Cathie Wood, who leads ARK Invest, is known to favor disruptive tech stocks. As you might expect, her picks tend to do well under bull conditions and not so well under bear conditions. She's a risk-taker, and some of her choices might need years to fully come into themselves and reward shareholders.
This week, she's been investing in Shopify(NYSE: SHOP), Tempus Ai(NASDAQ: TEM), and Oklo(NYSE: OKLO) Should you follow her lead?
1. Shopify: E-commerce is still growing
If you believe that e-commerce is still in its infancy, buying Shopify stock could be a smart move. It's an e-commerce powerhouse, with millions of merchants that rely on its services to operate online.
It continues to roll out new products, upgrade its services, and target a broader clientele. It's way ahead of its competition, with 28% of the market for e-commerce software platforms, according to Statista.
Shopify has been undergoing some pressure since it became a household name during the pandemic. It built out too quickly as high demand dissolved, and it's trying to cut costs and become profitable as demand continues to slow.
But it has an excellent business with happy clients, and it's still guiding for double-digit growth as profitability improves. In the 2024 first quarter, revenue increased 23% year over year, and it was the third straight quarter of positive free cash flow and operating income.
Shopify stock isn't cheap, but its valuation has declined as the price drops -- shares are down 12% year to date, and it trades at a price-to-sales ratio of 12. Investors are pricing in some growth here, but they clearly see it as justified.
Shares rose this week on news of better-than-expected June retail sales, and as the economy makes a comeback, Shopify could skyrocket. However, at this valuation, any missteps could push it back down.
2. Tempus Ai: Disruptive medical technology
Tempus Ai just had its initial public offering (IPO) in June, and Cathie Wood has been scooping up shares of this hot new stock. With "AI" in the name, it's sure to capture investor attention.
Tempus uses data, machine learning, and artificial intelligence (AI) to help medical professionals make informed decisions about patient care and enable medical researchers and pharmaceutical companies to do their work. It has three products: Tempus One is a so-called clinical assistant that doctors can access in real time, Tempus Hub is a workflow platform that provides general insights, and Tempus Lens helps researchers analyze high loads of information like identifying patients who are good matches for clinical trials.
Tempus has an impressive reach. It's connected to 65% of academic medical centers in the U.S. and 50% of oncologists and has already been used by more than 7,000 doctors, according to management. As it gathers more data, it should be even more accurate and useful.
Revenue is growing quickly, increasing 66% year over year in 2023, and management estimates there is a market of $70 billion for its diagnostics testing services in oncology and neuropsychology alone. Its ultimate goal is to be connected to every diagnostic test run and have data uploaded to every professional in real time.
Tempus isn't profitable yet, and it's definitely only for the highly risk-tolerant at this stage.
3. Oklo: Riding the clean energy wave
Oklo also just became a public company in May through a special purpose acquisition company (SPAC) run by OpenAI's Sam Altman, who is its board chairman, with partial control of the company. Oklo uses fast fission products and nuclear recycling to create clean and affordable energy, and it's targeting high-consumption customers like data centers, factories, and utilities.
It anticipates recurring cash flow through its long-term contracts, meaning 20 to 40 years, with large clients like defense industry players, while it is scaling up its powerhouse reactors. It recently signed a 20-year contract with Wyoming Hyperscale, a data center.
Right now, Oklo is still getting its business into motion. There isn't a lot to go by as an investing thesis unless you are a big believer in Sam Altman or Cathie Wood. The money it raised from the IPO is going to help it build up its powerhouses and overall business. Investors can keep an eye on it, but it's not a candidate for the average retail investor at this stage.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.
