Cathie Wood’s Ark Invest is selling Nvidia stock and buying these artificial intelligence (AI) growth stocks

By | March 30, 2024

That’s what Cathie Wood, CEO of Ark Invest, believes Nvidia (NASDAQ: NVDA) expect a settlement soon. In March she wrote:

Without a software revenue explosion that would justify the GPU capacity overbuild, we wouldn’t be surprised to see a pause in spending that would exacerbate a correction in excess inventory, especially among cloud customers who are well for more than half of Nvidia’s data center sales.

That doesn’t necessarily mean Nvidia is a bad investment. The company has faced supply gluts in the past and its shares have always recovered. But Ark Invest sees better opportunities elsewhere. So Wood and her team continued to sell Nvidia stock throughout March while reallocating capital The Trade Bureau (NASDAQ: TTD)another company that benefits from artificial intelligence.

Here’s what investors need to know about the ad tech company.

The Trade Desk is the leading independent platform for media buyers

The Trade Desk operates the largest independent demand-side platform, a type of advertising technology software that allows media buyers to plan, measure and optimize data-driven campaigns across digital channels. The platform features what management considers industry-leading artificial intelligence (AI) and measurement capabilities, both of which help media buyers realize greater returns on ad spend.

The Trade Desk has a particularly strong presence in connected TV (CTV) and retail media, two of the fastest growing advertising channels. In fact, Forrester research recently said that The Trade Desk dominates the CTV ad space, and Morgan Stanley believes the company “will ultimately be a leader in offsite retail media advertising” due to its independent business model and growing list of retail partners.

In short, the term “independent” means that The Trade Desk is not affiliated with any websites or mobile apps, so it has no incentive to direct advertisers to specific inventory. For comparison, Alphabet‘s Google has built an advertising ecosystem rife with conflicts of interest. It sells ad technology software to third-party media buyers and publishers, while at the same time selling its own inventory through sites like Google Search and YouTube.

That means Google has a clear incentive to direct ad buyers to specific inventory, and the company is also competing with its own customers. The result of these conflicts is that brands are more willing to share data with an independent player like The Trade Desk. The company has used that advantage to equip its platform with robust AI and measurement capabilities.

Specifically, The Trade Desk collects data from numerous leading retailers to create measurement capabilities not available on other platforms. The lineup of partners includes Walmart, Kroger, DIY store, Goal, Wal vegetablesAnd Albertsons, all of which are among the ten largest retailers in the world. The unique data coming from these retailers also lays the foundation for superior AI, simply because data is a limiting factor when training machine learning models.

The Trade Desk gained market share in the fourth quarter

The Trade Desk reported strong fourth quarter results. Customer retention remained above 95% for the tenth consecutive year, revenue increased 23% to $606 million, and net income under generally accepted accounting principles (GAAP) increased 36% to $0.19 per diluted share. CEO Jeff Green told analysts: “We have outperformed the rest of the digital advertising space over the last eight quarters.” He also said the company is uniquely positioned to continue gaining market share not only into 2024, but well into the future.

The Trade Desk launched a new platform called Kokai last June. It features a more advanced AI engine that synthesizes signals from 13 million impressions per second to help advertisers buy the right impression to reach the right audience at the right time. Kokai also includes new measurement capabilities that help advertisers assess the performance of retail campaigns and the quality of CTV ads.

Ultimately, Kokai should reduce friction and improve campaign results for advertisers. This value proposition should attract more media buyers to The Trade Desk and help the company capture a larger share of advertising budgets.

Trade Desk shares aren’t cheap, but the price is acceptable

Digital ad spend is forecast to grow 15.5% annually through 2030, but Trade Desk should grow faster given its strong presence in the fast-growing CTV and retail media channels. The company also believes it can accelerate growth in international markets. That’s notable because North America currently accounts for 88% of ad spend on the platform.

With that in mind, Wall Street analysts expect The Trade Desk to grow revenue 20% annually over the next five years. That consensus estimate makes the current valuation of 22.4 times sales seem acceptable, but certainly not cheap. Investors should expect volatility in the short term, but The Trade Desk could create significant shareholder value in the long term. Now is a good time to buy a small position in this growth stock.

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennevine holds positions at Nvidia and The Trade Desk. The Motley Fool holds positions in and recommends Alphabet, Home Depot, Nvidia, Target, The Trade Desk and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.

Cathie Wood’s Ark Invest Sells Nvidia Stock, Buys These Artificial Intelligence (AI) Growth Stocks was originally published by The Motley Fool

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