Let's talk about the economic backdrop,
because your roots, right when you started out, you are an economist and
you think about things, the macro environment, the jobs report today, some
strength, maybe some concerns about things starting to slow down.
What does the US economic environment look like to you, the business
environment as well, and what it means for some of your investments?
Sure. It it looks like the that corporations
are losing pricing power and we are now beginning to see the unemployment rate
move up. It went up to 3.9% in this latest report
from a low of 3.4%. So undeniably, it's on it's on its way
up now. And we do think it's because
corporations are losing pricing power, their margins are getting hit.
It's going to it's going to cause a couple of things.
One, the labor hoarding that we've seen since COVID is going to diminish and
that will increase the unemployment rate.
But then the second thing is it will accelerate the adoption of technologies.
Innovation solves problems. And one of the things that it does is
increase productivity, increase efficiency and create new products and
services. So we're pretty optimistic about our
strategy in this environment because interest rates should come down.
I think I think that the Fed, even the Fed is going to be surprised at how low
inflation goes. We think it could be negative this year.
Well, so so Kathy, let me ask you that. That's interesting.
I mean, if the expectations, at least according to traders right now, is that
the first rate cut comes in June, is that too late, in your view, for the Fed
to start cutting rates? Well, I think the 24 fold increase in
interest rates and little more than a year has shocked the system.
We're beginning to see a reverberation of the regional bank issues.
We don't think they are going away. Deposits are still outflowing broadly
from the banking system and there are increasing problems with commercial real
estate. Most people know about the office
problems, but multifamily units, multi-family apartments, we're beginning
to see some distressed sales there as well.
So I think that that problem isn't as well understood.
I think and it's going to cause the regional banks even more problems.
Kathy, how quickly do you think unemployment can go up this year?
What are you forecasting over at ARC? Well, we I wouldn't be surprised to see
the unemployment rate go above 5%. Now, I'm saying that knowing that this
is an election year and that this administration probably will try and
spend more than is currently in the budget through executive order or what
have you. So but but above 5% would not surprise
us. All right.
So above 5%. Well, that's interesting.
All right. So we have a good idea of your economic
and kind of macro backdrop. Having said that.
So here we are sitting at a day where we're seeing a little bit of a pullback
in stocks. But year to date, the S&P still up more
than 7%. We're looking at a NASDAQ 100.
That's also up more than 7%. You look at something like the stocks is
up around 20% year to date. Pick an individual name like an
invidious vedere more than 80%. And I could go on and on and on.
There are many who talk about a bubble. Some liken it back to 99 2000.
Anything in today's equity trade that says bubble to you?
We do not believe we are in a bubble. Anything like we were in the late
nineties. I was there and the technologies weren't
ready. The costs were too high, too much
capital chase, too few opportunities too soon.
The seeds for what is happening now were planted during the 20 years that ended
in the tech and telecom bubble, and they've been germinating for 25 or 30
years. So we're we believe we're ready for
prime time. The one place where we could see a
correction and it's just a correction, we're not calling it the end of this at
all is in the chip space. Whenever I hear the word shortage and we
started hearing about GPU shortages about this time last year as GPT was
capturing the imagination of both businesses and consumers.
So for about a year we've heard that word and now we're seeing lead times, we
believe come down for GPUs for in video and in particular from the 8 to 11 month
range to the 3 to 4 month range. So that is suggesting that there was
probably a lot of double and triple ordering.
As the word shortage was making the rounds and those inventories will have
to be digested. But is that also because of an increase
in supply in terms of output, or is it because you think demand is going down?
Which one is it? Oh, I don't think no, no.
Demand is not going down, though. There is something we expect that I
don't hear discuss very much. And it harkens back to the early days of
the Internet. There was a moment when the Internet was
taking off, when Cisco was all the rage and and then enterprises started
thinking seriously about the need to spend aggressively on this new thing
called the Internet and the backbone. And they they paused as a lot of
competition started to make the rounds and Cisco went down 50% plus as as
enterprises were pausing. Now, why are enterprises likely to pause
or at least go through and through an assessment?
They have to integrate all of their data.
First, proprietary data is the secret to success, and they have to map out in
excruciating detail their workflows internally and with suppliers and
customers and so forth. And this is going to take time.
So we think this is this movement is real, is going to be massive, but we
think there's been a little bit too much too soon.
Well, it's interesting to hear you say that, Kathy, because you and Stark were
very early to acknowledge the impact of AI, yet your flagship ARK Innovation ETF
has not held shares of in video in about a year.
You do on some of it in your other ETFs. Do you have any regrets about not having
held onto the stock or actually increasing your exposure in the last
couple of years after more than 530% gains since 2022, Since the end of 2022?
