‘Give Us Five Years’: Cathie Wood Defends Struggling Tech Stocks As Flagship Fund Craters

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Topline

Famed stock picker Cathie Wood, the CEO of New York City investment firm Ark Invest, doubled down on her staunch bullishness for disruptive technology even while Ark’s flagship fund cratered on Thursday, touting formerly high-flying stocks like Zoom and Roblox that have more than halved in value since their pandemic heydays.

Shares of Ark, famous for massive bets on stocks like Tesla and Zoom, have cratered 50% since an … [+] all-time high last year.

Eli Warren for Forbes

Key Facts

During CNBC’s “Halftime Report” on Thursday, Wood said her flagship fund’s “significant decline” has left its portfolio of technology stocks “way undervalued relative to [its] potential,” positing that rapid inflation, which has fueled concerns of more-hawkish Fed policy and driven investors away from many tech stocks, should ultimately end.

Driven by a broad market sell-off, the $16 billion Ark Innovation ETF plummeted as much as 7% Thursday, pushing shares down more than 50% below an all-time high from last January, and 30% for the year compared to a nearly 9% decline for the S&P 500.

“Give us five years,” Wood said Thursday about the recent losses, adding that her “biggest concern” is that investors cash out amid the slump and “turn what we believe are temporary losses into permanent losses.”

She specifically defended Zoom Video and Gen-Z gaming platform Roblox—two portfolio stocks that skyrocketed as much as 700% and 90%, respectively, during the pandemic but have since plunged more than 60% due to disappointing growth as Covid case counts wane.

Wood attributed the disappointing end-of-year results to tough comparisons based on the firms’ explosive growth one year earlier, saying Zoom’s recently tepid results will likely be the “lowest point” for growth over the next few years.

Ark loaded up on nearly $25 million worth of Roblox on Wednesday, when the firm’s stock posted its worst one-day performance on record, tumbling more than 25% after sales, earnings and user growth all fell short of expectations.

Crucial Quote

“If we are right and the disruptive innovation that is evolving is going to disintermediate and disrupt the traditional world order, those benchmarks are where the risk is. Not our portfolios,” Wood said Thursday, responding simply “‘Absolutely, we stand by that’ when asked to defend recent comments that tech stocks are not in a bubble. “A lot of what’s going on is supply chain related… I do think the deflationary forces that are building in the economy are pretty strong.”

Contra

Increasingly, Wood’s strategy—which Ark says focuses on “disruptive innovation”—has garnered skepticism on Wall Street. Last month alone, traders betting against Ark’s flagship fund gained more than $1 billion—eclipsing their entire haul of $941 million for last year. “The idea of shorting innovation in America is ridiculous,” Wood said about the shorts on Thursday. Among her critics, Scion Asset Management—the hedge fund headed by investor Michael Burry, who famously predicted the housing market crash in 2007—disclosed it holds bearish put options on $30 million worth of Ark shares late last year.

Key Background

Technology stocks led the market’s rally after a pandemic-induced crash in early 2020, generating massive returns for tech-heavy investors like Ark. Starting last spring, however, accelerating economic growth and the threat of rising interest rates spurred a stock-market rotation away from growth stocks, like those in tech, to cyclical and value-leaning slices of the market. That rotation came to a head last month, when stocks posted their worst start to a year since the Great Recession.