Key Points
Ark Invest’s Cathie Wood has made a name for herself with her aggressive style of investing. She likes innovative companies that have the potential to disrupt industries. Perhaps not surprisingly then, her flagship Ark Innovation ETF (NYSEMKT: ARKK) has a history of wild swings.
For example, the fund produced a 67.6% gain in 2023, but that was after a 23.4% loss in 2021 and a 67% drawback in 2023. This year the fund has trailed the market, having a slight negative return.
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Wood has also long been a fan of Elon Musk. Ark Innovation counts Tesla as its top holding, and recently she has been selling down the exchange-traded fund’s position in Advanced Micro Devices (NASDAQ: AMD) and buying stock in Musk’s other company, SpaceX (NASDAQ: SPCX). However, that is the exact opposite of what I’d be doing right now. Let’s take a closer look at the two stocks and why I’d be selling SpaceX and buying AMD.
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SpaceX: Overvalued hype
SpaceX is arguably both one of the most hyped and overvalued stocks in the market today. In his typical style, Musk has made bold, outrageous claims to try to get investors excited, such as saying one day SpaceX will be worth more than the Earth itself.
One of SpaceX’s big goals is to put data centers in space, with Musk recently saying this could happen as early as next year. However, protecting semiconductor chips from cosmic radiation and developing a cooling system that works in the vacuum of space are two major technological hurdles that would need to be overcome first. Meanwhile, a lot is riding on its Starship super rocket, which is still in the flight test phase. The massive rocket still needs to demonstrate that it can enter a stable orbit and that it can “catch” not only its booster (which it has done) but also the upper stage of the rocket so that they are both reusable.
SpaceX still has a lot of challenges to overcome to realize Musk’s vision. Meanwhile, the stock trades around a price-to-sales (P/S) ratio of more than 85 times and a forward P/S multiple of more than 35 times based on Morgan Stanley 2026 estimates. That’s a huge valuation for a capex-heavy, money-losing business with negative free cash flow that will eventually need to raise more cash either through debt or equity issuances.
In addition, SpaceX investors will face a plethora of additional shares hitting the open market this year as lock-ups expire, creating a natural headwind for the stock.
AMD: Massive growth ahead
While SpaceX has captured the imagination of investors about what the future could hold, AMD is actually in the early stages of riding two powerful trends in inference and agentic AI.
The company’s chiplet design is ideal for inference, as it can be packaged with more memory and is designed to operate as part of a larger interconnected system, resulting in high bandwidth and low latency. AMD has already secured important graphics processing unit (GPU) deals to supply its chips and Helios server racks to large hyperscalers, which is set to be a major revenue driver for the company.
In addition to its huge GPU catalyst with inference, the company has a significant opportunity with its central processing units (CPUs) and agentic AI. AI data centers handling AI agents will need significantly more CPUs, as they act as the brains of the operation and supply the sequential logic these agents need to act properly. AMD is a leader in the space and has designed high-performance CPUs specifically for agentic AI. Demand for these types of CPUs is through the roof, and prices are rising, which adds another big growth layer for the stock.
With AMD having a clear line of sight to massive growth over the next few years, I’d be a buyer of this AI stock.
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Geoffrey Seiler has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
