the current price, it trades at a price-to-sales ratio of 3.8, which is cheap for a high-growth stock.
If you have a high tolerance for risk and love growth stocks, you might want to invest in one of Cathie Wood’s ETFs, like the flagship ARK Innovation Fund (ARKK 0.79%) or the ARK Fintech Innovation Fund (ARKF 1.23%), both of which just loaded up with SoFi stock. Or, you can follow her trades and make your own decisions.
SoFi’s drop looks like an opportunity for the forward-thinking investor, and with patience and time, you’re likely to be rewarded.
In this video, I will be going over Teladoc‘s (TDOC -23.67%) fourth-quarter earnings and discuss whether now is a good time to open a position with the stock back to its all-time lows.
*Stock prices used were from the trading day of Feb. 20, 2024. The video was published on Feb. 20, 2024.
Neil Rozenbaum has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Teladoc Health. The Motley Fool has a disclosure policy. Neil is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.
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