Cathie Wood: Converging Technologies Remaking Our World

[Music] [Music] well after all my gaffing on stage about human creativity and Supply creates its own demand of we're bringing you uh the leading supply side investor in the world Cathy wood to uh expound her theory of investment this is investment that shapes the future rather than attempts to out guess it and uh and u i the only thing I'm worry about a little bit is Kathy's so good when she's under Fire that uh all this uh um agulation may be uh not the best bring out the best in her but I'll I'll do my best all right thank you George and I'm really happy to be here um I realize this is an after dinner speech and I I really don't do many of those so here I'm equipped with slides and you probably don't want to see a lot of slides so I will go through this quickly but I'll start out by uh talking about why I started Ark uh it was to address some of the some of the the things I heard uh discussed up here um I feel as though the financial world has lost the plot and uh I feel that uh investors ha especially after the tech because of the Tekken Telecom bust and then even more so after 0809 have become extremely risk averse and so much so that they are investing in the past uh so what we're seeing is investors and analysts worrying about whether they will beat their benchmarks now benchmarks uh are there because these companies have been very successful over time and they rise to the top of benchmarks one of the reasons I started Arc is because we have never been on the threshold as of as much disruptive Innovation as we are today and yet this shift into benchmarks is more about as I said investing in the past so Arc is all about the new creation I I I feel that we have witnessed in the last 20 years the most massive misallocation of capital in history as as uh funds have really um uh evolved towards these benchmarks and it is during a period of risk off that we we saw during 21 for Innovation and 22 fear of interest rates rising in 21 and then the reality of interest rates rising in 22 absolutely destroyed uh assets of long duration uh and uh and I don't mean just stocks long duration includes long-term bonds as well so last year we had had uh the uh worst bond market uh in in really history since the 1700s uh because the F fed jacked up interest rates 22 fold in roughly a year's time this has never happened in history uh and I think it would has been very destructive um in that it has pushed investors even closer to their benchmarks so they are uh buying apple and the fangs and the Magnificent Seven and they are selling uh the stocks of companies uh that are innovating and creating the new world uh now I say to my team and Dan White uh associate portfolio manager on my team I always say truth will win out and the forces that this 22-fold interest uh increase in interest rates have set up I think are are going to move in the opposite direction and are going to reward long duration assets uh like long bonds but uh also like Innovation based strategies Pure Play Innovation uh like ours let's see so big Ideas 2023 we do a big Ideas uh every year and of course Big Ideas don't change very often they become more understandable actually uh we think that uh as I mentioned we're at the threshold of the most um disruptive uh period uh for for uh Innovation or caused by Innovation that the world has ever seen and the 14 technologies that you see here are the reason why now uh we can you can see those Technologies and we can talk about uh uh George and I can talk about them afterwards uh but these 14 uh Technologies are involved in um these five platforms so these are five Innovation platforms evolving at the same time this has never happened in history the closest we've gotten to this is the early 1900s when three Innovation platforms evolved at the same time back then it was telephone electricity and the internal combustion engine completely transformed the world today we're talking about these five and the biggest Catalyst um uh in terms of uh all of these Innovations is artificial intelligence you can see it at uh at the center here so the five major platforms are robotics energy storage artificial intelligence blockchain technology and multiomic sequencing um we have uh in the last in the last 20 years we were fighting in the financial markets now I know a lot of you are Venture are in the Venture world you're you're entrepreneurs and you you may not relate to this but what we are fighting in the public Equity markets is this notion and have been fighting that uh grow exponential growth rapid growth cannot be sustained and um uh and that is because uh we've been in a linear growth world for so long where you do have a burst of activity and then the and then it decays down to the GDP growth rate um we uh in the Tekken Telecom bubble we first heard the expression exponential growth growth sustained say 20 to 30% growth sustained uh for years years and many people thought that was going to happen uh and that's how we got the teeken Telecom bubble we had too much Capital chasing too few opportunities too soon and it ended badly now the seeds for these five major Innovation platforms were planted during the 20 years that ended in the Tekken Telecom bubble and uh they have been germinating ever since uh they weren't ready BEC the Technologies were not ready during the tech