ARK CEO Cathie Wood says she swerved the Arm IPO frenzy. Here's why

Cathie Wood, CEO of Ark Invest, speaks throughout an interview on CNBC on the ground of the New York Stock Exchange (NYSE) in New York City, February 27, 2023.

Brendan McDermid | Reuters

ARK Invest CEO Cathie Wood mentioned she didn’t take part in Arm’s blockbuster preliminary public providing final week as a result of she finds the British chip designer was overvalued relative to its aggressive place.

Arm, the Cambridge-based firm managed by Japanese funding large SoftBank, listed on New York’s Nasdaq on Thursday at an IPO worth of $51 a share for a valuation of just about $60 billion. Shares jumped virtually 25% on the primary day of buying and selling to shut at $63.59.

The preliminary buzz has since fizzled, with the inventory struggling successive each day declines to finish the Tuesday commerce session at $55.17.

Speaking on CNBC’s “Squawk Box Europe” on Wednesday, Wood mentioned the latest frenzy round AI-exposed firms was justified and that “innovation is undervalued given the enormous opportunities that we see ahead, catalyzed very importantly by artificial intelligence.”

“As far as Arm, I think there might be a little bit too much emphasis on AI when it comes to Arm and maybe not enough focus on the competitive dynamics out there,” she added.

Arm CEO Rene Haas and executives cheer, as Softbank’s Arm, chip design agency, holds an preliminary public providing (IPO) at Nasdaq Market web site in New York, U.S., September 14, 2023.

Brendan Mcdermid | Reuters

“So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view on the high side, and we see within our portfolios much lower priced names with much more exposure to AI.”

Arm declined to remark.

The high holdings in Wood’s flagship ARK Innovation ETF embody Tesla, Shopify, UiPath, Unity, Zoom, Twilio, Coinbase, Roku, Block and DraftKings.

After taking a beating in the course of the latest cycle of aggressive rate of interest hikes from the U.S. Federal Reserve, the ARK ETF resurged this 12 months, as traders flocked to shares with AI publicity. Wood mentioned that the anticipation of rates of interest peaking would additional this development.

“The appetite for innovation is stirring here, and I think one of the reasons is because many investors and analysts are starting to look over the interest rate hike moves we’ve seen, record breaking in the last year or so, and to the other side,” she defined.

With inflation coming down throughout main economies and with central banks anticipated to start unwinding their aggressive financial coverage tightening over the subsequent 12 months, Wood recommended the approaching interval “should be a very good environment for innovation and global megatrend strategies.”

ARK Invest on Wednesday acquired British thematic ETF issuer Rize ETF for £5.25 million ($6.5 million), marking the corporate’s first enterprise into the European passive funding market.

Wood mentioned that Europe has not had entry to truly spend money on the corporate’s U.S.-based ETFs till now, regardless of accounting for round 25% of demand for the corporate’s analysis since ARK’s inception in 2014.

“The cost of technology, especially with artificial intelligence now, is collapsing, and therefore it’s going to be much easier to build and scale tech companies anywhere in the world. This is no longer just the purview of Silicon Valley,” Wood mentioned. “We are very open-minded about technologies flourishing throughout the world, including Europe.”