Cathie Wood's Ark Invest Is Selling Nvidia and Buying 2 AI Stocks

Cathie Wood founded and runs Ark Invest, an asset management company focused on disruptive technology like AI. In a surprising move, the corporation has been selling Nvidia shares for months, including February.

Investors may be surprised. The Wall Street Journal estimates that Nvidia occupies over 80% of the machine learning chip market, which powers the most advanced AI systems. But the stock has up 400% in 18 months, so Wood and her team are reinvesting earnings in other AI stocks. Ark bought Palantir Technologies (NYSE: PLTR) and Pinterest (NYSE: PINS) shares in February.

1. Palantir Tech Palantir outperformed in its fourth quarter (ending Dec. 31, 2023). Its customer count rose 35% to 497, and the average spend rose 8%. Revenue rose 20% to $608 million, accelerating sequentially for the second quarter. Net income tripled to $93 million, marking the company's sixth straight GAAP profitability quarter.

Last year's debut of its Artificial Intelligence Platform (AIP) drove such impressive results, management said. In his shareholder statement, CEO Alex Karp called AIP demand "unlike anything we have seen in two decades." He also said the corporation has a stronger product pipeline than ever.

Palantir believes its software is unique. Gotham and Foundry allow companies develop ontologies, maps that relate digital data to physical assets, using data and ML models. Analytical applications can reveal ontological data to aid decision-making. AIP supports huge language models on those systems.

Forrester Research and Dresner Advisory Services have acknowledged Palantir as a leader in AI/ML platforms and model operations (ModelOps), which manages analytical model development, deployment, and optimization. These awards show investors and potential clients that Palantir's product is good.

Palantir has strong future tailwinds. A Morgan Stanley poll found that data analytics and AI/ML technologies will see the biggest IT spending increases in 2024. Over the next five years, Wall Street expects Palantir to boost revenues 21% annually. The stock looks overpriced after rising 50% in a month. Shares trade at 25.7 times revenue, a premium above the three-year average of 17.9 times sales and Wall Street's sales growth projection. I'm skipping Palantir but keeping it on my watchlist.

Second, Pinterest Pinterest posted strong fourth-quarter results. In all three geographic groups (North America, Europe, and rest of world), monthly active users rose 11% to 498 million. Revenue grew 12% to $981 million, the seventh consecutive quarter of top-line growth. Due to spending control, non-GAAP net income rose 80% to $366 million.

Grand View Research predicts 15% yearly growth in digital ad spending until 2030. Wall Street expects Pinterest to maintain revenue growth over the next five years. The estimate has space for improvement provided the company continues to focus on its strategic priorities: expanding users and deepening engagement, boosting monetization per user, and driving profitable growth.

The corporation invests in AI to achieve such goals. The platform's recommendation machine learning models have grown 100-fold in two years, improving content discovery. Pinterest's fourth-quarter user gain was likely due to that. It helped the corporation monetize its platform better. In Q4, per-user revenue climbed 2% to $2.

Pinterest keeps developing AI products. The company is testing generating AI search guidelines to assist customers limit broad queries into specific concepts and implemented an AI-powered organization feature to automate content curation. These advances could increase engagement, providing more data into machine learning models that provide suggestions and boosting their relevance detection.

Pinterest partners with Amazon and Alphabet's Google to offer third-party advertising in addition to AI investments. Pinterest lets Amazon and Google ad tech brands access people. The company's collaborations are already increasing sales by tapping demand beyond its ecosystem. However, the Amazon alliance could boost customer experience by easing the browsing-to-shopping transition.

Pinterest shares traded at 8.2 times sales, a reasonable valuation given Wall Street analysts' 15% five-year sales growth forecast. Pinterest might grow faster, giving stockholders a windfall. Either way, patient investors should buy a small position in this stock now.