and Telecom bubble we didn't get the cloud until 2006 we didn't get uh deep learning uh out of image net until 2012 uh we didn't get the other big breakthrough in artificial intelligence uh Transformer architecture until 20171 18 we were not ready for prime time uh back then and even if the Technologies were getting ready they were far too expensive so uh the first whole Human Genome was sequenced or shall I say most of it we thought it was the whole Human Genome in 2003 it took $2.7 billion dollar just to sequence one person's genome $2.7 billion dollar and it took 13 years of computing power back then again the Technologies really weren't ready and if they were even close to ready they were far too expensive today DNA sequencing remember I just said it took $2.7 billion 20 years ago to sequence one person's genome to take today it takes less than $500 and just a few hours of computing power so again that's a really good example of back then too much Capital chasing too few opportunities too soon right uh investors were chasing the dream today where where are we as I just mentioned the Tekken Del Telecom um bust and then again 0809 has scared investors to death and so here these Technologies these Technologies again the seeds were planted back then they are ready for prime time now and investors are running away they're running for the hills what are the hills they're benchmarks uh and uh you know it does take a lot of fortitude um as George said I'm I'm probably at my best in front of CNBC who who you all hate U um but uh they uh they do not understand that Arc is the closest you'll find to a venture capital Fund in the public Equity markets and they truly do believe that rapid growth leads to inflation and if you look at the history of the last 40 years that has been absolutely untrue you you can I mean you can see the numbers they're just not looking uh they're they're very Phillips curve very Keynesian in uh in their uh assumptions and and they're just wrong um uh so here are the five platforms and I'm going to go quickly through uh this presentation understanding it's after dinner uh and this may not be as entertaining as most and after dinner speakers are but anyway convergence so this idea of exponential growth finally it did get some respect we do have a a poster child actually from this city um Amazon boy where were we fighting battles back in the early 2000s as we were going through the Tekken Telecom bust and then coming out of it nobody believed that Amazon could grow revenues at a compound annual rate of 25% per year on average um for 20 years and we were fighting that battle and fighting that battle and fighting that battle and it finally paid off but boy um uh back then even when indexes weren't as powerful in terms of an attraction for investors it was really hard to convince investors that we would see such exponential growth uh well we did and um and and uh some people now do believe it's possible what we are saying now is that we are going into a super exponential growth world because those five major Innovation platforms around which we have centered our research and investing they are converging and so what we have are the equivalent so all of you in the Innovation World understand what an scurve is you know start out slowly and then you get into The Sweet Spot well what we have now are s-curves feeding SC curves they're feeding each other and we think creating explosive growth opportunities uh and you can see that uh from the purple here that AI which touches almost every other um technology on on on um this sphere um that it is the major catalyst we're putting a paper out um I think it will be uh later this month or early December on this concept of convergence and um Brett Winton who's our chief futurist uh has actually analyzed um which of the Technologies are uh the biggest catalysts for other Technologies it's a scoring system which I definitely will not bore you with tonight uh but you can see at the bottom there it is and you can also see from um the depiction here it is the most important of these Technologies in terms of catalyzing other Technologies um which are the biggest beneficiaries of these Technologies these 14 Technologies um uh of this idea of convergence we think it's autonomous taxi platforms so autonomous taxi platforms uh involve the convergence among three of the major in major Innovation platforms robotics um autonomous vehicles are robots uh energy storage they will be electric as the the learning curve associated with drivetrain technology plays out and uh and electric vehicles become much uh less expensive than gas gas powerered vehicles and uh artificial intelligence so three robotics um uh energy storage and artificial intelligence so let's talk about learning curves to get a sense of of the drama here um the uh in the I'll give you a few of the five major Innovation platforms there are some stunning learning curves evolving here um if you if you look at um industrial robots the learning curve so as as George mentioned rights law which is we've centered our research on rights law and the biggest surprise to me in the investment World period not just in the public world but in the private world is that others are not doing this kind of analysis uh most people in the public uh investment world do not know what rights law is rights law is a relative of Moors law