ARRKangel or devil?
07/27/25 Prospero.ai Investing - 239th Edition (Weekend)
It wasn't that long ago that ARKK Innovation Founder and CEO Cathie Woods was the favorite punching bag of every Fintech Bro's social media timeline. She and her team had sold ARKK's stake in NVDA right before its meteoric run in 2023. That and other mistakes caused a serious fall from grace. But times have changed and the Fintech Bro's have stopped laughing. Now they're fanboys who affectionately call her "Aunt Cathie". Today we want to talk about how Cathie Woods Ark Innovation ETF ($ARKK) is back; and it's not just riding the wave of a Tech rally, it's leading it. So much so that in 2025 ARKK has outperformed the Nasdaq 100 ($QQQ) by a wide margin. (Over the last year ARKK is +67.09% vs. +22.09% for QQQ) Many argue that her portfolio is full of bloated, overvalued fluff. But we believe the reasons for $ARKK's outperformance might not be based on hype, but the very real possibility that we're in the early innings of a radical, paradigm shifting time in history.
Here's a question to think about: Is $ARKK's current bet on innovative and disruptive technologies a repeat of the 2000 "Dot.Com" bubble and the 2021 "Everything" bubble – or is this time actually different? We believe this time just might be different. And we're not simply speculating, there's some pretty compelling evidence to support the thesis.
Let's jump in by going back in time to early February, 2021. ARKK's fund was riding high, with $30 Billion AUM (Assets Under Management). Retail investors were piling in, believing in the exponential growth of ARKK's disruptive innovation plays. Stocks like TSLA, Zoom, Teledoc and Roku were its top holdings. The problem was that valuations were through the roof – but nobody cared. "It's different this time," they argued. Why? Because TSLA was publicly discussing disruptive technology like Autonomous Driving and Humanoid Robots. "That's going to change everything!" retail screamed from behind their computer screens. And don't forget Teledoc, who would revolutionize the way we approach everyday healthcare, right? Right…But within a few months, the COVID stock boom began to fade as word of increasing inflation began to make economists jittery. Now fast-forward to February of 2022. The Fed started raising interest rates and ARKKs ETF dropped a whopping +50%. It got worse as we entered the worst Bear Market since 1973. From its peak in Feb '21 to its bottom in Dec '22, ARKK would decline more than 80% – which is typically what happens when Tech driven growth stocks with high valuations, meet an economic downturn. The growth stocks lose every time.
Now fast forward to today. The market (several times) has hit all time highs over the past few weeks and valuations are echoing those meme driven days of 2021. Pre-revenue stocks are soaring. But is today simply a repeat of early 2021, when at the first sign of economic trouble, retail will be left holding a bag of over valued-quasi-disruptive garbage? Maybe, but it's not 2021, it's 2025 and ARKK's top holdings are no longer speculative plays, but maturing companies moving into real revenue generation. Why? Here's the primary reason…
Science Fiction is Becoming Science Fact
Think about it. What was driving Tesla's meteoric valuations in 2021? The potential for autonomous-driving technology and humanoid robots. Fast forward to 2025. Autonomous driving is being rolled out in strategic cities across the country, while their Optimus Robot is serving popcorn to customers at the new Tesla Diner in Hollywood. In 2021, ARKK's holding, CRISPR Therapeutics, was mostly in clinical trials and their talk of "curing" disease was a pipe dream. Now fast forward to 2025; Japanese scientists at Mie University just used CRISPR technology to remove the extra chromosome 21 that causes Down Syndrome. Oh yea, did we mention their treatment for Sickle Cell Anemia just got FDA Approval? That's a game changer! This same kind of "speculation to reality" is happening across the entire landscape of the market.
We could talk about Solid State Batteries, Brain-Computer Interfaces, Fusion Energy, Satellite Direct to Cell Phone connectivity, A.I. Chips blasting Moore's Law into the annals of history – and many, many more. But the point is that 2021's speculative plays have become 2025's realities. And because of that one change, valuations are becoming harder to quantify. You see, back in the day when Pets.com was one of the Dot.com darlings, it never panned out. Why? How many people are actually going to use it to buy dog food? Not that many. But autonomous driving? There's real potential your grandchildren will never personally drive a car. How about gene editing? How valuable would it be to make sure the child in your wife's womb isn't born with a birth defect? That has some serious monetizing capacity. The bottom line is that this time actually might be different, because the impossible keeps turning into reality – and that reality is starting to make money, and a lot of it.
