Surging Treasury yields are weighing on growth fare, including Tesla and the ARK Innovation ETF (ARKK ), but this recent run of weakness could give way to opportunity with the electric vehicle maker and the famed exchange traded fund.
“Companies within ARKK include those that rely on or benefit from the development of new products or services, technological improvements and advancements in scientific research relating to the areas of DNA technologies (‘Genomic Revolution’), industrial innovation in energy, automation, and manufacturing (‘Industrial Innovation’), the increased use of shared technology, infrastructure and services (‘Next Generation Internet’), and technologies that make financial services more efficient (‘Fintech Innovation’),” according to ARK Invest.
Tesla is ARKK’s largest holding. While that’s not been a positive in recent days, it’s an advantageous trait over the long-term, particularly as more investors recognize Tesla’s potency as a software maker.
“Software is likely the next battleground in the global car industry, and no other carmaker is closer to monetize fully autonomous driving for everyday use, and the scalability of Tesla’s technology creates the biggest software-driven revenue opportunity in the industry,” writes UBS analyst Patrick Hummel.
Opportunity Still Knocks with 'ARKK'
Rapid adoption of EVs should be propelled by improving battery technology, favorable economics for buyers, and an acceleration in investment in EVs by automakers. Innovations in battery technology by EV companies also have had positive implications for the rest of the alternative energy space.
ARKK’s Tesla allocation is meaningful in that Elon Musk’s company consistently proves adaptable. It’s also winning the EV battle in terms of $/charging rate, or miles of range added per minute of charging.
UBS “said that while legacy automakers can challenge Tesla in terms of both electric vehicle volume as well as cost-efficient scalable platforms, Elon Musk’s company will dominate the software space. UBS values the autonomous vehicle market at more than $1 trillion,” reports Pippa Stevens for CNBC.
One of the key components in evaluating growth strategies is execution, which ARKK offers investors. The fund has the benefit of active management, meaning it can target areas often overlooked by traditional passive rivals. Adding to the ARKK thesis is that many innovative companies may actually be undervalued, not overvalued.
“Hummel sees Tesla generating $20 billion in operating profit by 2025, with $9 billion of that coming from software — mainly from full self-driving software. This year Tesla earned less than $1 billion from software,” according to CNBC.
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