Mo's law is a function of time rights law is a function of units now that the semiconductor world world has slowed down in its Cadence it's kind of hitting a wall uh rights law is getting the semiconductor forecasts um right or is doing a better job at forecasting what's going on in the semiconductor world than Moore's Law is right's law says for every cumulative doubling in the number of units produced cost decline costs associated with each technology uh decline at a cons consistent percentage rate so in the world of industrial robots again we've centered our research we're doing this research we give it away because we think there are such inefficiencies uh in the investment world around Innovation definitely in the public Marketplace so what's the learning curve of industrial robots 50% now this is why technology is extremely deflationary we hear all this talk about inflation going on and I just wrote a tweet at just put up uh the Bloomberg commodity price index from 1980 to today it hasn't gone anywhere we're at the same place and everybody's talking about so uh I actually think for those of you who have studied economic history that uh we're probably closer to a conrade of wave uh on the downside than most people understand right now and helping it along are going to be all of these Technologies so that 50% decline in industrial robots for Drive drivetrain uh battery pack system technology that number is 28% that's why Tesla can cut its prices and still be profitable uh and I think the auto companies are baffled because they're saying well we can't produce these electric vehicles profitably so we're not going to do that because their share holders don't want them to do it I don't know what's going to happen to them uh all I know is this gives Tesla more room to run because the competitors are starting to to back away um in the uh multiomic sequencing space or DNA sequencing specifically uh that learning curve is 40% again a 40% drop in costs for every cumulative doubling in the number of Hol whole Human Genome sequenced um and we're at a very low low base so we're going to see many cumulative doublings uh and we're already down to 200 to $400 in DNA sequencing costs um in in the case of uh artificial intelligence um we we uh the the data metric here to to compute rights law is it's a relative compute unit and it involves a a um a metric involving data per compute unit um for every cumulative doubling in that metric cost declin by 48% now the the showstopper here or the aha moment for us was okay we we did that but AI training costs when you when you combine both hardware and software are dropping 70% per year so what does that mean the cumulative doubling is taking place in less than a year's time that's why what's going on today is so provocative um all right uh here are just some examples we know that uh uh we didn't know it actually uh but it did take Transformer architecture for uh Tesla to begin to tr believe truly that it was going to be able to um complete the last Mile in autonomous driving uh so these are just a few of the convergences um this is uh DNA sequencing uh 60% more accurate because of the convergence between uh DNA sequencing and artificial intelligence again this is in our big idea you can look up the details um uh yes this is robots uh and the convergence of robots and artificial intelligence and just how much uh better they perform whether they've done tasks before but especially if they have not done tasks before uh given this convergence uh battery uh advances so just um three times the the battery capacity this is since the iPhone three times the energy density and uh now we're talking about uh meta platforms uh rayb band smart glasses so our analyst um uh and also assistant portfolio manager Nick Gru uh bought some of these glasses went golfing I think with Dan if I'm not mistaken and had these glasses on all day they didn't run out of battery power now they did need a 10 uh 10minute uh rechar charge every once in a while but he was taking pictures of them playing golf golf all day and it and uh it didn't run out could not have happened without uh the advances in um oops sorry about this uh yes uh reusable robots here we just give the example if you remember in the techken Telecom bubble aridium was one of the poster children of that age and you can see how much a phone cost and how much uh more expensive it it was per minute compared to terrestrial phones and minutes uh and it was it was uneconomic at that time and of course went bankrupt uh today the combination of T-Mobile and SpaceX has collapsed that Al together so pretty exciting there crypto crypto currency so uh what kind of convergence there uh we worked with square or block um uh uh couple of years ago on a report which showed that if you uh if you um incorporate Bitcoin mining into a utility ecosystem so think about this this is this is Convergence uh of uh Battery Technology and uh and Bitcoin in this case um what you can do is overbuild solar and wind because what what are we dealing with in that utility ecosystem huge battery storage systems that in the case of Florida they fill up the sunshine is wonderful in Florida they fill up uh and then the the energy would be wasted beyond that instead now uh the that energy is being allocated to Bitcoin mining and uh earning utilities more money so that they can uh overbuild