Cathie Wood Is Selling Tesla and Buying This "Magnificent Seven" Stock Instead

Ark Invest CEO Cathie Wood has long been bullish on the electric vehicle (EV) maker and the robotaxi company Tesla (NASDAQ: TSLA). Earlier this year, Wood said that she thinks Tesla will hit $2,600 per share over the next five years, implying significant upside from the stock's roughly $456 share price, as of Nov. 2. Wood has made a name for herself by being forward-looking, especially when it comes to technology, and investing in companies that can change the world.

That's why it might have surprised investors to see one of Wood's exchange-traded funds sell some of its Tesla shares recently. At the same time, another of Ark's ETFs increased its position in another "Magnificent Seven" stock instead. Let's take a deeper look at these two moves.

Image source: Tesla.

Wood still clearly believes in Tesla

Recently, the ARK Innovation ETF (NYSEMKT: ARKK) sold close to 181,300 shares of Tesla, but it remains the top holding in the fund. Ark Innovation still owns over $1 billion of its stock, and the fund has roughly 12.4% of capital invested in Tesla.

With Tesla having made a big move since the lows seen in April, it's possible Wood and her team simply chose to take some profits. But they are still undoubtedly bullish on the company. Although posted originally in June of 2024, Ark still has research on its site saying that it has a $2,600 price target on Tesla by 2029, which implies the stock will be a significant multibagger from current levels.

Ark's valuation is based heavily on growth in the autonomous robotaxi fleet, which the firm expects to contribute 63% to its projected $1.2 trillion in revenue for Tesla in 2029. Another 26% of revenue will come from electric vehicles, 10% from stationary energy storage, and a small amount from insurance. Interestingly, Ark's estimates do not include help from Tesla's humanoid Optimus robots, which are expected to launch soon. However, Ark views Optimus as a $24 trillion opportunity, which Tesla could gobble up a significant share of if it sells the robots externally.

In fact, Wood recently told CNBC that humanoid robots will be the "biggest of all" opportunities in artificial intelligence (AI), primarily because it's going to make everyone so much more productive if robots can do time-consuming chores such as laundry and grocery shopping. On Tesla's third-quarter earnings call, CEO Elon Musk recently said that Optimus will launch early next year, and Tesla will have the ability to produce 1 million units per year by the end of 2026.

I tend to stick to the conservative side regarding stocks that trade as richly as Tesla. I think some of the success behind robotaxis and humanoid robots is already baked into the stock, and that investors may not be accounting enough for potential hiccups along the way.

Buying another Mag 7 stock instead

Recently, Wood also bulked up on another existing position, adding to its holdings in Amazon (NASDAQ: AMZN). As of Oct. 30, the Ark Innovation ETF owned close to 554,000 shares valued at over $127.5 million, making it the fund's 16th largest position with a 1.5% weighting.

Amazon has had an up-and-down year and is still trailing the broader market as of Nov. 2. The company has had to contend with tariffs, which heavily impact the company's consumer retail business, given where many of its products are sourced from and where many of its third-party sellers live. Recently, though, the company reported strong third-quarter earnings and raised its capital expenditures guidance, which investors cheered on the belief that the company is investing in more AI infrastructure. The company also announced it would lay off 14,000 corporate employees to reduce bureaucracy.

Amazon runs two phenomenal businesses, including its retail e-commerce business, which has developed one of the best supply chains in the world. Customers can order practically any product and get it sent to their door in as little as one or two days. Amazon's Prime membership provides a compelling package of free shipping, as well as other perks like Prime Video streaming.

Then there is Amazon Web Services (AWS), which is one of the dominant cloud players; it allows companies to store their data on AWS servers and run their businesses with many digital tools made available through AWS. Cloud revenue at Amazon climbed 20% year over year in the third quarter. Amazon will undoubtedly be a major beneficiary of the AI boom.

The stock trades at about 34 times forward earnings, which I wouldn't call cheap, but also by no means an outrageous valuation in today's world of tech and AI, so I think this is a stock that investors can buy and hold long term.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.