Key takeaways
- ARK Invest's Cathie Wood sat down with editor-in-chief Alyson Shontell at Fortune's Most Powerful Next Gen conference this week to chat about the future of tech and A.I. and her ultra-volatile funds.
- After her investments saw astronomical returns in 2020, they've since taken a beating; but Wood's conviction in her investment strategy hasn't.
- She's betting big on Bitcoin, Tesla, Twitter, and ChatGPT—and her research being "the best in the world."
Cathie Wood started investment management fund ARK Invest in 2014, and she’s never looked back—for better or for worse.
Her investments returned at some 159% in 2020, but have since been performing far worse than the S&P 500 as tech takes a hit. Whether you’re long or short on her controversial investing style, Wood fancies herself the closest thing to a venture capitalist firm on publicly traded markets. She remains bullish on her long-term bets, which include Bitcoin and Tesla—and the future of Twitter and ChatGPT.
Wood discussed the future of tech and how A.I. will disrupt everything over the next few years in a 20 minute fireside chat at Fortune’s Most Powerful Women Next Gen conference this week, as well as the ultra-volatile performance of her funds.
In a conversation ranging from what will happen to the big tech companies like Google in five to 10 years (“it depends”) to Bitcoin (“headed to the moon”) to why she thinks Tesla is the “best A.I. bet of all” with or without Elon Musk at its helm, Wood spoke with conviction and optimism. She also explained how she squared the fact that so many retail investors followed her investments—even when she gets it really wrong.
Wood noted that she does “take to heart people who have lost money.” But if they really believe in her strategy, maybe they should buy the Cathie Wood dip: “If they liked us at a certain price level, and we are half that now and they really are keeping up with our research, the best way, over time, to overcome what has just happened is to average it and be right.”
And, she concluded, she does believe her research is right.
Read the full interview below, which is lightly edited for clarity.
Alyson Shontell: You started ARK Invest in 2014. You are a self-described “different duck.” By that, I mean, you think of your investing strategies like a VC would, which is different typically from other publicly traded investors. Your companies might be overspending. They might not be operating profitably. But if you think they could be successful on a long time horizon, you’re willing to go in. This has made your performance a little volatile—very volatile.
Cathie Wood: Yes.
AS: So, incredible 2020 results, 159% returns versus the S&P 500’s 16%. But that peaked in February 2021. Now, with high inflation and rate hikes and all that, tech has taken a bit of a beating. In the last two years, performance has not been great. [ARK] is performing far worse than the S&P. Was your initial investment strategy right? Are you tweaking it at all for the current volatile environment?
CW: Our investment time horizon is five years. And we're focused on exponential growth trajectories, specifically on five platforms, including multi-omics sequencing—that's in the healthcare space. Robotics, not the ones in cages, but the ones covered with sensors that can increase people's productivity. Energy storage, so think Tesla, electric vehicles, electric transportation period. Artificial intelligence—the biggest catalyst to change, we think, during the next five to 10 years. And blockchain technology.
What's interesting about them is they are all on exponential growth trajectories that the market is not paying for right now, because they're investing aggressively now in order to be in the pole position for many winner-take-most strategies. So A.I. could be a source of winner-take-most, very big markets. So the investing is intense in the beginning, but if they get it right with the right domain expertise, A.I. expertise, and most important, the proprietary data—data that no one else has—those are going to be the big winners.
AS: So A.I., as you say, is the center of all of the major trends happening. It’s definitely on top of all of our minds. It’s impacting all of our jobs, all of our industries. What do you think the A.I. future will look like in 2030? What kind of disruption can we expect? How extreme?
CW: I think the initial disruption is going to be pretty widespread, but in a good way. It's going to help companies and people increase their productivity. That is the biggest use case. I think the knowledge worker industry, globally, is paid $32 trillion. It's one of the most expensive line items in any company.
AS: When you say knowledge worker, what do you mean?
CW: Well, anyone who's not into manufacturing, heavy-duty. The information age, essentially, is usually in front of a computer, right? So we think that $32 trillion actually could go down and turn into incredible productivity. When people hear that the wages could go down, what we really mean by that is there are going to be people displaced, no question about it. But each person who remains on the job will become highly productive and actually could earn a lot more.