uh solar and wind so another convergence that wasn't obvious until we faced the environmental question of Bitcoin and all the electricity that it was using uh now there is a a a sustainable element to this ecosystem um GDP growth uh as as you can see from this chart through history technology has caused leaps in GDP growth and you can see from I think it was 14 00 to 1900 or 1500 to 1900 uh the world was growing about 6 this is real GDP growth 6 um uh percent per year and then those three platforms I mentioned earlier uh telephone electricity internal combustion engine of course transistor uh um uh computers internet uh then that catapulted us into a 3% GDP growth world the consensus view going forward is that GDP is going to downshift we completely disagree and we believe that we we should see a greater growth um increment than we saw uh in the period uh in the last period so that was fivefold which which would take us to 15% but we didn't want to seem completely crazy so we uh we put uh 8% out there but you know it doesn't make any sense that GDP growth should slow down given all of the Innovation that is evolving right now and the other thing that makes no sense is that inflation will remain a problem there are two two camps right now on inflation one and many of you Stanley driller has been interviewed a few times so you've probably heard him on um on Bloomberg or CNBC beloved CM CNBC uh and he's very much in the higher for longer inflation we're in the 70s this is intractable look at the wage negotiations the UAW the the auto companies the airlines 10% per year six % per year and uh our answer to that is many of these industries are going to be disrupted disintermediated and perhaps destroyed and so what will happen is that those wage gains will end up crushing margins this is not going to be pushed through into inflation uh and uh if anything we believe that we're going to enter a period of deflation now I know deflation sounds scary sounds scary because of 0809 uh everyone was talking about a deflationary bust back then and it was horrifying and you know it it was terrifying and in many ways um because there was almost a complete Financial meltdown that's not what we're talking about right now there's good deflation and there's bad deflation I just gave you an example of what bad deflation will be companies that have not invested aggressively enough uh to move into the new age and they're going to be disruptive disrupted creative destruction um the good deflation is what I described before those learning curves uh causing cost declines which are passed through to prices uh which uh which will cause booms booms absolute booms in these Technologies and in productivity and The Virtuous cycle that we're going to see is is going to be astounding now uh many of you know that CNBC has called me crazy Kathy and you may think that now too but we really believe what I just said because we're doing the research we're doing the research that very few people out they are doing because they just don't believe it they don't believe it and uh and and they also don't believe you should do much from the top down uh and that became that became uh a kind of the Mantra as I was growing up in the business uh in the old days most uh most portfolio managers had macroeconomic backgrounds and and they did think top down then we went into this bottomup world you can't think top down that'll get you that'll get you thinking crazy thoughts like this and that's why there is the psychology out there um but uh uh I I believe that uh truth will win out and you know we got our first taste of this we've gotten two big tastes of it and uh JD Steve son is in the audience I believe and during the pandemic a lot of young people were stuck at home and and they discovered the stock market and and they discovered Arc actually uh that way and we were talking a lot about Bitcoin Bitcoin and Tesla and Innovation generally but those two really resonated with the the young people and uh we couldn't and and they ended up uh performing spectacularly because this concept of uh in the case of Tesla super exponential growth is starting to play out especially now that uh other auto manufacturers are pulling out and because of all of the advances in AI that are going to take it into uh the autonomous world and in the case of blockchain technology and this is where I'll end um I met uh George through uh my me teacher professor at USC and mentor and and now dear friend art laugher and art is 83 years old and in 2015 we asked Art if he would co-author or just collaborate with us on on a paper having to do with this thing called Bitcoin and he reserved judgment until he read the paper he read the paper he was quite intrigued by it and he tore it apart as I expected him to do and said he would put his name to this and not to that not to the technology part but to the to the economics part and we really do believe that Bitcoin is and each one one of these World words is important it is the first Global uh private no government oversight rules-based critical rules-based digital monetary system ever and it's a very big idea we think uh we think that uh the entire crypto asset ecosystem and we think most of the crypto assets you have heard about out there will disappear there will only be a few uh for different reasons that ecosystem in 20 uh30 we think will be a $25 