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Cathie Wood: AI productivity gains will be ‘astounding and shocking’

ARK Invest Founder Cathie Wood joins Yahoo Finance Live to discuss the impact of AI amid the ongoing ChatGPT hype, themes and trends driving new investments, innovation, Sam Bankman-Fried's FTX chaos, and the outlook for Tesla and Elon Musk.

Video transcript

JULIE HYMAN: Let's now bring back in ARK Invest CEO and CIO Cathie Wood because artificial intelligence, as you alluded to, is one of the themes that you talk about in your big ideas 2023 investment thesis. I think what we have to do-- and you were just talking about investors educating themselves-- a lot of the public facing excitement has been over things like ChatGPT and the thing writing stories and writing exam papers, et cetera. What you talk about in your report is more the coding side of things, which is what Ines just highlighted as well. Do you think the market really well understands the potential for AI right now?

CATHIE WOOD: I think the market is scrambling to try and understand how AI is going to impact the world. And ChatGPT has captured the investors' imagination, which is fantastic because we believe that innovation has been neglected, and certainly in the last two years, badly neglected. And we believe that most investors are very short innovation. You mentioned our venture fund before. We have a big focus on AI in the venture fund. Picks and shovels are very important. Mosaic ML is a private company in which we've invested that is actually speeding up the progress with its software in artificial intelligence.

So the name of the fund is Ark Venture. So really, really proud of it. Public, private, starting now, because we believe the time is now. In terms of AI, you're right. A lot of what we expect is productivity gains. And so that will accrue to those companies that use AI most effectively. Yes, Meta Platforms was very interesting to hear Mark Zuckerberg last night focus first on AI, as opposed to the Metaverse. He had been focusing-- he had been trying to push the idea of the Metaverse, we think, before its time. Embracing AI right now and introducing it deeply into the firm to create efficiencies, absolutely the right thing to do.

If you think about the revenue opportunities, they may not be as obvious. Sure, the picks and shovels-- you mentioned Nvidia. But we believe that the hidden gems that will benefit perhaps the most from artificial intelligence are those companies with proprietary datasets. And we use Tesla all the time as a prime example of a lot of technology attributes.

One of them is having the largest pools of real world driving data in the world. In fact, it has more of that kind of data, orders of magnitude more of that kind of data, than all of the other auto manufacturers and technology companies involved in transportation around the world. And so we believe that it will be in the pole position for the autonomous taxi platform opportunity, which is a software as a service opportunity with massive margins.

And it's also a winner take most opportunity. The company that is able to get an autonomous vehicle from point A to point B the most safely and quickly is going to be the winner. That's going to be the go-to service. So we're looking for those sorts of opportunities in the genomic space, exact sciences, and we have models of both of these companies, along with our assumptions, on GitHub, actually.

But exact sciences probably has more data because of its premiere position in oncology molecular diagnostic testing than any other company in the world. And it is training the data with artificial intelligence so that it can help surface cancer in stage one. Again, here, the company with the most data, the most proprietary data, and the right domain expertise and AI expertise. So those three things-- domain expertise-- these are scientists with deep understanding of biology-- AI expertise, and data. So those are the kinds of companies we're looking for.

BRAD SMITH: Cathie, when we think about AI and the mentions that it's been getting, even in earnings calls, it's hard not to think that it won't be to, at least, this year, in 2023, what blockchain mentions were to companies in 2017 and early 2018. You had every company from Roblox and IBM and Amazon and Meta all talking about how they were going to integrate blockchain and how big it was going to be for their business. So for us to avoid that, what is the actual timeline for delivery that we should be kind of grading these companies on with regard to delivering some type of AI solution within their own product and service?

CATHIE WOOD: Well, I think what I would be looking for a little bit more, and it is, how are our companies harnessing AI for their own businesses? Do they have these proprietary data sets? So that's the first thing because this is going to-- AI is going to enable the most massive productivity increase in our history. And we think that the productivity gains are going to be astounding and shocking. However, those companies who do not embrace this rapidly enough are probably going to lose competitively.

So I would be looking at this more, are they going on this offensively within their own organizations? Do they have proprietary data? And then in terms of solution sets, as you say, these are going to be longer term, right? So Tesla, autonomous taxi platforms, Elon thinks he will launch within the next year. We are thinking within the next 18 months to two years.

But the difference between AI, which is really the next generation software and blockchain technology, is that this was a dream in really the tech and telecom bubble. It's taken breakthroughs, cloud computing in 2006 with AWS, deep learning, the breakthrough in 2012. And it's taken cost declines. Costs were way too high until now. We're now ready for primetime, for the use of artificial intelligence to increase productivity within organizations and increase profitability. And, yes, create new products and services, which will take time.

BRIAN SOZZIE: Cathie, you mentioned Tesla. It's a name you and I have talked about before. Do you think Elon is eroding the longer term premium positioning of Tesla by cutting prices? And just given the competition, look, we heard from GM this week with all the EVs it's coming to market with. Do you think more price cuts are coming at Tesla just to keep competitors at bay?

