Key Points
Cathie Wood added to her positions in Nvidia, Broadcom, and Cloudflare on Monday.
Nvidia was bought in five of Ark's six ETFs, as the stock slid 3% on the first trading day of this week.
Broadcom is a great example of how AI is propelling bottom-line growth, too. It's trading for more than 60 times last year's earnings but a reasonable 21 times next year's target.
After her legendary returns in 2020 and bouncing back to trounce the market again in 2025, Cathie Wood is hoping that it doesn't take another four years before her next victory lap. The founder, CEO, and chief investment officer at Ark Invest has been heating her firm's transaction activity this summer.
Wood kicked off the new trading week by buying shares in Nvidia (NASDAQ: NVDA), Broadcom(NASDAQ: AVGO), and Cloudflare(NYSE: NET) on Monday. Ark Invest is adding to existing positions in all three cases. Let's take a closer look at what she may find so appealing right now in these three investments.
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1. Nvidia
Wood didn't just buy a little more Nvidia on Monday. Ark Invest added additional shares to five of its six ETFs. The world's most valuable company by market cap is trading just 8% below its May all-time high, even after its 3% slide to kick off the new trading week. However, Nvidia stock's 19% gain over the past year is modest compared with the gains of other AI accelerator, memory, and other component plays riding its coattails.
Nvidia's return over the past year even lags the market's 21% jump. Making Nvidia's potential here even more tantalizing, the stock's a lot cheaper now than it was a year ago. Revenue and adjusted earnings soared 85% and 139%, respectively, in its latest quarter.
Revenue has accelerated sharply over each of the last three quarters, and analysts expect a repeat performance when it steps up again with its latest financial update later this month. Wall Street pros are modeling a 96% increase in Nvidia's fiscal second-quarter top line, with adjusted net income growing even faster.
Picking up the leading provider of AI and data center chips for less than 17 times next fiscal year's profit target seems too cheap to ignore. This could be why Wood has been actively building up her Nvidia position this summer, as smaller players that are growing more slowly and packing higher valuations are rallying.
The AI backlash is swelling these days. Most people don't want a new resource-slurping data center built in their neighborhood. Leading content sites are cracking down on "AI slop," and reports of AI-propelled hacking are scary. Even Nvidia's latest move -- teaming up with a half-dozen financial giants to offer $500 billion in customer financing -- has been met with a chorus of jeers rather than cheers.
All that said, you still don't want to be against AI in the long run and Nvidia in the short run.
2. Broadcom
Broadcom stock also declined on Monday, retreating 15% since peaking two months ago. Most of the semiconductor and tech infrastructure solutions specialists fell on the day after posting their all-time highs in early June. A poorly received financial update is to blame, despite what was technically a "beat-and-raise" performance.
Like Nvidia, Broadcom's growth is accelerating. The 49% increase in revenue it posted in its fiscal first quarter was its fourth consecutive period of widening top-line growth. Its outlook calls for an 84% leap in revenue for the fiscal second quarter, when it reports on Sept. 2. And the company's thriving AI semiconductor business continues to make up a larger share of the revenue mix.
The disparity is even more pronounced on the bottom line. Broadcom is trading for more than 60 times last fiscal year's earnings but barely 20 times Wall Street's profit target for the next fiscal year.
3. Cloudflare
Cybersecurity stocks have been whipsawed in recent months. The one niche of the enterprise software space that seemed like a core recession-proof industry a year ago came under fire earlier this year as some speculated on the threats posed by cheaper AI alternatives.
Cloudflare and some of its rivals have been storming back lately. This was the only one of the three stocks listed here to close higher on Monday, following the all-time high it notched last Friday. The 36% revenue growth that it produced in its latest quarter is its strongest top-line increase in more than three years. It's not as cheap as Nvidia or Broadcom on an earnings basis, but Cloudflare's momentum is clearly back as customers brace for rising cybersecurity threats.
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Rick Munarriz has positions in Nvidia. The Motley Fool has positions in and recommends Broadcom, Cloudflare, and Nvidia. The Motley Fool has a disclosure policy.
