Why Cathie Wood bought more SpaceX

There are some investors out there who like to keep a close eye on Cathie Wood investments. Many of the technology-focused exchange-traded funds (ETFs) offered by Wood’s Ark Investment Management are popular choices for investors.

Ark Invest recently made a big move, adding $7 million to its holdings in Space Exploration Technologies (SPCX 6.83%). It’s not the first time Wood (through Art Invest) has bought SpaceX, and it comes as her funds move away from China-based stocks.

Should investors follow Wood’s move and buy SpaceX stock? Here’s what you should know.

Why Cathie Wood bought more SpaceX

Official filings show that Wood added $7 million worth of shares across a handful of Ark funds, including ARK Innovation ETF (ARKK 2.89%), ARK Next Generation Internet ETF (ARKW 1.85%), and ARK Fintech Innovation ETF (ARKF 1.19%).

To fund some of the SpaceX stock purchases, Wood sold more than 570,000 shares of the China-based technology company Alibaba. Wood’s funds have been moving away from some of their Chinese stock investments recently as they position for more growth in artificial intelligence.

Wood is very bullish on SpaceX, believing that the company could reach an enterprise value of $3.1 trillion by 2030, as it builds out its aerospace, AI, and data center businesses. In fact, Ark has issued statements noting that SpaceX’s Starlink internet service alone is worth $2 trillion.

Ark has projected that Starlink could generate $300 billion in annual revenue by 2035.

Wood’s funds are also bullish on SpaceX’s orbital data center prospects — SpaceX eventually wants to launch data centers into space — and the business has said that this market could be up to 20 times larger than the satellite communication market.

Wood’s funds also project that SpaceX could reduce its launch costs by up to 90% — which it’s estimated to do with its new Starship rocket — and that this could help SpaceX achieve some of its most ambitious orbital data center efficiencies.

Should you follow Cathie Wood’s SpaceX stock purchase?

It’s probably best not to buy SpaceX stock right now, despite Wood’s moves. First, the company’s shares are very expensive, with a price-to-sales (P/S) ratio of 109, well above the tech sector average of about 9.

Perhaps more importantly, buying shares of companies that have recently gone public isn’t usually a smart move. Over the past quarter-century, most large companies gained an average of just 3.5% in the first 12 months after their IPO.

That means SpaceX is likely to be highly volatile over the next year. Investors would be better off evaluating the company after it has reported several quarters of financial results and assessing how well SpaceX is delivering on its ambitions before buying.