CATHIE WOOD: Well, I actually think it's the other way around. I think traditional auto manufacturers are going to have trouble keeping up with the price declines that Tesla's technology is enabling. The secret to success in innovation is driving costs down. Technology follows the learning curve. So figure out what that learning curve is. That's a big part of our research. And in the case of batteries, for every cumulative doubling in the number of units produced, battery costs declined by 28%.

Elon is on a different battery cost curve decline. He is leveraged off the consumer electronics industry, those kinds of batteries that go into laptops and phones and others. Automakers and auto analysts made fun of him in-- I remember this very clearly-- 2015, '16, and '17. He absolutely chose the right technology. And I think others are rethinking it now. If they do not switch over to this kind of battery technology, they will not be able to catch up with Tesla in terms of price declines without losing money, whereas Tesla's gross margins are probably going to continue moving up on balance, even as it is cutting prices because its unit volumes, the economies of scale, are going to be so significant.

JULIE HYMAN: Cathie, I want to switch gears and ask you about one of the other predictions in the report, and that has to do with Bitcoin. And of course, this has gotten a lot of attention, as many of your predictions do, that you guys are still looking for a million or more, a million dollars or more in Bitcoin value, going out to 2030. As I said, this is a controversial take after the drubbing, and then some that we have seen in Bitcoin. Walk me through it here. Like, how do we get from here to there?

CATHIE WOOD: Yes, and you can see the building blocks in big ideas, big ideas 2023. But if you-- and the assumptions you'll see are very conservative. In fact, we've dialed them down from just take institutional managers looking at Bitcoin as a new asset class. And they are. And they are. We've seen Coinbase and BlackRock hook up recently. It's because institutional investors want access to this new asset class, which-- the returns of which the correlation of the returns are low, which is exactly what they're looking for.

A lot of-- let me just step back and just say, last year was a disaster for crypto, generally. However, if you look at the Bitcoin blockchain, it did not skip a beat. No transaction was interrupted. It did what we thought it was going to do. And it is no surprise to us that Sam Bankman-Fried did not like Bitcoin. Why? It's completely decentralized and completely transparent. And he couldn't control it. His firm, FTX, was completely centralized and opaque.

So we think that as investors reflect on what happened last year, the failures were those companies that were not decentralized, were not transparent. Bitcoin didn't skip a beat. And if you watch what's going on, especially in emerging markets, there's hyperinflation all over the world as their currencies have fallen apart.

And as their fiscal and monetary responses to COVID have-- are now proving, in some cases, to be disastrous, those individuals, those populations need a fallback, an insurance policy like Bitcoin, as do high net worth individuals who are worried that their wealth will be confiscated. Inflation is confiscation of wealth. But then there's outright confiscation.

And I'm sure that there are individuals in the troubled spots of the world, the Russias, the controversies in China, who are looking for that fallback in case something really wrong happens to them in these countries. There are tycoons who understand what their risks are. So we believe that insurance policies, that Bitcoin is probably the best insurance policy. Just keep that key in your head. And at some point, you'll be able to cross a border and reclaim your wealth.

JULIE HYMAN: Cathie, we could spend the whole hour just talking about Bitcoin, but I do have one last question for you before we have to let you go. And that's about ARK itself and your benchmark ETF, ARKK. As we talked over the last year and as your ETF dramatically underperformed, you said, well, it's not surprising during this time that we would see declines. You said that even towards the end of 2021 that you thought things were getting a little toppy. Where are you now? What kind of year is ARK going to have?

CATHIE WOOD: Well, we have a five-year investment time horizon. I'll just tell you that our confidence in our outlook over the next five years has increased dramatically. I would say that what happened with Fed policy last year, which we thought was unnecessary-- and we were in print saying that-- that we've come to the end of that. And the market sees that. And I think that the time horizons, which shrunk to almost nothing-- in fact, we saw investors looking backwards to guide them. They wanted-- they were looking back at the cash flow over the past year to guide their investment decisions.

We think real returns are going to be delivered from those companies that are going to deliver on the innovation around which we have centered our research and investing over the next five years. And we do think now that the shock of interest rates going up 18-fold, I think it was-- we've never seen this in history. We've never seen a bond market act as badly since the 1700s.

So, of course, long duration assets were going to be the primary victim. We believe that chapter is over and that you never say the coast is clear. There are always risks. But we think we're on the other side of the most difficult time that innovation oriented strategies have ever had. I've never seen anything like that in my career. We're on the other side of it. And we think the future is bright for innovation. We're really excited, as you can see from our big ideas 2023.

BRAD SMITH: A lot of innovation, hopefully fast tracked as best as possible. ARK Invest CEO and CIO Cathie Wood, we always appreciate the time. And thanks for the wide ranging conversation.

CATHIE WOOD: Thank you so much, Brad, Julie, and Brian.