Ark Invest, led by Cathie Wood, is shedding Nvidia stock and purchasing shares of this Artificial Intelligence (AI) company

Cathie Wood is the creator and chief investment officer at Ark Invest, an asset management company concentrated on disruptive innovation. Ark manages several thematic index funds centered around emerging technologies like artificial intelligence (AI), but the firm continued to decrease its position in Nvidia (NASDAQ: NVDA) throughout February.

That might seem unusual to readers given that Nvidia graphics processing units are interchangeable with AI infrastructure. However, the stock has surged 236% over the previous year, so Ark is taking gains and reinvesting capital into other AI companies. For example, the firm purchased shares of Pinterest (NYSE: PINS) during February. The social media company now represents slightly over 1% of Ark’s $14 billion portfolio.

Here’s the information investors need to know.

Pinterest failed to make an impression with its fourth-quarter results

Pinterest reported varied financial outcomes for the fourth quarter. Global monthly active users (MAUs) rose 11% to 498 million, and average revenue per user (ARPU) rose 2% to $2.00. Wall Street analysts predicted somewhat slower MAU growth but slightly quicker ARPU growth.

Consequently, Pinterest missed revenue estimates. Revenue increased 12% to $981 million, but Wall Street was aiming for $991 million. Despite that deficit, the company exceeded profitability estimates due to efficient expenditure management. GAAP net income reached $201 million in the fourth quarter, up from $17 million the previous year.

Pinterest shares dropped approximately 10% following the report release, and the stock is still 60% beneath the all-time high it hit in early 2021. Nonetheless, the company is executing a reasonable growth plan by investing in artificial intelligence (AI) and collaborating with third-party advertisers. Those actions could generate value for patient shareholders in the future.

Pinterest is executing a practical growth strategy

Pinterest runs a social media platform that allows users to explore and gather visual content to discover new products and ideas. Its monthly user base falls behind that of Meta Platforms‘ Facebook and Instagram, ByteDance’s TikTok, and Snap‘s Snapchat, yet Pinterest still ranks among the top 15 ad tech companies globally. This positioning is a result of its capacity to gather consumer data and sway purchasing decisions, with ongoing investments in AI contributing to this capability.

In the initial quarter, Pinterest CEO Bill Ready stated:

Almost a year ago, we began transitioning to next-generation AI capabilities, empowering us to leverage recommender models that were 100 times larger than before. We merged our first-party proprietary data with our AI-driven computer vision and search technologies to enhance perceived relevance for recommendations on similar pins, boosting perceived relevance by nearly 10 percentage points from a year ago to 94%.

In the fourth quarter, Pinterest introduced generative AI search guides to aid users in refining queries and taking action (making purchases) more effortlessly. It also rolled out an AI-fueled organization feature that automates content curation for users. Management indicates that these innovations create a strong flywheel. Specifically, Pinterest’s ability to provide relevant recommendations improves as user engagement increases since engagement generates data that the company can feed into its machine learning models.

In addition to AI innovation, Pinterest has teamed up with Amazon and Alphabet‘s Google to incorporate third-party advertising into its platform. Amazon ads are operational in the U.S. on Pinterest search and the home feed, while Google ads are live in international markets. These collaborations enable Pinterest to tap into advertising demand beyond its own ecosystem, and its collaboration with Amazon, in particular, simplifies the process for users to purchase products they discover on the platform.

Pinterest stock trades at a modest price

In the future, digital ad spending is anticipated to expand by 15% annually until 2030, per Grand View Research. The pace at which Pinterest grows hinges on its ability to stimulate demand among advertisers, which relies on engaging users with pertinent content and delivering desirable results for brands.

In this regard, management is making logical choices that could lead to market share gains. Wall Street anticipates Pinterest to grow revenue by 15% annually over the next five years, so that consensus estimate provides room for upside if the company does indeed gain significant market share. In any scenario, its present valuation of 8.2 times sales seems rational.

As a precaution, Pinterest faces formidable competition from bigger, more popular social networks that could divert advertising funds away from its platform. However, unlike Pinterest, those competing platforms are not specifically designed for product discovery.

Meaning, Pinterest is undoubtedly an underdog, but it also possesses unique strengths that could render it more efficient in driving social commerce. If the company harnesses that potential, it could generate substantial value for patient shareholders. Investors comfortable with this risk should think about initiating a small position in Pinterest today. Personally, I commend Ark’s choice to allocate about 1% of its portfolio to the stock.

Should you invest $1,000 in Pinterest right now?

Before purchasing Pinterest stock, contemplate this:

The Motley Fool Stock Advisor analyst team recently pinpointed what they deem are the 10 best stocks for investors to acquire now… and Pinterest wasn’t part of that list. The 10 stocks that met the criteria could yield significant returns in the following years.

Stock Advisor furnishes investors with a clear roadmap for success, encompassing guidance on constructing a portfolio, regular updates from analysts, and two fresh stock picks each month. The Stock Advisor service has outstripped the S&P 500’s return by more than triple since 2002*.

Discover the 10 stocks

*Stock Advisor returns as of February 26, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Pinterest. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Nvidia, and Pinterest. The Motley Fool has a disclosure policy.

Cathie Wood’s Ark Invest Is Selling Nvidia Stock and Buying This Artificial Intelligence (AI) Stock was originally published by The Motley Fool

Leave a Reply

Your email address will not be published. Required fields are marked *