Cathie Wood Is Now Letting You Invest Directly in OpenAI Through Her Flagship ARKK ETF

On March 31, OpenAI successfully executed its largest-ever funding round, raising $122 billion at a valuation of $852 billion. Since OpenAI is a private company, retail investors do not read much into the company’s valuation. However, this time was different, not because it was the largest ever funding round but because one of the buyers was a familiar name: Cathie Wood of ARK Invest. 

Cathie’s trades are closely followed by stock market enthusiasts, but the reason this one stands out is that it gives people a chance to gain exposure to Sam Altman’s OpenAI. The fund manager spread her purchase of $240 million worth of OpenAI shares across the three flagship ETFs: ARK Innovation ETF (ARKK), ARK Next Generation ETF (ARKW), and the ARK Blockchain and Fintech Innovation ETF (ARKF). 

About ARK Invest

ARK Invest is a U.S.-based asset management company founded by Cathie Wood in 2014. The firm invests in disruptive technologies like AI, genomics, robotics, and blockchain, among others. As a firm that takes concentrated positions in high growth, it allows everyday investors to take a research-driven approach to outsized gains.

The three ETFs that bought a stake in OpenAI serve different themes. ARK Innovation ETF focuses on disruptive innovation like AI and autonomous driving. ARK Next Generation ETF focuses on internet-driven transformation, including cloud computing and e-commerce. ARK Blockchain and Fintech Innovation ETF, as the name suggests, focuses on digital payments, blockchain, and decentralized finance. 

Cathie Wood believes agentic AI is going to add great economic value and create economic opportunities. OpenAI stands as the most credible name to achieve that, especially with the backing of tech giant Microsoft (MSFT). She also believes that AI will lower barriers to entrepreneurship, thus helping people tap verticals that were previously considered too big for an everyday entrepreneur. 

ARK ETFs Outperform the Broader Market

Over the past 12 months, the S&P 500 Index ($SPX) has returned 30%. While ARKF has been just about on par with the S&P 500, both ARKW and ARKK have outperformed the benchmark index, registering 44% and 65% returns, respectively.

While OpenAI’s valuation currently stands at $852 billion, it is not clear how ARK Invest’s stake in the company will be valued by the market. ETFs trade throughout the day, and fund managers who like to buy and sell ETFs based on analyst estimates will have a hard time valuing the chunk of the ETF that contains OpenAI.

Moreover, if investors opt for redemption, they can only sell the non-OpenAI part of the ETF to honor those redemptions. These problems may not come to the fore because the stake in OpenAI is small compared to the size of the ARK ETFs. However, they do post questions to fund managers that they don’t usually have to deal with. The market reaction to these ETFs could reflect this uncertainty going forward.

What Are Analysts Saying About ARK ETFs?

As a high-risk, high-reward proposition, ARK Invest’s strategies provoke extreme opinions among analysts. A common criticism of ARK ETFs is that they’re concentrated into a handful of high-beta stocks, which means their returns are uneven compared to broader indices. 

When software stocks began crashing in early February on AI disruption concerns, ARK Innovation ETF saw traders increasingly bet on the ETF going down. This behavior was also pointed out by Chris Murphy, who is co-head of derivative strategy at Susquehanna Financial. Negative analyst sentiment will likely dominate these ETFs in the future as well, especially since they bet on technologies that haven’t established themselves yet but could give great returns if they manage to fulfill their potential.