Ark Invest Heavily Bets on Tesla and Coinbase, Valuations Scrutinized

Ark Invest, led by Cathie Wood, holds substantial positions in Tesla and Coinbase, comprising 14.4% of its portfolio. Tesla's growth slowdown due to price cuts and interest rate hikes has led to lower valuations, while Coinbase has seen revenue growth amid a cryptocurrency market resurgence. Ark believes Tesla's dominance in battery electric vehicles and advancements in FSD software position it for significant growth. Coinbase benefits from its position as the largest U.S. cryptocurrency exchange and is expanding its offerings, including derivatives trading. Despite a 6.3 times sales valuation for Tesla and 21.7 times sales for Coinbase, Ark remains confident in the potential of these growth stocks.

Cathie Wood's Ark Invest Bets Heavily on Tesla and Coinbase

Cathie Wood, the renowned portfolio manager at Ark Invest, has displayed unwavering confidence in the growth potential of Tesla and Coinbase, allocating a substantial portion of her firm's portfolio to these two companies. As of March 2023, Ark Invest held 14.4% of its assets in these two entities, with Tesla accounting for 6.5% and Coinbase representing 7.9%.

Tesla: A Trailblazer in Electric Vehicles

Tesla has established itself as the dominant force in the electric vehicle industry, capturing a significant market share and leading the way in battery technology. Despite facing headwinds in 2022, including declining demand and price cuts, the company delivered 1.8 million vehicles, exhibiting a 38% growth rate from the previous year.

However, rising interest rates and increased competition have taken a toll on Tesla's profitability. Fourth-quarter revenue grew by a modest 3% to $25.1 billion, while non-GAAP net income declined by 39%. Management anticipates slower volume growth in the coming year as the company prepares to launch a next-generation, low-cost vehicle in 2025.

Despite these near-term challenges, Ark Invest remains bullish on Tesla's long-term prospects. The firm believes that Tesla's position as a market leader, coupled with its upcoming next-generation vehicle and its expertise in software and services, particularly related to full self-driving (FSD), will drive substantial growth in the coming years.

Coinbase: A Gateway to Cryptocurrency

Coinbase, an established cryptocurrency exchange, has experienced significant volatility in recent years. After four consecutive quarters of triple-digit sales growth in 2021, the company endured six quarters of revenue declines as the cryptocurrency market underwent a correction.

However, in the third quarter of 2023, Coinbase reported a return to growth, which accelerated further in the fourth quarter. Revenue surged by 52% to $954 million, largely driven by an uptick in trading activity and increased demand for stablecoin reserves.

Furthermore, Coinbase has taken proactive steps to control expenses, reducing them by 45% year-over-year. This disciplined approach has contributed to the company's return to profitability, with GAAP earnings per share reaching $1.04 in the fourth quarter.

Ark Invest recognizes Coinbase's position as the largest U.S. cryptocurrency exchange, its international expansion efforts, and its diversification into derivatives trading as key factors that will drive future growth.

Valuation Considerations

Despite their strong conviction in Tesla and Coinbase, Ark Invest remains cognizant of the valuation multiples of both companies. Tesla currently trades at 6.3 times sales, while Coinbase trades at 21.7 times sales.

Ark Invest believes that Tesla's valuation is reasonable, assuming the company can successfully monetize its FSD platform and generate revenue from robotaxi services. However, the firm advises investors to proceed with caution when considering Coinbase, recommending a wait-and-see approach until the company demonstrates consistent revenue growth and a more favorable valuation multiple.

Conclusion

Cathie Wood's Ark Invest has demonstrated its confidence in Tesla and Coinbase by allocating a significant portion of its portfolio to these two companies. While both companies face challenges in the near term, Ark Invest believes that their long-term growth potential outweighs any current headwinds.

Potential investors should carefully consider their risk tolerance and investment horizon before investing in Tesla or Coinbase. As always, it is advisable to conduct thorough research and consult with financial professionals before making any investment decisions.