Cathie Wood, CEO of Ark Invest, speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York, February 27, 2023.
Brendan McDermid | Reuters
ARK Invest CEO Cathie Wood said she didn’t participate in Arm’s blockbuster IPO last week because she found the British chip designer to be overvalued relative to its competitive position.
Arm, the Cambridge-based company controlled by the Japanese investment giant SoftBank, listed on Thursday on Nasdaq in New York at the IPO price of $51 per share for a valuation of nearly $60 billion. Shares jumped nearly 25% on the first day of trading to close at $63.59.
The initial buzz has since petered out, with the stock suffering successive daily declines to end Tuesday’s session at $55.17.
Speaking on CNBC’s “Squawk Box Europe” on Wednesday, Wood said the recent frenzy around companies exposed to AI was justified and that “innovation is undervalued given the enormous opportunities we let’s see, catalyzed in a very important way by artificial intelligence.
“When it comes to Arm, I think there’s maybe a little too much focus on AI when it comes to Arm and maybe not enough focus on competitive dynamics,” she added.
Arm CEO Rene Haas and executives applaud, as Softbank’s chip design company Arm holds an initial public offering (IPO) on the Nasdaq Market site in New York, United States, on September 14, 2023.
Brendan McDermid | Reuters
“So we didn’t participate in this IPO, and we also compare it to the stocks in our portfolios. Arm came out, in our view, from a rather high valuation point of view, and we see in our portfolios some names at much lower prices with much more exposure to AI.
Arm declined to comment.
The main titles of Wood’s flagship product ARK Innovation ETF include You’re here, Shopify, UiPath, Unit, Zoom, Twilio, Coinbase, Roku, Block And DraftKings.
After taking a beating during the U.S. Federal Reserve’s recent round of aggressive interest rate hikes, the ARK ETF has resurfaced this year as investors flocked to stocks exposed to AI. Wood said anticipation of a spike in interest rates would reinforce that trend.
“The appetite for innovation is waking up here, and I think one of the reasons is that many investors and analysts are starting to pay attention to the movements in rising interest rates that we’ve seen, which have “broke records over the past year, and on the other hand,” she explained.
With inflation falling in major economies and central banks expected to begin winding down aggressive monetary policy over the next year, Wood suggested the coming period “should be a very good environment for ‘innovation and strategies for global megatrends’.
ARK Invest acquired UK thematic ETF issuer Rize ETF for £5.25 million ($6.5 million) on Wednesday, marking the company’s first venture into the European passive investment market.
Wood said Europe has so far not had access to actual investments in the company’s U.S.-based ETFs, although they account for about 25% of demand for the company’s research since the creation of ARK in 2014.
“The cost of technology, especially with artificial intelligence, is now collapsing, and so it will be much easier to create and grow technology companies all over the world. It’s no longer just the responsibility of Silicon Valley,” Wood said. “We are very open-minded to the technologies that are flourishing all over the world, including in Europe.”