Catherine Wood (Trades, Portfolio) is the founder and CEO of Ark Invest, an investment firm that reported ~$14.55 billion worth of U.S. common stock holdings in its 13F report for the first quarter of 2023.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Ark had an incredible performance in 2020 with gains of over 152% for its flagship Innovation ETF. However, as inflation spiked and interest rates started to rise, the multiples on growth stocks compressed and ARK's funds underperformed as most of their holdings were unprofitable and did not have real earnings to support them in times of trouble.
However, now inflation has continued to fall (to just 4.9% in April 2023), and I believe growth stocks could be poised for a resurgence. Thus, let's take a look at two growth stocks that Wood was loading up on in the first quarter of 2023, Robinhood Markets (HOOD, Financial) and Advanced Micro Devices (AMD, Financial).
1. Robinhood Markets
Robinhood Markets (HOOD, Financial) is one of the most popular stock brokers in the U.S with 23.1 million monthly active users. The company was a pioneer in “commission free trading” and benefited from the huge bull run of 2020, as stimulus-fueled cash-flush investors and traders became heavily engaged with the app.
Wood was buying shares of this stock during the first quarter, during which shares traded at an average price of $9.54 apiece. Ark Invest owned ~31.7 million shares of Robinhood as of the quarter's end.
Robinhood has been criticized for its “gamification” of stocks, and the fact that it's not necessarily free as the business generates revenue from trading volume.
Either way, Robinhood’s stock bubble popped shortly after its IPO in July 2021, as inflation spiked and trading slowed down. This resulted in its stock price plummeting by over 72%.
A positive is Robinhood has superb management in my opinion via its founder and CEO Vlad Tenev. During the down market, Robinhood has continually innovated its platform.
The business has added stock screeners to give investors more control. It also offers a 24-hour trading ability. Robinhood is the first brokerage in the U.S. to offer this feature, which means investors can buy/sell stocks (40 to start with) 24 hours per day, five days per week. The idea is effectively to give retail traders access to extended trading, which is usually only reserved for professional investors.
I believe this effectively ques stock trades so investors can get ahead of the curve during catalysts such as an earnings release. In my opinion, this is a great feature and will no doubt inspire other brokers to do the same.
Robinhood also plans to launch futures trading and applied for a Futures Merchant license in March 2023. The company has also added the ability to trade gold, which suits investors during the current recessionary environment.
Finally, Robinhood has announced a Crypt/NFT Wallet and its Connect platform for developers.
Growing financials
Robinhood has also announced strong earnings results for the first quarter of 2023. Its revenue was $441 million, which beat analyst forecasts by $14.23 million and was up 47% year over year.
The company is also much more diverse than a couple of years ago and now generates around 50% of its revenue or $208 million from net interest income.
Sequentially, the company reported a 120,000 increase in unique users to 23.1 million. Monthly active users were 11.8 million, up from 11.4 million in the previous quarter. In addition, Robinhood has 250,000 retirement accounts, with an average balance of over $2,000.
The company has plans to launch in the U.K. by the end of 2023 and thus there is growth potential ahead.
The company reported a loss per share for the quarter of $0.57, which beat analyst forecasts by $0.04. However, this was a greater loss than the $0.45 reported in the year-ago quarter.
A positive is the company’s adjusted Ebitda increased by 40% versus the previous quarter.
In terms of its balance sheet, the company reported $5.459 billion in cash and short-term investments versus total debt of $2.6 billion.
Valuation
Robinhood trades at a price-sales ratio of 5.7, which is cheaper than historic levels of over 10.
2. Advanced Micro Devices
Advanced Micro Devices (AMD, Financial) is a leading provider of high-performance semiconductor chips used in both PCs and data centers. The company has ~30% market share in CPUs, behind Intel (INTC, Financial) at ~70%, according to Mercury Research data. This may seem like Intel is dominating, but Intel's market share has actually dropped from over 93%, while AMD’s market share is up massively from just 6.7% in 2020.
AMD was a new buy for Wood during the first quarter. The stock changed hands for an average price of $81 per share during the quarter. Wood's firm bought 186,677 shares in the recorded period.
In 2023, AMD launched its latest Ryzen 7000X3D chips, which “lead on gaming” relative to Intel's Raptor Lake, according to tech review website Toms Hardware.
Cyclical financials
For the first quarter of 2023, AMD reported $5.35 billion in revenue, which declined by 9% year over year. This may seem bad, but the semiconductor industry is going through a cyclical downturn after a major boom in 2020, therefore lower shipment volumes were expected. In fact, AMD actually beat analyst forecasts by $44.77 million.
Another positive is AMD’s embedded segment increased its revenue significantly year over year to $1.6 billion, according to the first-quarter 2023 earnings call. This was driven by strong adoption across the industrial sector, as well as various adaptive computing solutions businesses.
The company also released its Vitis AI software library, which enables advanced visualization for its customers in the medical field.
Management also cited solid customer interest in its MI300 GPUs for the training of machine learning models. One of its customers is the Lawrence National Laboratory, which uses the chips for its Exascale supercomputer named El Capitan. Therefore, despite Nvidia (NVDA, Financial) dominating the AI space, AMD clearly benefits from the AI trend as well.
AMD’s Data Center segment reported $1.3 billion in revenue, which was flat year over year. Given the macro picture, this wasn’t as bad as expected, as its EPYC processors have been adopted strongly by hyperscale cloud providers.
AMD reported a loss per share of $0.09, which missed forecasts by $0.09. This was driven by an 18% increase in operating expenses to $1.6 billion. A positive is on a non-GAAP basis, the company had earnings per share of $0.60, which beat analyst forecasts by $0.04.
AMD has a fortress balance sheet with $5.9 billion in cash and short-term investments compared to total debt of $2.8 billion.
Valuation
AMD trades at a price-sales ratio of 6.8, which is 6.5% more expensive than its five-year average. However, the GF Value chart indicates a fair value of $128 per share and thus the stock is “modestly undervalued” at the time of writing.
Final thoughts
Both Robinhood and AMD are two tremendous growth stocks that have faced a series of headwinds recently. Robinhood’s management has aggressively rolled out new features and thus could be poised to benefit as the market turns around. AMD is also in a solid position and continues to take market share from Intel.
