Cathie Wood's Ark Invest has 14% of 2 growth stocks.

Among Wall Street's top stock pickers in 2020, Wood's Ark Innovation ETF outperformed the S&P 500's 16% return (SNPINDEX: ^GSPC) by 149%. She lost some confidence when the fund underperformed for two years, but investors may not realize Ark has recovered momentum. Since January 2023, the Innovation ETF has gained 60%, outperforming the S&P 500's 36%.   

As of March, Ark held 14.4% of its portfolio in two stocks: Tesla (NASDAQ: TSLA) at 6.5% and Coinbase Global (NASDAQ: COIN) at 7.9%. That position sizing shows Wood and her team trust both firms.  

1. Tesla Rising interest rates made auto loans less appealing last year, reducing electric vehicle sales. Tesla lowered prices in response. The firm delivered 1.8 million vehicles, increasing 38% year-over-year. Unfortunately, price cuts slowed growth and profitability. Non-GAAP net income fell 39% to $2.5 billion in the fourth quarter, while revenue grew 3% to $25.1 billion.  

It may grow worse before it gets better. Management cautioned that vehicle volume would rise slower as it launches a low-cost next-generation vehicle in 2025. That means more spending could hurt earnings even more this year. Musk said, "Tesla is currently between two major growth waves." But the next wave might be huge for the corporation.  

Tesla has led battery electric vehicle sales for years and increased market share last year. Tesla is set to benefit from falling interest rates and rising demand. Ark Invest says its next-generation vehicle may start at $25,000, expanding its market tenfold.  

Software and services, especially FSD software, are another big possibility for Tesla. It has 50 times more driving data than its nearest competitor and a Dojo supercomputer designed to train computer vision systems, giving it an edge in autonomous driving technology.  

Electric vehicle sales are estimated to climb 15% annually until 2030, while autonomous vehicle sales will grow 22%. Tesla might experience mid- to high-teens annual sales growth through the decade, justifying its 6.3 times sales valuation. However, that estimate implies Tesla would effectively monetize its FSD platform with membership sales and robotaxi services. Investors confident with that notion should buy Tesla stock today in small amounts.  

2. Coinbase Global Recent Coinbase volatility has been extreme. As investors inflated the cryptocurrency market, it had four quarters of triple-digit sales growth in 2021. After FTX and other cryptocurrency bankruptcies shook the industry, it recorded six quarters of double-digit revenue declines. Revenue grew again in the third quarter of 2023 and surged in the fourth quarter due to a market rebound.  

In the fourth quarter, transaction revenue, which is connected to cryptocurrency prices and trading activity, grew 52% to $954 million. The company also saw growth in subscription and services revenue, which includes stablecoin reserve interest and staking services.  

Last year, Coinbase lost $2.46 per diluted share. This year, it earned $1.04. Revenue growth and cost control drove the company's profitability. In the results call, CEO Brian Armstrong noted, "We cut costs by 45% year over year and managed to ship product faster with a lean team."  

Coinbase offers several advantages. The company runs the largest U.S. bitcoin exchange by spot trading volume. Last year, Coinbase opened trading in Brazil and Canada and obtained licenses in France, Singapore, and Spain to replicate its success.

In May, Coinbase International Exchange offered derivatives trading to non-U.S. institutions, and in October, it added futures trading for retail investors. Coinbase Financial Markets introduced derivates trading to U.S. individual clients in November. These services could change the game because derivatives accounted for 75% of cryptocurrency trading volume in 2023.  

Over the next five years, Wall Street anticipates Coinbase sales to climb 10% yearly. That consensus estimate makes its 21.7 times revenue valuation seem high. I'd pass on this company until Coinbase proves it can increase sales faster than 10% annually or the valuation multiple is more realistic.  

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