trillion ecosystem right now it's a little over 1 trillion we think that the biggest idea out there is is Bitcoin and so I'm going to end in the public and private Equity markets today we believe according to our estimates uh truly disruptive innovation is um valued globally at um after the setback this year probably 12 trillion do we believe that is going to scale to $200 trillion in the next five to 10 10 years uh and one of the reasons is uh the the well the reason is the five Innovation platforms evolving and converging and creating super exponential growth in those Technologies but also in the real economy so know the time prices do vindicate all your assertions thank you could you could you come and talk on CNBC and educate these people we are in an age of super abundance and uh and we have been for 30 40 years and uh time prices demonstrate it and it's uh the there's been no you were saying that in commodity prices are flat since 1980 measured by time prices commodity prices are down 75 absolutely absolutely but one of the reasons I've featured that that particular chart and put it on Twitter is you know to to um to question the the people out there who are saying we're in this 70s style inflation actually H so in real terms you're right those prices have collapse in nominal terms they're flat that is not the perception people think we're in this massive inflation yeah yeah that's that's um so um we have another technology that's just as uh massive in its impact as any of the ones you site let me and this conference has been uh been celebrating it for with all sorts of coing speeches and uh and that's graphine can can I dimensional yeah and and and because and it confirms all your f it strengthens all your five uh different converging Technologies and in fact will make them possible so one of and you know we uh Universal matter we're looking at it we've just actually started a a venture fund so we are very interested in these very very early stage Material Science so just to throw maybe just a little bit of uh investment experience into the discussion um right now it reminds me a bit of nanotechnology in the day and I remember we were chasing that down chasing it down and what happened to it what happened was the big industrial conglomerates bought up all of th those companies those small companies and inte they were the biggest beneficiaries the other thing I mean we we have studied Material Science it's hard to scale that's the biggest thing and then the third thing is our biggest mistake I think in the last 10 years so we'll be 10 years old in January uh in terms of a a assumptions for a technology is three 3D printing and when you're dealing with the Aerospace IND industry automobile industry the regulatory environment is so exacting and and frustrating um the the only the one of the biggest sources of Hope for all technologies that face regulatory impediments that that that that really shouldn't be there some should some should not is regulatory Arbitrage meaning China or some other country competing Israel well yes Israel and Innovation solves problems so hopefully you know that will kick in over there as well but uh this regulatory Arbitrage is is becoming very important I think um we've been put to shame in this country on the whole uh uh blockchain technology especially Bitcoin uh world I think that's very political so we've got to get politics out of this well you know I've been rethinking Bitcoin a bit in view of the radical deflationary forces that are manifested by uh time prices bitcoin's deflationary properties its cap uh may not be so crippling as I've imagined and uh it gives it an additional impetus that that the that real prices are actually dropping fast as fast as the Bitcoin cap reduces the supply so the rate of growth of the supply so so Bitcoin has a shot still but I think there's going to be other Bitcoin will change or there will be some Evolution that can uh um make it the real money that that all the Viet currencies will be ultimately valued by by their uh time prices registered in Bitcoin as it evolved so uh when art looked at the paper in 2015 now so this was in 2015 when Bitcoin was $250 it's at 35,000 now um the First Response he he had was you know I've been waiting for this I've been waiting for for this since we went off responds he this is Art laugher saying I art laugher yeah I I have been waiting for this since we went off the gold exchange standard in 1971 I have been waiting for this a rules-based monetary system now I don't think it's the right rule he said meaning it's a quantity rule of money yeah but they'll get it right now we've had we've done two more uh podcasts with him and as I mentioned he's 83 years old I have way all right God bless you God bless bless you I have never and you know Innovation keeps us all young right so I have he's like a kid I have never seen him more excited because he said we have a chance of getting the FED out of the equation here we have a a chance yes of going back to private money and and he also said in and in our podcast L he uh I think I think it's uh f i i i don't know it's a number of our podcasts put art laugher Bitcoin and you'll find um he said that there is a way and and this is in answer to one of the questions up on the on your panel there is a way that with the institutionalization of Bitcoin that and and and bringing