The universe of exchange traded funds has grown into a multi-trillion industry, with the bulk of the money passively invested in various stock indices. Recently, however, ARK Invest, the active ETF pioneer, and its chief investment officer, Cathie Wood, have taken center stage with amazing performances for the fund’s top five performing ETFs.
ARK Invest has just shared its latest report on its biggest and best investment ideas for 2021. The report included 15 different topics that Wood and her fundraiser weighed, ranging from electric vehicles and 3D printing to next-generation gene therapy and digital wallets. It has praised the business models that dozens of companies follow to early success.
But in the 112-page report, there was only one company that ARK Invest specifically mentioned as anything but successful. It is a well-known share in an important industry, but in the words of the report it seems to be “frozen in time” and “it seems to have lost its way.” Here we look at the stock and what the story means for its more promising competitors in this hot market area.
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Bearish appeals to today’s buggy-whip sellers
To be clear, there are several industries that have indicated to ARK Invest that they may be in danger of being disrupted. Just as buggy sellers lost business when cars replaced horse-drawn carriages, large enterprises in these industries could face difficult times. These include:
- Traditional brick-and-mortar banks and other financial institutions, whose savings, lending and brokerage firms are losing market share to digital wallet providers that go beyond simple cash management to bring together a wide range of financial services.
- Manufacturers of gasoline-powered cars and trucks as electric vehicles gain a foothold in the industry.
- Heritage role players in labor-intensive industries that do not accept the increasing availability of automated solutions.
But the one company that mentioned the report by name was Intel (NASDAQ: INTC). In an era where data centers have never been so important for innovation, the leading disk maker and members of the Dow Jones Industrial Average (DJINDICES: ^ DJI) may lose the franchise that has made it a household name since the 1980s.
Get behind
ARK Invest argues that data centers had to be rediscovered at regular intervals, mainly in response to technological advances. The last major shift took place in the 1990s, when Intel acquired and applied the knowledge it gained in the development of computer microprocessors to the data center. The transition took time, but over the past twenty years, Intel has supplanted the legacy of data center players to take a significant market share of more than 90% by 2020.
Now, however, Intel has faced major operational challenges. After years of cutting-edge technology in the semiconductor field, Intel recently slowed down the production of ten-nanometer processor chips. Meanwhile, other companies, such as Advanced micro-devices (NASDAQ: AMD) and Taiwan Semiconductor Manufacturing (NYSE: TSM), produced chips of 7 nanometers and even 5 nanometers.
In the future, ARK Invest believes that Intel architecture chips will make way for ARM-based processors, which could potentially gain 80% of the market within the next decade. With cloud services giant Amazon.com (NASDAQ: AMZN) after launching an ARM-based processor last year, Intel’s technology may be in the same place now that mainframe computers used when Intel was in its heyday.
Intel’s moment of truth
In turn, Intel is still confident in its ability to catch up and remain a leader in the semiconductor space. Incoming CEO Pat Gelsinger believes that Intel will still be able to manufacture leading chips themselves rather than turning to third-party casters.
However, it is noteworthy that Wood and ARK Invest prefer to spend as much time as in their report on why Intel’s prosperity appears to be. It’s a lesson that even top blue chip businesses are not invulnerable to disruption. In addition, investors will be watching closely to see if AMD, Taiwan Semi and Amazon continue to make progress in the data server space in the coming years.