Yes. So you're right, We were very early into
in video ten years ago when it was $5. Now it's roughly $800.
And we wrote it most of the way up.
But I'll tell you what we did, and this is as a portfolio manager, it's not one
action, but the what what it causes in terms of another
action. Last year we sold in the flagship NVIDIA
and put it into Coinbase. Coinbase, I believe is up as at least as
much as in video and it is much less well understood.
The whole crypto movement, the crypto asset movement, Bitcoin as a new asset
class and so forth is not well understood or or completely accepted out
there. So we prefer to go where others are not
traveling as much. And you know, as we were moving out of
in video, we're saying, okay, regulators are trying to crush Coinbase here and we
were buying it on every dip in video have to happen to be one of the sources
for for that purchase. So it's not just what we do on the sell
side. It is what we do on the buy side that
that you have to look at. And yes, we do hold it in the more
specialized funds, but we've been taking profits there as well for the reasons I
just described. Yeah, and to be fair, you're right.
Coinbase is up about 620% since the end of 2022.
So that compares with about 530% gain in Nvidia.
Is there anything, though, Cathie, in the Nvidia story that would make you
rethink the name and want to become more aggressive on it?
Yes, the price came down a lot. We would you know, the rate of return,
expectation or split would a split do it because I know we've never.
No, no, no. That wouldn't change that.
Would you change anything? No,
no. Split adjusted then.
Then the price. So, you know, if you look at our
portfolios, what we're trying to capitalize on with a Palantir, for
example, are the next stages of this AI revolution.
What we're seeing in the GPU side of things is NVIDIA.
All praise to Jensen won. I mean, just unbelievable company
execution, vision and so forth. And, and it's not over.
It's going to last a long time. But there are there are going to be many
other companies benefiting from A.I.. The productivity lift alone is going to
be massive the most massive productivity left in history, we believe.
And so this A.I. revolution is going to be broad based
and is going to benefit a lot of companies in the on the GPU side, of
course, we have AMD as competition. But many people do not understand that
there's a lot of other surreptitious competition evolving out there.
Each of the Hyperscalers is evolving its own chip strategy.
You have a Tesla that has designed its own chip for an AI chip for the
specialized, more specialized autonomous driving opportunity.
And I think you're going to see a lot of companies developing more specialized
chips. We know that in video, of course, will
segment the market as well. So I just think that a lot of the
assumptions for NVIDIA, you know, that this is in various market and it's not
alone that those are changing. Well, we're speaking with Cathie Wood.
If you're just joining us, she's the founder and CEO and chief investment
officer of Ark Invest. She joins us from St Petersburg,
Florida. So it's interesting, Cathie, to you
know, Right. Everybody seems to be out there making
chips. And it's funny, we had a
conversation yesterday with Chris Miller who wrote the book Chip Wars, and we
talked about TSMC, that everybody can kind of design what they want.
But ultimately right now they've got to come back to TSMC as the fabricator to
make them. So as you say that, I mean you guys in
one of your funds, I think late last month was selling shares of TSMC.
I am curious about then your thinking around TSMC.
There's a story today too about TSMC winning more than 5 billion in grants
for their U.S. chip plants.
So money, you know, certainly being devoted to them.
Why maybe pull back a little bit on TSMC or what is your case for TSMC in the
long run? Well, the case for TSMC is, yes, it is
the manufacturer of these merchant chips.
So a very big story there.
But this is simply a cyclical call and and it has to do with that word
shortage. And TSMC, for example, Broadcom reported
last night, I listened to that call in the Semiconductor solutions part of
their business. They were up only 4%, up 35%, but
everything else down. So there are some cyclical phenomenon
out there, phenomena out there that we think are not they're not being
integrated into the short term expectations for a number of stocks.
Hey. Yeah.
So, Cathie, I want to move on to Tesla because you brought it up a moment ago.
You've been a long time bull on Tesla. You have been buying shares recently
after selling them for most of 2023. The stock down about 30% so far this
year. We covered the news this week that
shipments from Tesla Shanghai factory sank to the lowest in over a year in
February. The challenges facing the industry have
been well-documented. We've talked about those a lot.
Why do you still like Tesla, considering all of the challenges in the EV space
and also what many critics would say are disappointing fundamentals?
So, yes, you're right. We were selling last year as it was in
the 300 to $400 range. It's back to 175.
And this is what portfolio managers do. We have a five year investment time
horizon for Tesla and our price expectations from here.
I mean, we see roughly a 7 to 10 fold increase.
I know we're in the process of revising our model, so I'm not at liberty to give
you the new number, but with that new number be higher or lower than 2000.
