Tesla Drops To Number 2: Is Cathie Wood's Ark Invest Losing Confidence In Its Favorite Stock?

Zinger Key Points
  • Tesla is now no longer the top holding of Cathie Wood-run Ark Invest's flagship fund
  • String of Tesla selling by the fund and the stock's precipitous drop have worked in unison to push the company to the second position

Tesla, Inc. TSLA stock has been going downhill since peaking in early November 2021. The weakness has intensified further after chief executive officer Elon Musk announced a passive stake in Twitter, Inc. TWTR and followed it up with an offer for the social media giant.

What Happened: Amid the stock weakness, as an unintended consequence, Tesla's weighting in Cathie Wood-run Ark Invest's flagship ARK Innovation ETF ARKK has fallen to the second position.

Tesla's weighting in the ETF is currently at 8.21%, and in monetary value the stake is at $702 million.

The reduction apparently is due to a combination of proactive Tesla selling by the fund and the reduction in the value of Tesla shares following their recent sell-off.

Ark Invest, an actively-managed fund, has been selling shares for at least four quarters in a row, according to Bloomberg. The EV maker has been the top holding of the fund on almost all days since 2017, the report added.

The disposal of a stock, which Wood projected as a growth stock having a lot of room for a run-up, did raise some eyebrows. The liquidations, however, were in fractions. Wood had suggested in 2020 that the selling was to take advantage of Tesla stock's volatile trading pattern and to control the fund's position sizes.

Incidentally, Ark Invest recently updated its Tesla valuation framework, expecting the stock to hit $4,600 by 2026.

Related Link: Shanghai Starts Lifting Lockdown: What Is Tesla Going To Do With Its Employees?

Tesla Didn't Do Itself Any Favor: Meanwhile, Tesla stock has slumped from its all-time high of $1,243.49 on Nov. 4, 2021 and is now trading at sub-$700 levels. Musk's interest in Twitter and the uncertainty surrounding the financing the transaction, the need for the pledging of his Tesla shares, and his likely division of attention, all began working in the minds of investors.

This is evident from the steep pullback in shares since April 4, the day Musk disclosed his passive stake in Twitter.

The temporary shutdown of Giga Shanghai due to COVID lockdowns in the city and the subsequent reopening that has not led to full ramp is also pressuring the stock. Needless to mention, the ongoing macro tensions that are driving investors away from risky bets.

Related Link: Should Tesla Initiate A Buyback Amid Stock Slump? Here's What One Of Its Biggest Shareholders Thinks

Meet The New Leader: Video streaming device manufacturer Roku, Inc. ROKU is now the top holding of ARKK, accounting for about 8.38% of the fund.

Roku derives most of its revenue from ads served on its platforms, while it gets a share of pay-per-view and subscription revenue from third-party services sold through its platform. The company is a major beneficiary of the shift in ad dollars from traditional broadcast and cable services to streaming.

Analysts see scope of over 80% upside potential, going by the average analyst's price target of $171.63 for the stock, according to data provided by Yahoo Finance.

Tesla stock closed Friday's session 6.42% lower at $663.90, according to Benzinga Pro data. Roku lost 2.76% Friday before ending the week at $94.20.

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