That previous statement is at the heart of the difference between ARKK 2021 and ARKK 2025. Real revenue expansion. ARKK's primary holdings have gone from speculative plays, to real life, money makers. Two of their top holdings are PLTR & HOOD. Those two companies are no "Pets.com". They're generational industry disrupters with revenue growth by the Billions per year. It's a new day. Now, are we saying there won't be pullbacks and economic downturns? Of course not? Will growth stocks stop getting hit during those times? No. But this is where the rubber meets the road. In typical cycles the biggest growth stocks like CRSP, TEM (Tempus AI), Circle (Circle Internet Group), RBLX (Roblox), COIN (COINBASE) would get hit harder than QQQ Staples like the top 3 holdings in QQQ (NVDA, MSFT and APPL). This is because the latter are higher profitability companies which tend to weather Bear markets better. But what if we have already seen a fundamental shift in the markets? Crypto companies like CRCL and COIN have structural tailwinds like government support. Same with PLTR. Could you ever say that about Pets.com?
It’s also worth factoring in the retail component here. Historically, institutions had greater control over the narrative around what constituted "good value," largely because they dominated market influence. But we’re now seeing a shift: retail investors are taking a much more active role in driving the market, with institutions increasingly following their signals. This marks a new paradigm—one where the traditional frameworks for valuing the upside of frontier technologies are being reshaped. In this environment, figuring out the “right” way to assess value requires a fresh approach that accounts for decentralized sentiment and momentum, not just institutional models.
We’re writing this letter to examine the challenge at hand. While we can’t predict exactly what the future holds—when the market might correct or how severe that correction could be—we believe it's premature to shy away from higher-growth companies simply because they have a lot of room in their traditional valuations to fall. In our view, both the floors and the ceilings for these businesses are significantly higher than in past cycles, largely because AI is now driving an unprecedented acceleration in technological development.
But this we know, while the Fintech Bros were laughing, Aunt Cathie kept grinding. And as of today, she is having the last laugh. Now a word from our CEO.
A WORD FROM OUR CEO
We got caught on the wrong end of a few short squeezes. One (OPEN) we should have been more careful around. But RKT we had the timing better just held a little too long. Regardless our strong year continues with our paper trading portfolio up to 77% above the market annualized with a win rate of 60% against SPY benchmarks.
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ARRKangel or devil?
Market/Macro Update w/ Cap/ Value Analysis
QQQ and SPY Net Options Sentiment
Sector Analysis
How we view the Sector performance and momentum
Portfolio Strategy
Putting it all together to make a portfolio that first controls for risks but also has upside
Longs
Adds —> Keeps —> Drops
Shorts
Adds —> Keeps —> Drops
Portfolio Summary
CAP/VALUE ANALYSIS
Growth continues to lead decisively across all sizes, with large cap growth maintaining the strongest posture: up 5.6% over the past month, 20.7% over 3 months, and 26.64% on the year. Mid cap growth follows closely, boasting a 5.46% 1M gain, 19.03% over 3 months, and 28.15% over the past year. Small cap growth is also participating, gaining 5.5% in the past month and 16.3% over 3 months, but lags in the long term at 12.12% across four quarters. Value segments remain consistently weaker: large cap value trails with just a 3.25% 1M gain and a muted 9.61% year return; mid and small cap value post similar profiles, with only modest gains in the 1.6%–5.6% range across recent timeframes. In sum, the risk-on tilt persists, with aggressive growth across cap sizes absorbing most flows while value continues to underperform in both short- and long-term windows.
SECTOR ANALYSIS
Technology remains dominant, gaining 5.1% over the past month, 25.7% in 3M, and 15.1% over 6M, for a 69.2% summative return. Industrials are close behind with strong momentum across all frames — up 7.8% in 1M, 20.1% in 3M, and 11.4% in 6M — totaling 67.2% across all timeframes. Communications is also leading with a 2.3% 1M gain, 14.1% in 3M, and a market-best 31.0% over 1Y. Financials and consumer discretionary stay solid, both posting 1M gains near 4–5.6% and total returns in the 40% range. Healthcare and energy continue to underperform, down -7.5% and -3.6% in 6M, and -8.5% and -5.2% over the year, respectively, with healthcare still deeply negative at -11.1% overall. Defensives and materials are mixed, while real estate lags behind.
SPY/QQQ NET OPTIONS SENTIMENT
SPY saw a strong rebound in sentiment this week, with Net Options Sentiment climbing steadily as the ETF pushed to new highs. After spending several sessions in bearish territory, NOS has begun to recover, reflecting a shift in positioning as investors lean back into the rally. The climb in both price and sentiment signals growing comfort with the market's strength, though the delayed bullish response suggests lingering caution remains under the surface. QQQ, on the other hand, has stayed remarkably bullish. Net Options Sentiment remained elevated throughout the week, firmly in bull territory, as prices continued to notch new highs. This sustained optimism underscores the strength of tech-led momentum, with positioning showing little hesitation even as valuations climb. The divergence between QQQ’s sentiment and SPY’s earlier dip suggests tech continues to inspire more confident flows.
