Cathie Wood is the head of Ark Invest, an investment company managing several exchange-traded funds. By focusing on “big ideas” like artificial intelligence, gene editing, and outer space, Wood has amassed a faithful following of futuristically minded investors. Which is why you’re here: You want to know which stocks are changing the world and consequently have at least 700% upside, according to Wood.
Here are the five investment opportunities: Zoom Video Communications (ZM -0.28%), Roku (ROKU 1.63%), Bitcoin (BTC -0.43%), Block (SQ 1.94%), and Tesla (TSLA 3.23%). Ark Invest and Wood have price targets for all of these, ranging from 700% upside to nearly 6,000% upside in Bitcoin’s case.
I believe Wood’s commentary about these five investment opportunities is valuable — the team at Ark Invest actively researches its big ideas and condenses those findings down for us. It’s a useful tool.
However, there’s one quintessential thing missing from the aforementioned tool. And this one thing can make or break you as an investor. Don’t worry: I’ll share which of these five ideas I believe is the most attractive investment today. But I hope you’ll walk away from this article better equipped to make that call for yourself.
Here’s why Cathie Wood loves these five ideas
At the end of the day, Cathie Wood is an investor like you and me. And to invest in something (not speculate), it’s imperative to develop an investment thesis: a succinctly expressed opinion of what will happen in the future that would cause your investment to go up.
Below are Wood’s price targets for these five investments. However, Wood didn’t give these price targets in a vacuum. To the contrary, each price target came with an investment thesis — that’s the more important part for investors. Here’s my brief synopsis of each one:
- Zoom price target: $1,500 per share by 2026. Over the next three to four years, Ark Invest believes that Zoom’s user base can triple or more. And it believes that its average revenue per user can triple or more. This exponential top-line growth will result in better profit margins for the company. And assuming the stock’s valuation remains comparable to what it is now, this will all result in life-changing returns for shareholders.
- Roku price target: $605 per share by 2026. Over the next three to four years, active accounts on Roku could triple or more. And these Roku users will stream more video content than they are right now. This engaged and incredibly large user base will allow the platform to demand higher ad rates, resulting in outsize revenue growth. Like Zoom, Ark Invest believes this revenue growth will help Roku’s profit margins and send the stock soaring.
- Bitcoin price target: $1 million per coin by 2030. Compared to asset classes like real estate, gold, and bonds, Bitcoin’s market capitalization is small. But Wood believes many catalysts will change that, including the following: More people will use it to store value, countries will hold some Bitcoin in their treasuries, major enterprises will add it to their balance sheets, and regular people will increasingly use it as money — as a means of exchange on financial transactions. And all of this demand will help push the value of each coin to $1 million.
- Block price target: $500 per share by 2025. In general, Ark Invest sees an incredible secular trend underway right now: People are abandoning traditional banks in favor of fintech solutions like Block. The investment company believes that one of the biggest drivers for Block’s business over the next few years will be Block’s Cash App. It not only projects impressive growth in active Cash App users, but it also believes Block will monetize users at a better rate. This will be a primary driver of shareholder returns, although Ark Invest does see additional upside in its Square and crypto ecosystems.
- Tesla price target: $4,600 per share by 2026. By 2026, Ark Invest expects Tesla’s annual revenue from electric vehicle sales to be an order of magnitude (10 times) larger than what it was in 2021. More than this, it expects the company to generate over $100 billion just with its ride-sharing network — something that doesn’t yet exist. This scale will allow its gross margin to double over the next few years, unlocking greater profitability and a much higher price per share.
Wood may be wrong about many of these assumptions. But here’s the point right now: Long-term investing is based on fundamental analysis like the above. It’s not based on lines on a chart, but rather concrete developments in the real world.
Whenever you buy a stock, you should be able to clearly articulate what you believe is going to happen and how that will make your investment gain in value. Ark Invest clearly does that.
Dissecting Wall Street’s opinions
For any investor hoping to glean insight from Wood’s investment theses, my first recommendation would be to throw away the price targets with each. Start dissecting Wall Street’s opinions by looking at the core assumptions.
Largely absent from the five investment theses listed above is a healthy dose of pessimism — what could go wrong. But that’s the quintessential quality you need to develop to be a well-balanced investor. You must learn to consider both sides of an argument.
For example, only parts of Ark Invest’s investment thesis for Roku are on track right now. In the third quarter of 2022, the company had 65.4 million active accounts, up 16% year over year. So, it’s gaining users like Ark Invest hopes. And streaming hours per active user were also up in Q3, which is another part of the investment thesis.
However, Roku’s profit margin hasn’t been expanding with greater scale and there’s reason to believe that negative trend could continue. The company’s hardware devices cost more to make than what the company is able to sell them for. And in Q3, Roku announced the launch of Roku Smart Home, which will usher in an entire portfolio of hardware devices that will be sold cheaply, potentially hurting profits. This lack of profitability could put a damper on the roughly 1,000% upside implied with Ark Invest’s price target.
Similarly, I believe it may be a tad optimistic to project more than $100 billion in revenue for Tesla from a business segment that doesn’t exist yet. If it fails to launch soon, that would almost assuredly drag down this key component to Ark Invest’s $4,600 per share price target.
In the end, I could poke holes in the investment theses from Ark Invest for all five of these ideas, even though I own four of them. I nonetheless value the opinions of Wood and others because there’s always perspective they bring to the table. However, it’s still healthy to look at both sides of the argument before drawing your own conclusions.
If you don’t read any further, let this be your actionable takeaway: Never let someone else’s price target be your reason for buying. Always consider what could go right and what could go wrong before investing.
Why Zoom stock stands out from the rest
For those still with me, I’ll keep my promise and share why I believe Zoom stock is the best opportunity right now of these five. But starting with a caveat, I believe there’s zero chance it will hit Ark Invest’s price target of $1,500 per share by 2026. That’s OK with me because I believe it can still beat the market.
Some investors believed Zoom’s relevance would die as COVID-19 restrictions loosened. And they’re partly right. Zoom records revenue from consumers in its online segment. Revenue from the online segment has dropped throughout its fiscal 2023 (which mostly runs through calendar 2022) and management expects an 8% year-over-year drop for the whole year for this part of the business.
However, Zoom’s enterprise business is still growing and now accounts for more than half of the business — this will be the value driver in coming years, in my opinion.
All of Zoom’s ancillary products have an enterprise customer focus. Zoom Phone looks to upgrade internal phone system at office buildings. Zoom Rooms modernizes conference rooms. And newly launched Zoom Mesh is a content delivery network built for enterprises — it speeds up internet connections.
Through the first three quarters of fiscal 2023, Zoom’s research and development (R&D) expenses have more than doubled from the comparable period of fiscal 2022. However, developing new services for enterprise customers is imperative. And even though it’s spending more, the company remains profitable.
I expect these R&D investments to eventually pay off for Zoom with reinvigorated revenue growth from a loyal enterprise customer base. As I said, I don’t expect $1,500 per share. But long-term, market-beating returns are likely from here. But that said, you should seek out the counterargument to my own before deciding to invest in Zoom stock for yourself.
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