So the displacement means, yes, we'll have to do re-education or re-training. But the way the world is working, we're all going to become programmers. That's the big message out of this. What A.I. is and the big breakthroughs, are all around natural language processing. So we'll all have to become prompt engineers. And you're kind of there, in a way, already, if you use Google search.
I’ve never liked Google search. You have to prompt it in a certain kind of way, and I don’t like to play with it. ChatGPT is much easier. And I think it really is going to cause a lot of problems for Google.
AS: So when you say we're gonna become programmers, you mean like, if you think it, you can do it with A.I.? [That’s] a big difference from when engineers have been kind of ruling Silicon Valley, building all this. It seems to democratize it, potentially.
CW: Absolutely.
AS: So one of your big bets, or one of the companies that you’ve bet big on is Tesla. And actually a lot of what Elon touches, you bet on. You’ve called him the inventor of our age. You have Tesla stock price pegged at, I think, $2,400, up from $170 right now, by 2030. And that's assuming that it really can build this moat of A.I., from what my understanding is. Can you talk a little bit about why you think Tesla could go even further, to the moon? Like, everybody's in the EV space now. Does it really still have an edge? And if A.I. goes away, shouldn't there be no edge for Tesla? It’ll be democratized by every car company?
CW: We think that Tesla is the biggest A.I. play out there—the biggest beneficiary. I described the five platforms around which we have centered our research. Tesla is a play on the convergence among three of them. Autonomous vehicles are robots. Autonomous taxi platforms are what we're talking about here. They will be electric, and they will be powered by artificial intelligence.
Think about what's happening there. Each one of these is growing exponentially, and then you have them feeding each other. S-curves feeding S-curves. This could be explosive growth. We believe that globally, the autonomous taxi platform business will grow from nothing today to $8 to $10 trillion in revenue in 2030, or thereabouts.
Just to put that in perspective, the size of the U.S. economy today is $22 trillion. So we're talking about one of the biggest growth engines and growth trajectories in history, and Tesla is in the pole position. It has more data than all of the other auto companies and tech companies touching transportation combined. Orders of magnitude.
AS: Because it has more cars on the road.
CW: It has four million robots on the road. I have two of them, one in Connecticut, one in Florida. We're getting that covered. And those robots are collecting data continuously. Now, what Tesla is looking for—it does not need to ingest all of that data. It needs to ingest, and you'll hear this phrase a lot when it comes to A.I., the corner cases. The exception. What causes accidents. And because it has more robots on the road—certainly here in the United States, but elsewhere as well, it is proliferating—we think it will be in the pole position to grab, in the U.S. at least, the lion's share of the $8 to $10 trillion. The U.S. share would probably be a third of that.
AS: If you’re investing like a VC would, then the CEO is somebody you want to look at really closely.
CW: Without a doubt.
AS: What is Tesla without Elon? Would you still think it’s the winner without him?
CW: I think he has set it in motion—certainly the EV side. He calls Tesla a manufacturer of factories that are going to populate, so that's in motion.
A.I. and autonomous [are] not quite there yet. Actually, he was on CNBC yesterday and gave us a lot of credit for our work. He thought we were too optimistic. Our analysts—Tasha Keeney’s done our autonomous work; Sam Korus, our battery work; Will Summerlin, our AI work—[Musk] said they are on the mark. And we say that autonomous is going to take off next year.
AS: Interesting. So there are a bunch of other bets that you have. One of them is crypto, so I want to check in on if you still think that Bitcoin could be headed to the moon. You were recently quoted as saying that you think, in the bull case, it could be $1.5 million per Bitcoin by 2030. I have not heard anyone else speaking like that since before FTX crashed. And, in the worst case scenario, you think it could be pegged around $258,000.
Meanwhile, regulators seem to want it dead. Like, just, dead. [Securities and Exchange Commission Chairperson] Gary Gensler is like, nope, these things are securities. They should really be treated as such. Maybe Bitcoin is the one that won’t be treated as a security, but how could you give it this price point and be so optimistic when there’s this regulation, and it’s real, and it’s coming for crypto?
