The universe of exchange-traded funds has grown to become a multi-trillion industry, with most of that money passively invested in various stock indices. Lately, however, active ETF pioneer ARK Invest and its chief investment officer, Cathie Wood, have taken center stage with surprising performance for the company’s five best-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 his fund company evaluated, from electric vehicles and 3-D printing to state-of-the-art gene therapy and digital wallets. He praised the business models that dozens of companies are following for their initial success.
However, in the 112-page report, there was only one company that ARK Invest specifically called something but Successful. It is a well-known action in an important sector, but, in the words of the report, “it seems frozen in time” and “it seems to have lost its way”. Next, we’ll look at this action and what its history means for its most promising competitors in this heated market area.
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Bearish calls today’s trinket sellers
To be clear, there are several industries that ARK Invest has indicated are at risk of being disrupted. Just as cart salesmen lost their business when cars replaced carriages, leading companies in these sectors may see difficult times ahead. They include:
- Traditional banks and other financial institutions, whose savings, loan and brokerage businesses are losing market share to digital wallet providers that are expanding beyond simple cash management to encompass a wide range of financial services.
- Manufacturers of gasoline-powered cars and trucks as electric vehicles gain traction across the industry.
- Legacy players in labor-intensive sectors that fail to embrace the increasing availability of automated solutions.
But the only company whose name was mentioned in the report was Intel (NASDAQ: INTC). In an era when data centers have never been more important to innovation, the leading chip maker and members of the Dow Jones Industrial Average (DJINDICES: ^ DJI) you can lose the franchise that made it a household name since the 1980s.
Staying behind
ARK Invest argues that data centers have had to reinvent themselves at regular intervals, largely in response to technological advances. The last big change came in the 1990s, when Intel used the knowledge acquired in the development of PC microprocessors and applied it to the data center. The transition took time, but in the past 20 years, Intel has supplanted legacy data center players to take over 90% market share by 2020.
Now, however, Intel faces enormous operational challenges. After years at the forefront of semiconductor technology, Intel recently delayed the production of 10-nanometer processor chips. Meanwhile, other companies, like Advanced micro devices (NASDAQ: AMD) and Semiconductor manufacturing in Taiwan (NYSE: TSM), produced chips of 7 nanometers and even 5 nanometers.
In the future, ARK Invest believes that Intel architecture chips will give way to ARM-based processors, potentially conquering 80% of the market in the next decade. With the cloud services giant Amazon.com (NASDAQ: AMZN) having launched an ARM-based processor last year, Intel’s technology could be in the same place now that mainframe computers occupied when Intel was at its peak.
Intel Moment of Truth
For its part, Intel is still confident in its ability to catch up and remain a leader in the semiconductor market. The new CEO, Pat Gelsinger, believes that Intel will still be able to produce high-end chips internally, instead of having to resort to third-party foundries.
It is notable, however, that Wood and ARK Invest chose to spend as much time as they did in their report on why Intel’s fortunes appear to have worsened. It is a lesson that even the top tier companies are not invulnerable to disruption. In addition, investors will be looking to see if AMD, Taiwan Semi and Amazon will continue to make progress in the data server space at Intel’s expense in the coming years.