QQQ, on the other hand, has stayed remarkably bullish. Net Options Sentiment remained elevated throughout the week, firmly in bull territory, as prices continued to notch new highs. This sustained optimism underscores the strength of tech-led momentum, with positioning showing little hesitation even as valuations climb. The divergence between QQQ’s sentiment and SPY’s earlier dip suggests tech continues to inspire more confident flows.
PORTFOLIO STRATEGY
We’re holding a net long position this week with 12 longs and 8 shorts, leaning into high-conviction setups on the long side while maintaining a core hedge of underperformers. Our long book is anchored by GOOG, CAT, and META — names showing strong technical flow and sentiment — and rounded out with high-momentum plays like TSSI, PLTR, and APP. On the short side, we’re sticking with structurally weak charts like LBRDK and PB, where breakdowns remain clean and pressure is still mounting. This balanced posture gives us room to capture continued upside in strong sectors like tech and industrials, while protecting against downside risk in lagging names and sectors with fading sentiment.
Long / Bull Moves
Long / Bull Moves – GOOG, CAT, TSSI Added / META, BABA, APP, PLTR, AMD, HOOD, IREN, RKT (1/2), AMR Held / GOOGL, AMR, CCI, VEEV, ASTS, RKT (1/2), EOSE, BBAI Dropped
Adds
We added GOOG and CAT this week, both of which posted top-tier screener scores — 503.7 and 495.8 respectively — and offered clean setups. GOOG showed exceptional strength in both technical flow and options sentiment, while CAT brought industrial resilience and solid breakout potential. We also picked up TSSI, whose short pressure finally dropped below 70 and whose improving technicals gave us enough confidence to re-enter with its 370.7 total score.
Holds
We’re keeping META (494.4), BABA (425.9), and AMD (396.3) — all still offering solid upside with high growth and technical alignment. PLTR and HOOD remain strong despite their lower scores, thanks to continued momentum and retail interest. IREN (354.1) stays on for now as we continue to like its speculative upside in energy. We’re comfortable with this mix of mega-cap growth and smaller momentum names heading into the back half of July. AMR was held as the higest scoring small cap. We held 1/2 RKT positions and dropped the other. We held primarily 1/2 primarily because it maintained a viable momentum score.
Drops
We dropped GOOGL (497.9) to avoid doubling up on overlapping exposure with GOOG and to keep the portfolio tight. CCI was cut as their setups started to flatten, and we didn’t see enough momentum to justify holding through. The lower-scoring names — ASTS (349.7), RKT (347.1), EOSE (340.3), and BBAI (302.8) — were dropped to trim risk and clean out weaker technicals. We also exited VEEV (370.5), despite its stability, to prioritize names with higher directional conviction.
Short / Bear Moves
Short / Bear Moves – LBRDK, KOF, PB Added / LEG, CRWV, MU, CBT, MTG held / SABR, FTV, SWKS, SANM, HOLX, TPL Dropped
Adds
We added LBRDK this week after its score dropped to –84.0 with collapsing momentum (18.25) and no near-term support. PB and KOF joined for similar reasons — both showed deteriorating sentiment and technical flow, with PB scoring –86.4 and KOF –90.5. These setups give us clean entries on names that are underperforming relative to their sectors and look poised to continue breaking down.
Holds
LEG (–54.8), CRWV (–103.7), and MU (–189.4) and MTG (-103.12) remain in the book. LEG continues to lag technically, and its sentiment hasn’t recovered. CRWV is holding well below key levels with no EPS support and weak volume structure. MU stays on due to its sharp drop in sentiment and the lack of rebound in technicals — even with recent strength in chips, this one hasn’t participated. MTG is a well rounded low scorer. We’re holding these as they still present clear downside setups. CBT was kept despite lower ranking because it had highly favorable metrics in Momentum Score, Technical Flow and Options Sentiment.
Drops
We cleared out a group of names where the short cases were either played out or no longer clean. That includes SABR (–91.4), FTV (–92.5), and SANM (–141.8), all of which had been breaking down but began showing signs of stabilization. TPL (–266.0) was removed after hitting our downside targets, and HOLX was cut due to weakening signals and more compelling opportunities elsewhere. This cleanup keeps our short book fresh and focused on names still in active breakdown phases.
Portfolio Summary
Long / Bull Moves – GOOG, CAT, TSSI Added / META, BABA, APP, PLTR, AMD, HOOD, IREN, RKT (1/2), AMR Held / GOOGL, CCI, VEEV, ASTS, RKT (1/2), EOSE, BBAI Dropped
Short / Bear Moves – LBRDK, KOF, PB Added / LEG, CRWV, MU, CBT, MTG held / SABR, FTV, SWKS, SANM, HOLX, TPL Dropped
12 Longs: GOOG, CAT, TSSI, META, BABA, APP, PLTR, AMD, HOOD, IREN, RKT, AMR
8 Shorts: LBRDK, KOF, PB, LEG, CRWV, MU, CBT, MTG
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