Is AI hardware losing its appeal? Following NVIDIA, Cathie Wood has reduced her holdings in TSMC for the first time since the end of 2021.

NVIDIA's explosive performance failed to convince Cathie Wood to regain confidence in AI hardware. While further reducing exposure to NVIDIA, she also sold Taiwan Semiconductor for the first time in over two years.

On February 26th, it was reported that Cathie Wood, the star fund manager on Wall Street and CEO of Ark Investment Management, sold 8,599 shares of Taiwan Semiconductor and 2,362 shares of NVIDIA last Friday through the Ark Autonomous Technology and Robotics ETF (ARKQ), marking the first reduction since the end of 2021. Based on the closing price on Friday, February 23rd, the value of Taiwan Semiconductor shares sold by ARKQ was approximately $1.1138 million, while the value of NVIDIA shares sold reached $1.8617 million.

According to the official website of Ark Investment Management on February 26th, after the reduction, ARKQ held 166,269 American Depositary Receipts of Taiwan Semiconductor, accounting for 2.39% of its investment portfolio, and held 29,060 shares of NVIDIA, accounting for 2.54% of its investment portfolio. Both Taiwan Semiconductor and NVIDIA have dropped out of the top 10 holdings of the fund.

Cathie Wood previously mentioned the reason for selling NVIDIA, pointing out that the revenue growth brought by AI hardware sales is only a part, and that the potential market and revenue from software sales will far exceed hardware. For every $1 of AI hardware sold, AI software will generate $10 in revenue.

Cathie Wood: NVIDIA has risen, bullish on niche software stocks

It is worth noting that Cathie Wood has repeatedly emphasized that the future development of AI will change the rules of the game. However, despite this, she is not optimistic about the AI hardware wave led by NVIDIA and has been selling NVIDIA stocks almost throughout the year.

Cathie Wood believes that NVIDIA is a stock with very strong cyclicality, and the market's profit expectations for it are overly optimistic. The current stock price has risen too high, and a correction is likely to occur again. Intensified competition and inventory adjustments will also bring new challenges to NVIDIA.

In the past 12 months, NVIDIA has risen by 238%, while its main partner, Taiwan Semiconductor, has also risen by 25% in the US stock market. Since the beginning of this year, NVIDIA's increase has reached 59%. Looking at the flagship funds under Cathie Wood's management, after missing out on NVIDIA, the ARK Innovation ETF (ARKK) has fallen by nearly 8% year-to-date, while ARKQ has dropped by over 9% so far this year.

While selling off NVIDIA, Cathie Wood is betting on the growth potential of less mentioned niche software companies like UiPath and Twilio. Twilio's stock price suffered a significant drop of over 18% in mid-February.

Cathie Wood mentioned that the AI cloud communication service provider Twilio, which she is heavily invested in, has a stock price only twice its revenue, showing great potential for the future. Many people are unaware that Twilio provides communication services for Uber. She said:

"Twilio now handles approximately 1 trillion consumer business interactions per year."