Cathie Wood Trimmed Ark's Alphabet Stake Even as Google Search Revenue Grew, While Ark Piled Into Rocket Lab Even After Its Neutron Launch Delay. Is Ark Betting Against the Wrong AI Winner?
Key Points
Cathie Wood continued buying Rocket Lab shares despite the delay of Neutron's inaugural launch until 2027.
Alphabet's search and cloud businesses are showing strong growth, supported by rising demand for AI.
Ark sees a potential launch capacity shortage benefiting Rocket Lab, but execution risks and a premium valuation remain concerns.
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On Sept. 22, Cathie Wood's Ark Invest bought roughly $25.1 million of Rocket Lab (NASDAQ: RKLB) shares, while selling $5.8 million of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock. However, Rocket Lab has since encountered another setback in its growth plans. On Oct. 14 , the company announced that its Neutron rocket's first launch had been delayed until 2027. Despite this setback, Ark Invest purchased another $9.3 million of Rocket Lab shares on Oct. 15.
Ark's investment decisions highlight the trade-off between Alphabet's established profitability and Rocket Lab's potentially higher, but less certain, long-term growth.
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Ark Investment Management CEO Cathie Wood. Image source: Getty Images.
Alphabet's AI investments are showing results
Alphabet's search advertising revenue growth was not driven solely by higher ad prices. The company's paid clicks rose 13% year over year, while average cost per click increased 3% year over year in the second quarter. Google Cloud revenue also jumped 82% year over year to $24.8 billion, and operating income more than tripled to $8.8 billion in the second quarter. These numbers show stronger advertising monetization and profitable cloud growth, although Alphabet doesn't separately disclose AI profits.
Alphabet's upcoming third-quarter results on Oct. 28 could provide further clarity on its AI investments. J.P. Morgan analyst Doug Anmuth expects Google Cloud revenue to double year over year, partly driven by solid demand for Google's custom AI chips. However, Alphabet has also guided for $195 billion to $205 billion in capital expenditures for 2026. With such massive spending, sustaining revenue growth while protecting profit margins will be increasingly important.
Why Ark remains interested in Rocket Lab
Ark's investment thesis relies on a possible shortage of launch capacity in the U.S. in the coming years. The investment firm expects Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, could retire its existing Falcon 9 rocket launch system by the end of 2030, while increasingly using its next-generation Starship rocket to support orbital AI data centers. This could create opportunities for competing launch providers, including Rocket Lab, as government agencies, communications providers, and other commercial customers seek alternatives to SpaceX.
Rocket Lab already has evidence of commercial demand. The company has entered a multiyear launch deal with Synspective for 20 launch missions using its operational Electron rockets. The company also exited the second quarter (ending June 30, 2026) with a backlog of $2.36 billion. Rocket Lab's space systems segment, which manufactures satellites, spacecraft components, and related equipment, accounted for nearly 81% of the second-quarter revenue. Hence, Rocket Lab's existing business is not entirely dependent on Neutron's success.
However, realizing Ark's expected launch-market opportunity depends on Neutron becoming commercially successful. Rocket Lab has secured a launch contract with Kepler Communications for satellites supporting on-orbit computing, but the mission is scheduled no earlier than 2028. Hence, even a successful first Neutron launch in 2027 cannot guarantee regular, profitable operations.
Rocket Lab has also raised $1.94 billion by issuing 29.3 million shares to help fund its planned acquisition of Iridium Communications. While the deal could add recurring revenue, the share issuance also dilutes existing shareholders.
Rocket Lab is currently trading at over 39 times trailing-12-month sales, leaving very little room for execution missteps. Alphabet is trading at just close to 9.3 times sales, despite established profitability and more visible AI monetization. Hence, Alphabet currently appears to offer the stronger risk-adjusted AI investment opportunity, although Rocket Lab could deliver greater returns if its ambitious expansion succeeds.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, JPMorgan Chase, and Rocket Lab. The Motley Fool has a disclosure policy.
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