These 3 Stocks Are Cathie Wood’s Largest Bets

These 3 Stocks are Cathie Wood’s Largest Bets

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Having co-founded ARK Investment Management in 2014, Catherine Wood rose to public prominence in 2021 when her ARK ETFs widely outperformed the market benchmark S&P 500. Her investing thesis revolves around disruptive innovation, as exposure to high-growth markets such as AI, blockchain, robotics, energy storage, DNA sequencing, and autonomous mobility.

This idea was less than well received at her former workplace, AllianceBernstein, prompting Cathie Wood to venture out independently.

However, just as the Federal Reserve’s liquidity injections strongly correlate with Bitcoin performance, so have Wood’s exchange-traded funds. Once the Fed placed a capital flows dampener with the rate hiking cycle in early 2022, her flagship ARK Innovation ETF (ARKK) crashed, severely underperforming the wider market.

In an open letter to the Fed, Wood expressed dismay at the rapid hiking cycle, warning that the Fed’s aggressive rate hikes could lead to a deflationary bust.

“Could it be that the unprecedented 13-fold increase in interest rates during the last six months––likely 16-fold come November 2––has shocked not just the US but the world and raised the risks of a deflationary bust?”

As it became apparent that the central bank dictates the ebbs and flows of the stock market, Wood’s projected 30-40% compound annual returns over five years failed to materialize. Out of 36 holdings in actively managed ARRK ETF, Tesla, Coinbase, Roku, Square, and Roblox make the top five picks, with a combined portfolio weight of 40%, or $2.4 billion market value.

Although ARKK delivered a negative annualized performance of 24.96% in the last three years, what can investors expect from Cathie Wood’s three biggest holdings?

Tesla (Nasdaq: TSLA)

From a luxury electric vehicle (EV) company, Tesla has grown as an exposure to robotics and autonomous driving. The latter two are yet to fully materialize. Tesla CEO Elon Musk noted that the company’s humanoid robot Optimus could end with a price tag half as much as a car, at around $25,000 – $30,000 range.

The hard technical challenge of autonomous mobility is shared between Optimus and Tesla EVs. Still in beta, the company’s Full Self-Driving (FSD) is yet to transition from level 2 (partial automation) to level 5 (full automation). However, as Musk missed his optimistic timeframe, much is expected from his robotaxi announcement scheduled for August 8th.

Akin to training large language models (LLMs), such capacity will rely on successfully integrating data from millions of Tesla drivers. However, given the company’s dominant EV market share in the Western markets, Tesla has an edge over legacy car makers.

Tesla is also hoping to overcome the main hurdle of EV adoption – affordability. The compact crossover model known as “Redwood” or “Model 2” is rumored to have a $25k price tag. Following aggressive price cuts push from Chinese automakers, TSLA shareholders expect this to be a turning point as EV demand plateaus in the upper-price segment.

Zoomed out, Tesla continues to excite investors as all the puzzle pieces come together. They are all leading (ideally) to a seamless binding of multiple platforms – humanoid robot, self-driving car, neuralink interface and xAI.

From that vantage point, Tesla’s YTD underperformance of 25.26% could be seen as an opportunity, relying heavily on solving engineering challenges and scaling. The average 52-week TSLA price is holding at $217.19, above the present price of $182.58 per share.

If 2-3 rate cuts materialize as fed fund futures suggest this year, Tesla could be ending 2025 with an above-$1 trillion market value.

Coinbase (Nasdaq: COIN)

This well-regulated crypto exchange became the main facilitator of most Bitcoin ETFs. Of the big players, only Fidelity custodies its own FBTC fund while VanEck (HODL) picked Gemini. This reveals Coinbase’s dominant market position in the digital asset arena and how institutions and retail traders perceive it.

Globally, Binance is still the undisputed king of crypto exchanges at 49.7% market share, while Coinbase occupies the 5th rank at 6.8% share. Moving with the swings of the crypto market, the company’s Q1 revenue went up 72% Q/Q to $1.6 billion. 

Compared to a net loss of $79 million in the year-ago quarter, Coinbase’s net income massively increased to $1.17 billion, although most of it is from $737 million unrealized mark-to-market gains. In the meantime, the exchange’s Base L2 scaling solution for Ethereum saw 2x transaction volumes and 8x developer activity for new finance apps.

If Ethereum ETFs receive approvals, Coinbase will not receive another wave of capital inflows. COIN stock is up 41% year-to-date, significantly outperforming the broad stock market. At the current price of $221.35 per share, COIN shares are still well below their 52-week ceiling of $283.48 per share.

Roku (Nasdaq: ROKU)

Roku exemplifies Cathie Wood’s innovative disruption with its ecosystem of streaming devices and smart TV operating systems. The company has a multi-stream revenue from hardware sales, ads, licensing of its operating system to TV manufacturers, Roku Pay transaction fees, and content distribution/subscription fees.

The hardware part has taken a back seat to its much higher-margin streaming platform, accounting for 85.6% of revenue in the latest Q1 earnings report. For the quarter, Roku reported $50.8 million net loss, a significant improvement over the net loss of $193.6 million in the year-ago quarter.

However, despite shifting from devices to platforms, the latter is only accessible from 18 countries, constraining its market reach. In other words, Roku has not made a profitable quarter since the end of 2021. This trend is likely to continue given the great network effect of Roku’s competitors Amazon (NASDAQ: AMZN), Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG), and Netflix (Nasdaq: NFLX), all of which offer greater advertising reach.

So far, Roku’s accumulated deficit is $1.3 billion, with $2 billion in cash and cash equivalents against $1.8 billion worth of liabilities. Year-to-date, ROKU stock is down 38%. At the present price of $54.45 per share, ROKU is significantly below its 52-week average of $74.50 and just above its 52-week bottom of $51.51 per share. 

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Disclosure: None.

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