Cathie Wood’s (pictured above) previously buoyant ARK Invest funds have been battered by the tech selloff in early 2022, and the ARK Autonomous Technology and Robotics ETF [ARKQ] is no exception.
The ARKQ share price has slumped 16% since the start of the year to close at $64.66 on 4 February. Over the past 12 months it has dropped 30.6%.
ARKQ invests in autonomous technology and robotics companies in the fields of energy, manufacturing, materials, artificial intelligence and transportation. These companies support developments in autonomous transportation, robotics and automation, 3D printing, energy storage and space exploration, among others.
With the future uncertain for tech stocks — despite Cathie Wood’s optimism that high-value innovation stocks will be the “prime beneficiaries” of economic headwinds — investors will = be paying particularly close attention ARKQ’s two largest holdings, Tesla [TSLA] and UiPath [PATH]. A boost for either of these companies could help the ARKQ share price bounce back.
Difficult start to the year for the ARKQ share price
Tech stocks like ARKQ have been blasted by rising inflation and the prospect of the US Federal Reserve hiking interest rates as early as March.
Given that share price valuations are based on future profit growth, a higher inflation and interest rate environment will likely reduce the elevated levels commonly seen in the tech sector.
Although autonomous technology and robotics is a sector with obvious potential, the extra knock on the ARKQ share price is that the field is in many cases still quite nascent and finding winners within it remains difficult.
“A huge growth runway will not necessarily turn most of the constituents into great investments,” writes Seeking Alpha. “These businesses are not cheap since most of them are trading at more than 25x earnings, which adds a lot of risk in the current market environment given the fact that we are at an inflection point in monetary policy and inflation is running hot.”
The ARKQ, launched in 2014, has a year-to-date total daily negative return of 5.31% and net assets of $2.15bn. This is down from assets of $3bn back in August last year.
It has between 30 and 50 holdings, of which electric vehicle maker Tesla has the biggest weighting with 10.5%, down from 12% back in August.
Robotic process automation (RPA) software provider UiPath has a 8.01% weighting, followed by space communications maker Kratos Defense and Security [KTOS] with 7.21% and software and hardware tech group Trimble [TRMB] with 7.18%.
Wood sees Tesla stocks as a buying opportunity
The Tesla share price has climbed 8% over the past 12 months, buoyed by soaring demand for its vehicles, particularly in China. Its sales growth remains strong, with the new gigafactory in Berlin helping to boost capacity. As consumers, corporates and governments keep striving to reduce their environmental footprint and meet net-zero emissions targets, this is likely to continue apace.
However, concerns over Tesla’s market value — which currently sits at $927.3bn — and the eccentric nature of founder Elon Musk remain. Tesla stocks have dropped 12.6% year-to-date, reflecting the broader climate for tech stocks as well as the controversy surrounding the SolarCity hearing last month.
Nevertheless, according to Market Screener, it retains an ‘outperform’ rating and a $961 target price. In comparison, the Tesla share price closed at $923.32 on 4 February.
Wood also sees the dip in Tesla stocks as a buying opportunity. According to Forbes, Wood bought approximately 55,000 shares after the EV maker posted promising Q4 figures last month.
In a recent interview with CNBC, Wood said that she still saw Tesla as a disruptor given its high barrier to entry around its battery technology and AI chips.
UiPath stocks have tumbled
ARKQ’s second-largest holding UiPath has been more sluggish, with its share price slumping 48.8% since its IPO in April 2021. In its third quarter it reported a 50% hike in revenues to $220.8m but a loss of $116.2m, nearly double that of the $63m loss posted in the same period last year.
UiPath is facing intense competition in the RPA space from tech stalwarts such as Microsoft and new entrants like Blue Prism. There have also been concerns about the impact of Covid on companies’ IT budgets.
However, in ARK’s recent fourth-quarter update, Wood said UiPath remains well positioned to benefit from the use of AI to increase knowledge workers’ productivity.
Innovation is long-term
While some companies will fall by the wayside due to poor implementation or competition, it is the long-term potential of the sectors covered by ARKQ that excites investors the most.
According to Precedence Research, the global RPA market is set to increase at a CAGR of 27.7% between 2021 and 2030 to hit $23.9bn.
Expected value of global RPA market by 2030, representing a 27/7% CAGR
“While disruptive innovation strategies may experience short-term volatility, ARK’s research shows that maintaining a long-term investment time horizon is critical for investors searching for potential returns,” writes Max Chen in ETF Trends. “Innovation solves problems, and it is expected to transform human lives at an accelerated rate during the next five to 10 years.”
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