Cathie Wood's Ark Invest Is Selling Nvidia and Buying AI Stock

Ark Invest, an innovative asset management company, is founded and led by Cathie Wood. Ark runs many thematic index funds focused on emerging technologies like AI, but it sold down its Nvidia (NASDAQ: NVDA) holding during February.

Given that Nvidia GPUs are AI infrastructure, that may seem odd. Ark is taking profits and reinvesting in other AI businesses after the stock rose 236% in a year. In February, the company bought Pinterest (NYSE: PINS) shares. More than 1% of Ark's $14 billion portfolio is social media. Pinterest's fourth-quarter results were mixed. Global MAUs rose 11% to 498 million and ARPU rose 2% to $2.00. Wall Street expected slightly slower MAU growth but better ARPU growth.

Thus, Pinterest failed top-line estimates. Revenue rose 12% to $981 million, but Wall Street wanted $991 million. Effective spending control helped the company beat bottom-line forecasts despite the loss. Fourth-quarter GAAP net income rose to $201 million from $17 million.

Pinterest shares fell 10% after the revelation, and the company is 60% below its early 2021 record high. But investing in AI and collaborating with third-party advertising is a smart growth strategy. These initiatives may benefit patient shareholders in the future.

Pinterest lets people browse and curate visual content to find new items and ideas. Pinterest is one of the 15 largest ad tech businesses in the world, but its monthly users trail Meta Platforms' Facebook and Instagram, ByteDance's TikTok, and Snap's Snapchat. Investments in AI enable it acquire consumer data and influence purchase decisions, enabling that positioning.

Pinterest launched generative AI search guides in the fourth quarter to simplify query refinement and purchasing. It introduced an AI-powered organization function that automates user content curation. These ideas create a tremendous flywheel, says management. Because engagement generates data for Pinterest's machine learning models, user engagement enhances suggestion accuracy.

Pinterest has teamed with Amazon and Alphabet's Google to integrate third-party advertising to its AI innovation. In particular, Amazon advertisements are live on Pinterest search and the home feed in the U.S. and Google ads internationally. Pinterest can leverage advertising demand beyond its environment, and its Amazon alliance makes it easier for consumers to buy things they see on the network.

Grand View Research predicts 15% yearly growth in digital ad spending until 2030. Pinterest's ability to engage people with relevant information and achieve brand outcomes determines how swiftly it expands.

That Nevertheless, management is making smart choices that could boost market share. Since Wall Street expects Pinterest to grow sales 15% annually over the next five years, there is space for growth if the business gains share. Regardless, its 8.2 times sales valuation seems realistic.

However, Pinterest faces stiff competition from larger, more popular social networks that might steal advertising dollars. Unlike Pinterest, those networks are not designed for product discovery. Thus, Pinterest is an underdog, but its assets may help it drive social commerce. That potential might yield significant profit for patient shareholders if the corporation uses it. Today, risk-tolerant investors should buy a tiny Pinterest position. Ark's 1% stock allocation is fine with me.

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