CW: Right, well, Bitcoin, it would be nice if the U.S. were leading this movement, but we're losing it, and we're losing it because of our regulatory system. It's moving abroad. Even Coinbase has established a presence in Bermuda to start a derivatives exchange, and now it’s Singapore. So Bitcoin is, and each one of these words is very important, it's a very big idea. It's the first global private—meaning no government oversight—digital, rules-based monetary system in the history of the world.
The closest we came was the gold exchange standard. And my mentor Art Laffer, when he saw our first paper, he said, ‘This is what I've been waiting for since we went off the gold exchange standard: a rules-based monetary system.’
Human beings today have their own rules, and they're all different. Bitcoin’s rule is: We are going to mathematically meter the supply of Bitcoin until it hits 21 million units. It's at 19 million right now. So it will soon take on scarcity value. The reason it’s adopted is, first of all, many people like the idea of a decentralized, transparent, auditable monetary system. It was born out of the 2008/2009 crisis, when people just lost all trust in financial services.
So here are technology people, we don’t know if Satoshi Nakamoto was a person or a number of people, who designed this ecosystem to solve that problem. And, very interestingly, it took another crisis—two crises within the last year—to prove the concept. [Those crises were] FTX, and the regional banking system. FTX failed because it was centralized, opaque, and not auditable. There was fraud there. Bitcoin is the opposite of that.
Regional banks implode and then Bitcoin goes from 19,000 the weekend of the failures of SVB and Signature—19,000 to 28,000. What’s that? That's a flight to safety. That's like gold. It's like digital gold. And that's a very big market.
AS: So there's a few other big bets that you have as well outside of crypto. Supersonic flight. Future of robots. You think Amazon will actually be employing more robots than people. Can you talk a little bit about some of those bets?
CW: Well, first of all, supersonic flight is pretty exciting. One of our minority owners is Japanese—Nikko Asset Management. So we're traveling to Asia quite a bit, and it would be lovely to take a flight for two hours instead of 14 hours, maybe with a transfer somewhere in there. Two hours, that would be a huge increase in productivity. But we believe that the developments in space are moving us towards supersonic flight. And what we're learning from SpaceX and reusable rockets and so forth is going to get us there.
The other big market coming out of this is going to be the connected world. Two to three billion people have no connection to the Internet right now. Starlink, which is SpaceX is beginning to enable that. The supersonic flight market—that revenue opportunity is $270 billion, and we're making very conservative assumptions there.
The connected world, including RVs and boats and everything, is more like $80 to $85 billion. The second question you asked was?
AS: One was hypersonic flight, then was robots. Amazon and robots.
CW: Yes, Amazon! If you measure the number of robots per 10,000 people at Amazon, it's about 3,300, about one-third. If you do that for the broad-based manufacturing sector, it's about 1.4%, so that gives you a sense of how nascent the industrial robotics world is, and the cost declines. And all of our research is focused on, how quickly is the cost associated with this new technology declining? And, as it declines, what new markets will it open up as prices fall?
We believe, by 2027, industrial robots prices will probably be in the $15,000 to $18,000 range. Competitive with people. But these are robots taking jobs that are very mundane and very boring, freeing people up to become more productive in other ways. And we do have a labor shortage.
The cost of industrial robots declines for every cumulative doubling of robots—one to two, two to four—is 50%. The costs associated with artificial intelligence, training costs, those are dropping by 70% a year. So you’ve heard of ChatGPT. Just to illustrate how quickly this is happening, if that model had been trained in 2018, it would cost $800 million. It was trained in 2020, it cost $5 million. Today, the same model would cost $500,000, and it'll cost $30 by 2030. So again, massive cost declines. Really transformational.
AS: I have to ask, with all these trends happening, what do you think is going to happen to the current big tech companies in the next five to 10 years? You own a little bit of Microsoft. Google had a memo leak that said, ‘There is no moat for us. We cannot be the owners of A.I. and what we build.’ Do you think they will still be standing? Like could we see Google collapse? Could we see Meta collapse? What do you think happens to the big tech titans right now?
