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?

On September 22, Ark Invest increased its stake in Rocket Lab by purchasing $25.1 million worth of the company's shares while simultaneously selling $5.8 million of Alphabet stock. However, Rocket Lab faced another delay when its Neutron rocket's first launch was postponed to 2027. Despite this setback, Ark Invest bought an additional $9.3 million worth of Rocket Lab shares on October 15.

This investment decision showcases the contrast between Alphabet's established profitability and Rocket Lab's potentially higher, but riskier, long-term growth prospects.

Alphabet's search advertising revenue growth was driven not only by higher ad prices. In the second quarter, paid clicks rose 13% year-over-year, while the average cost per click increased by 3%. Meanwhile, Google Cloud revenue surged 82% year-over-year to $24.8 billion, and operating income tripled to $8.8 billion. These figures indicate stronger advertising monetization and profitable cloud growth, although Alphabet does not disclose AI profits separately.

Analyst Doug Anmuth of J.P. Morgan expects Google Cloud revenue to double year-over-year, partly due to solid demand for Google's custom AI chips.

However, Alphabet has also allocated substantial capital expenditures, guiding for a range of $195 billion to $205 billion in 2026. Balancing revenue growth and protecting profit margins amid such massive spending will be crucial. Ark Invest's thesis hinges on a potential U.S. launch capacity shortage in the coming years. As SpaceX's Falcon 9 rocket system may retire by the end of 2030 and shift to its Starship rocket for orbital AI data centers, Rocket Lab could fill the gap, potentially benefiting from increased demand from government agencies, communications providers, and commercial customers seeking alternatives to SpaceX.

Rocket Lab has already secured a multiyear launch deal with Synspective for 20 Electron rocket missions. Additionally, the company's space systems segment, which manufactures satellites, spacecraft components, and related equipment, contributed nearly 81% of its second-quarter revenue. Nonetheless, the segment's reliance on Neutron's success remains significant.

Although Rocket Lab has signed a launch contract with Kepler Communications for satellites supporting on-orbit computing, the mission is not expected until 2028. Thus, even a successful Neutron launch in 2027 may not guarantee regular, profitable operations.

Rocket Lab bolstered its financial position by raising $1.94 billion through the issuance of 29.3 million shares, aimed at funding its planned acquisition of Iridium Communications. While this financing may provide recurring revenue, the share issuance also dilutes existing shareholders. Currently trading at over 39 times trailing-12-month sales, Rocket Lab's valuation leaves limited room for execution errors.

In contrast, Alphabet trades at approximately 9.3 times sales, reflecting its established profitability and more tangible AI monetization opportunities. Consequently, Alphabet appears to offer a stronger risk-adjusted AI investment opportunity, although Rocket Lab could yield greater returns if its ambitious expansion succeeds.