you know a a lot of uh decentralized players into this that it will evolve into a price rule by its very nature if it becomes big enough um I remember saying to him this is when it was $250 so it was a $6 billion market cap today it's 500 billion I said to him when he said I said art this sounds like a big idea and he said it is and I said well how big is it and he said well how big is the US monetary base and back then it was4 and5 trillion dollar today it's 8 trillion uh it's a very big idea yeah well that's so art um do you guard yourself as a supply side investor is that's um yes I do yeah Supply creates its own demand the new creation absolutely and I'll also tell uh the story of the first time I met you um the first time I met you was in 1980 and no you wouldn't have like I was 20 early 20s just moved to New York and um none of the portfolio managers could attend this dinner and you were there and then and we we wanted representation there so they gave me my first shot and your your the first dinner I ever went to professional dinner yeah was you and I was blown away and I was the only Blown Away what when was this I was blown away because because I got into the business um for reasons that you were talking about uh very freely that night I got into the business I I first started at Capital group on the west coast because I thought wow all of these people are being paid to learn and not just and to learn about how the world's going to work and you know so and you were talking about the future and uh taking people in you know to a place in time where they weren't used to to living and I loved it I loved it okay well uh and how did I miss you but anyway um well that's that's terrific what what's what what are your um uh how do you plan to change your invest your investment company how is it how will it respond to all these convergences your own entity yeah how how are we going to try and avoid being disrupted because the traditional Financial world is going to be disrupted well we think and if you're talking specifically about the the financial world we know that we have to insinuate ourselves into the digital wallet world uh we think uh individuals are going to are are going to run their financial lives through digital wallets uh we chat pay was uh you know the earliest version of that I just listened to blocks uh earnings call today that's what they're going to do so we need to find our way into all of these digital wallets in terms of Arc generally we're we're starting um crypto funds uh we just started a venture fund but we we are trying to be true to our brand and Our Roots uh Focus exclusive on exclusively on disruptive innovation that that's true um very transparent that's not true of the traditional Venture World very transparent and and crypto world uh and uh we're focused on democratization so we uh not only give our research away so we have a social uh social media social marketing and now we have a social distribution strategy uh so our Venture fund can reach people uh through an app the Titan app uh and they can get involved with our fund for only $500 so young people and that's the biggest question that we get yes and so we're thrilled with uh you know the the the Holdings in the fund right now um I think that our our willingness to to give away our research which has become part of the decks in in a number of venture capital companies um has given us a place at the table uh more than I thought it would and I'm very grateful for that you deserve it um one Wild Card question uh Charlie Monger said yes yesterday that byd in China was uh outperforming Tesla in manufacturing and uh was uh making greater gains and that he really was ready to bet on byd against Tesla well they have they've had byd in their portfolio for a long time um and it looked I mean there is going to be a a Chinese champion the government will will you know Tesla is not going to be the Chinese EV Champion Tesla can be the big exporter of a very high-end product which they want they don't want to just be you know low-end Commodities exporter right so they they're quite pleased so far um and byd has done a a a great job you know byd's success is part of the reason um or they the the reason they've been so successful is the same one t reason uh Tesla has been successful they both decided to um to uh leverage the consumer electronics learning curve right whereas automakers most other automakers did not believe you could use cell phone or laptop B batteries and line the bottom of a car they thought that was a recipe for fires and you know disaster and of course those are the two compan well no they're they're starting to change their spot they have to change their spots because their learning curve may be steeper but their costs are much starting from a much higher place so I think byd and Tesla are the two to beat I don't think it's an I think those two are the share gainers the major share gainers during the next five to 10 years well thank you K thank you thank you George [Music] back

Channel: Center for Natural and Artificial Intelligence

Views: 17,880

Keywords: mind matters news, mind matters, mindmatters.ai, artificial intelligence, machine learning, Walter Bradley Center, natural and artificial intelligence, deep AI, AI, consciousness, free will

Id: ja8n2Kiz2-Q

Length: 46min 39sec (2799 seconds)

Published: Fri May 03 2024