CW: It depends what they do, and what their existing business model is. In Google's case, this is a real problem. Google has some of the best A.I. minds in the world and should have been first to market here. Why wasn't it? They'll say it was the innovator’s dilemma. They say, oh, we're aiming for safety, this is very dangerous. Of course, their underlying business model will disappear. Because these foundation models—OpenAI, GPT3, GPT4, these are foundation models, they are commoditized. They are free. And that's what's so interesting about this.
That's why I say we'll go back to Tesla and other companies like it—those with the proprietary data can combine that data with all of the data on the internet, which is what these foundational models are about, and come out with customized models that will solve big problems, like get a person from point A to point B as safely and quickly as possible.
AS: So I'm going to do one audience Q&A, and then I have one question I have to end on.
Jessie Draper: Hi, Jessie Draper, I run Halogen Ventures. I think what we're doing around the retail investor could be a huge unlock for emerging managers and for female managers and venture capital fund managers. And I'm curious if you could speak to that at all.
CW: Generally, what we're doing is trying to democratize investing. We've done that already in the ETF world. And when I say democratize, we want people to take the journey with us. We give our research away and invite people to understand what we're doing and why we're doing it.
Jessie, you may be talking about our new venture efforts—we've partnered with Titan, an Andreessen Horowitz company who has an app, and we're the first outside equity fund launched on this app. And people can get into venture capital, our venture companies, and we're having incredible success partnering with other VCs who actually want us as part of their deals. And for $500, you can now start participating in the VC space.
Historically, this has been limited to those with significant income or assets, and it has blocked a lot of young people. And so we'd like this to be a platform to be great to showcase for women with businesses. We, with our social media, social marketing, and now, our social distribution strategy, are showcasing companies so that they can attract talent and get ready for their next liquidity event, whether it's an IPO or M&A.
AS: Cathie, it sounds very compelling, and all of what you say sounds compelling, you're very smart. You’re very thoughtful about this. There is risk, and there's extreme risk for retail investors. And a reason why they haven’t been in the venture market is it’s so risky, and they don't have as much disposable income.
So this brings me to my final question. Hype is a big problem in business. And overhype can make a lot of people lose a lot of money. And you are so compelling, but how much time do you devote to thinking about like, what if I'm wrong? The future is incredibly hard to predict. You might be right about the what, but not the who, or the when, or the how. So, how do you square that, knowing that so many people are following what you say? You have a million Twitter followers, millions of people watch your YouTube videos. They're eating up everything you say. That's a big responsibility.
CW: It is a big responsibility, and we take it very seriously. Our models are very disciplined around something called Wright’s Law. That gets us the cost decline associated with each technology, which is pretty predictable and will give us an idea of when new markets will open up because prices are low enough, reaching new demographics.
Our research, I feel, is the best in the world. And we do want to share our models and have them reality-checked. Look at how wrong it could be. Put your own assumption in if you think ours is going to be mistaken.
But in terms of timing, some of this is a function of macro factors over which we have no control. Our objective is a minimum hurdle rate of return of 15% at a compound annual rate over five years. We have not achieved that because we have never seen a macro environment like what we've just gone through—a 21-fold increase in interest rates over a year's time.
Last year, long-duration assets—and that would be the category we're in—that is also the category long-term bonds are in, and bonds are considered safe, but long-term bonds had their worst year since the 1700s. There's no way in that world that our strategy would do well.
I feel much better right now, when people think we're down and out for good—and that's many people in our own industry, I might add, not the people who really believe in innovation and understand what we're doing because they read our research.
The thing I would say: A lot of our shareholders are young people, and they can afford the time that's necessary for these to play out. We believe that those five platforms are in primetime now, seeds having been planted 30 to 40 years ago—1982 through the tech and telecom bubble. Those were the seeds, now they're flourishing. Back then, people moved in, they flew in. That was a mistake, because the technologies were not ready. The costs were too high. The technologies are ready. The costs are high now. Macro got in the way, but I think we're just about on the other side of that.
And yes, I do take to heart people who have lost money. And of course, if they really believe in what we're doing, if they liked us at a certain price level, and we are half that now, and they really are keeping up with our research, the best way over time to overcome what has just happened is to average in and be right.
And we do believe our research is right.
