Cathy Wood is the founder and CEO of ArchInvest, an asset management company focused on disruptive technologies such as artificial intelligence (AI). In a somewhat counterintuitive move, the company is reducing its position. Nvidia For months and continued to do so throughout February.
Investors may find this surprising. Nvidia graphics processing units (GPUs) are the compute engines behind the latest AI systems, and the company has an estimated market share of more than 80% in machine learning chips. The Wall Street Journal. But the stock is up nearly 400 percent in the past 18 months, so Wood and his team are repurposing the profits into other AI stocks.
For example, Ark bought shares of Palantir Technologies (PLTR -0.96%) And Pinterest (Pin -1.95%) throughout February.
1. Palantir Technologies
Palantir delivered better-than-expected results in its fourth quarter (ended December 31, 2023). Its customer base grew 35% to 497, and the average customer spent 8% more. As a result, top-line growth accelerated for the second consecutive quarter, with revenue up 20% to $608 million. The company also achieved its fifth consecutive quarter of GAAP profitability, with net income tripling to $93 million.
Management attributed these strong results to momentum with its Artificial Intelligence Platform (AIP) product, which launched last year. Demand for AIP is “unlike anything we’ve seen in two decades,” CEO Alex Karp said in a shareholder letter. He also stated that the company has a stronger product pipeline today than at any point in history.
Palantir sees its software as fundamentally different from other products on the market. Its core platforms (Gotham and Foundry) allow users to combine data and machine learning (ML) models to create ontologies, maps that connect digital data to physical assets. Users can visualize ontology data through analytical applications that improve decision making. AIP brings support for major language models to these platforms.
Forrester Research Palantir is recognized as a leader in AI/ML platforms, and Dresner Advisory Services recognizes Palantir’s leadership in Model Operations (ModelOps), an area that focuses on the development, deployment and optimization of analytical models. Related to management. These accolades tell investors that the company is doing something right, but also tell potential customers that Palantir’s software is worth considering.
Future-oriented Plentire has powerful tailwinds behind its business. A recent survey from Morgan Stanley Data analytics and AI/ML solutions appear to be the two IT categories that could see the highest spending growth in 2024. Wall Street analysts expect Palantir’s sales to grow 21 percent annually over the next five years.
However, the stock looks expensive after climbing 50% in the past month. Shares currently trade at about 25.7 times sales, a significant premium to the three-year average of 17.9 times sales and an expensive multiple compared to Wall Street’s sales growth forecast. I’m going through Palantir right now but keeping the stock on my watchlist.
2. Pinterest
Pinterest reported encouraging financial results in the fourth quarter. Monthly active users grew 11% to 498 million, reflecting user growth across all three geographic groups (North America, Europe and Rest of World). Revenue rose 12% to $981 million, marking the fifth consecutive quarter of accelerating top-line growth. And non-GAAP net income rose 80% to $366 million due to disciplined expense management.
Looking ahead, digital advertising spending is expected to grow 15 percent annually through 2030, according to Grandview Research. Wall Street expects Pinterest’s revenue to grow at a similar pace over the next five years. But this forecast has room for improvement if the company continues to make progress on its strategic priorities: (1) growing customers and deeper engagement; (2) improving monetization per user; and (3) drive profitable growth.
The company is tackling these goals by investing in artificial intelligence. The machine learning model that powers recommendations on the platform has grown 100 times in size over the past two years, improving its ability to surface relevant content. This undoubtedly contributed to Pinterest’s strong user growth in the fourth quarter.
It also helped the company monetize its platform more successfully. Average revenue per user rose 2% to $2 in the fourth quarter.
Pinterest is still investing in AI product development. The company is currently experimenting with creative AI search guides that help users narrow down broad queries to specific ideas, and it recently added an AI-powered organization feature that curates content. Automates. Those innovations can drive more engagement, thereby feeding more data through machine learning models that power recommendations and improve their ability to identify relevant content.
In addition to investing in AI, Pinterest has partnered with Amazon And the alphabetof Google to bring third-party advertising to its platform. Brands that use ad tech software from Amazon and Google can now reach consumers through Pinterest. Those partnerships are already boosting sales by allowing the company to tap demand outside of its ecosystem. But a partnership with Amazon, in particular, could improve the user experience in the future by easing the transition from browsing to purchasing.
Pinterest shares recently traded at 8.2 times sales, a reasonable valuation given that Wall Street analysts expect annual sales growth of 15% over the next five years. But there’s a chance Pinterest could grow faster, and shareholders could suffer. In either case, now is a good time for patient investors to buy a short position in this stock.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Trevor Genuine holds positions at Amazon, Nvidia, Palantir Technologies, and Pinterest. The Motley Fool has positions at and recommends Alphabet, Amazon, Nvidia, Palantir Technologies, and Pinterest. The Motley Fool has a Disclosure Policy.