Danai Jetawattana
The promise of artificial intelligence remains a key driver pushing tech stocks higher. Cathie Wood, CEO and CIO at ARK Invest, speaks with MoneyTalk’s Greg Bonnell about potential opportunities she sees and why the gains in big tech shares are likely to continue.
Transcript
Greg Bonnell – US markets continue to hit new highs in technology. Artificial intelligence have been a big part of that story. But can these tech stocks continue their AI-fueled rally? Joining us now to discuss is Cathie Wood, CEO and Chief Investment Officer at ARK Invest. Welcome back to the show. Great to have you here in person.
Cathie Wood – Thank you, Greg. Thank you for inviting me back.
Greg Bonnell – All right, so we’re going to have a great conversation. Let’s start with just for the viewers who may not be aware of your process of the firm’s strategy, you focus on disruptive innovation. What does that mean?
Cathie Wood – Disruptive innovation is technologically enabled and transformative. So we’re focused on five major platforms – robotics, energy storage, artificial intelligence, blockchain technology, and multi-omic sequencing in the life science space. Those are the major platforms. They involve 14 different technologies.
And what’s so interesting today is AI is the biggest catalyst behind really the convergence between and among these technologies. So it’s creating some spectacular opportunities, like Tesla (TSLA, TSLA:CA). Tesla is the convergence of three of the platforms, robotics, autonomous vehicles, which they’re about to produce our robots; energy storage, they will be electric; and artificial intelligence, they will be powered by AI.
Greg Bonnell – Is that the key here when we think about artificial intelligence? Because obviously the first wave of it was, do you have the GPUs, the graphics processing units, that we thought were good for video games. Turned out they were pretty good at what Nvidia (NVDA, NVDA:CA) was making for artificial intelligence, but realizing that it starts to pull a bunch of what we thought were disparate groups together?
Cathie Wood – Yes. AI is probably going to touch every industry and every company out there. And it doesn’t matter what the sector is. Now, Nvidia is really the hardware phase of the AI revolution. And they are building some software, but they historically have been a hardware company. If this revolution is as big as we think it is, then we should see those GPUs being put to good work.
And I just gave you a good example. Autonomous technology is going to transform transportation of all kinds, not just cars, but trucks and drones. We’re going to see deliveries by drone in the future. It’s all the same convergence and it’s all catalyzed by AI. The longer it takes to happen, then the further ahead of itself Nvidia might become. So we shall see.
Greg Bonnell – Okay, further ahead of itself. There are questions in the market after the rally we’ve seen. We continue to set new highs on the S&P 500 (SPX), the Nasdaq, tech being a big part of that. People start thinking, have I seen this before? Have I seen the dot-com era in my own experience, and is it happening again? What are we thinking of here in terms of when people throw out phrases like reversion to mean?
Cathie Wood – Well, this is not like the tech and telecom bubble. The companies that are at the top of the indexes and driving them are very, very profitable companies and very well-established companies. So very different. If there’s any time we’re comparing this to, it actually is the 1930s.
Now, that might sound surprising because that was The Depression, but if you looked at the concentration in the market in the early days of The Depression, you know, it was, back then, the unemployment rate was up to 25%, GDP dropped by 30%. So there was this question, are companies going to survive or not? And it was binary. And so you had massive concentration towards a few names. AT&T (T) was at the top of the list. Telephony was just making its way into the global economy.
And so that concentration, what happened after that? What happened after that is we went into a strong bull market. It broadened out, and smaller cap stocks, they could be large, just not mega cap, large, mid, small, they way outperformed the mega cap stocks. And if interest rates come down, as we believe they will, we believe that will be the catalyst towards broadening this market out.
Greg Bonnell – That’s interesting. Let’s talk a bit about interest rates because obviously we’re going to get an inflation print. As we get those, we try to figure out where Jerome Powell and the Federal Reserve’s head may be. Jerome Powell this week seemed to be suggesting, listen we’re cognizant of the fact that if we keep rates too high for too long, we could hurt the economy. It seems like the door is opening wide. If we do see a cut this fall, maybe two before the end of the year from the Fed, depending if the market’s right – what happens here for some of these tech stocks because there’s already been a pretty significant run?
Cathie Wood – Yes, but the run has been very concentrated. We do believe the market will broaden out, and that is how we’ve positioned our strategies. We’re a very differentiated exposure to AI than the Mag-6. I guess, Mag-7.
Greg Bonnell – I noticed you said six. I guess is Tesla back in the group now after the run they’ve had?
Cathie Wood – They bumped Tesla out last year, but now Tesla is performed this year or is performing. And so I think they might invite it back in. It is the largest AI project in the world. And even Nvidia on its calls these days is saying that the auto sector is probably one of the biggest beneficiaries and movers and shakers in the AI space. We think that’s going to be very concentrated to just a few winners and a winner-take-most strategy.
So, yes, we do think, with interest rates coming down, the market will broaden out and benefit the AI beneficiaries that we have in our portfolio. Many people are very surprised to see as much in the healthcare realm in the flagship strategy. And we do believe that AI is going to help, when converged with sequencing technologies and gene editing, that we’re actually talking about curing diseases, not treating symptoms, but curing diseases. I can’t think of a more profound application of AI. And so we have as much in the multi-omics space, which is what we call it, as we do in pure play technology as measured by GICs.
Greg Bonnell – Interesting stuff there. If we’re talking about inflation being tame, central banks delivering cuts, our central bank already delivered one. We’re waiting for another one later this month. People worry that inflation will be reignited. I think you, think you have more of a view of a deflationary environment being more likely.
Cathie Wood – Yes. Yes. In fact, we see two ways that’s going to happen. It’s already happening. If you listen to quarterly earnings reports, you listen to Walmart (WMT, WMT:CA]]), Target (TGT), Costco (COST, COST:CA), Best Buy (BBY), you listen to Starbucks (SBUX, SBUX:CA), and Wendy’s (WEN), and McDonald’s (MCD), they’re all cutting prices because the consumer is under great pressure. And it is the middle-income consumer now that is capitulating and looking for these deals. So that’s a cyclical phenomenon, and that’s outright prices coming down, which rarely happens when you think about it, right?
The second source of deflation is technologically enabled. So the five innovation platforms that I mentioned, all of them follow learning curves, which are expressed in cost declines and then price declines. And the five platforms are highly deflationary, but it’s good deflation. As costs and prices come down, these new technologies will scale across more and more sectors and become mass market opportunities.
So these price declines are associated with booming growth. So yes, we think on two fronts, cyclical and secular, there are deflationary forces, and that the surprises in the next few years are going to be on the low side of both inflation and interest rates.