Well, we're pushing it out a year and and therefore it will be higher because
the autonomous taxi platform opportunity will be in full force, we think.
And and we believe that Tesla will get the lion's share of that market here in
the U.S., if not elsewhere. Autonomous taxi platforms are SAS
models. Tesla's current gross margin is well,
it's in the teens right now because it's been cutting prices but we think
normalized the EV margin is in the 30% range.
SAS margins are in the 80% range. Most analysts focusing on the stock have
nothing in their models or very little for autonomous are confident that
autonomous is is going to happen has increased because it has happened.
We see Waymo successful. We see a lot of success and commercial
success that is in China. It can be done.
We think Tesla will launch a national service and Tesla, this is where I comes
in. Tesla has orders of magnitude more data
than all of the other auto and tech company companies going after this
market combined. And what's important about that?
Is that it has cornered cases that nobody else has rare rare occurrences in
on the roads that that it has recorded and is prepared for.
But others are. Kathy, just I just want to jump in.
It's kind of like a running joke with with the Tesla community, because Elon
Musk says every year we're going to have this autonomous driving technology.
And every year since he started saying it, what, 2017, 2018, it has it has
failed to materialize. Why are you so confident it's going to
happen in the near future? Well, because it has happened, as I just
said. And so it's not it's not if it is when,
that's the most important reason. Interestingly, in his last conference
call, Tesla's last conference call, Elon said, Yeah, I know I've been wrong about
it, so I'm not even going to make a projection.
I actually thought that was good and maybe has a better shot now.
And we're looking at some of their hiring and they're posting job postings
and and seeing rumblings in different cities that they're starting to get
ready. Hey, Kathy, something I know I brought
up this with you before, but I think back to our you in my first interview
back in May of 2014, so almost ten years ago.
But you brought up Elon Musk when he wasn't a household name or what his
company was doing. And you likened him to Thomas Edison.
And I guess what I want to ask you, you know, this individual, you talk with
him. You followed him obviously, for a long
time. Do you ever feel, you know, do you feel
that way still about him in terms of likening to someone like Thomas Edison?
And how do you find clarity and feel comfort in some of the questionable and
controversial things that that Elon comments on or that he says?
Yes. Well, we
we're focused on the technology and we're are.
And as is he, he is the inventor of our age.
And this age is a very special age because
the five major innovation platforms around which we have centered our
research are converging. And three of them, he is helping to
converge. This autonomous taxi platform
opportunity is the convergence of robotics.
Autonomous vehicles are robots, energy storage.
They will be electric, right. And artificial intelligence.
We're those are three separate s curves feeding each other and should lead to
super exponential growth. He has understood this idea that
technologies are going to converge with one another, and that is the way he's
been thinking. His first principles research.
Just because things have been done one way for a very long time think autos
doesn't mean is going to remain that way.
But and that's why he's going to win. Do you ever feel, though, that he gets
distracted or is it too.
Yeah, he is so laser focused on technology.
And and he in the case of Tesla, the electric vehicle side that is on
automatic pilot, they are just scaling. And what he is doing is becoming, you
know, the manufacturer of factories. He is trying to figure out how to
automate and continue to drive down the cost there.
His focus is on autonomous now, certainly.
And of course, you can say on X, he's distracted, but he's really more focused
on the innovation. How can I go back to the future where I
started, which was in the payments app space sold to PayPal?
How can I turn this into not only a payments app but an everything app?
And I think he's hard at work doing that in ways that we don't know yet.
We are, of course, talking with Cathie Wood.
She's the CEO, CIO and of course, founder of Ark Invest, joining us from
Florida. Cathie, you're talking about the future
of transportation. We got to talk about Archer Aviation.
One of the most read stories today is about the company that you've been
buying up. It's a developer of air taxis, Archer
Aviation, your stake around 10% across several of your ETFs.
You're the third largest investor in the name, we should note, shares down
roughly 30% so far this year. As our own Sam Potter writes today, you
are once again on the other side of a short call made by Grizzly research.
Last time you were in a similar spot regarding a different name to Simple,
you lost a lot and eventually sold most of your position.
So talk to us about why you believe in Archer and does it ever were you to go
against the short sellers? So our our investment process is
centered around research and original research.
I'll start with two simple. We sold two simple after the CEO who was
the tech technology visionary left. And so Grizzly got that right, I don't
think. For the right reasons.
Although we were in the teeth of a massive bear market as well.
If that CEO had not left, I don't think we would have sold that stock.
In the case of Archer, we have a high degree of confidence in Archer.
One thing to understand about ARC is we are the closest to ARC is the closest
you'll find to a venture capital company in the public equity markets.
And we tread where others in the traditional asset management world will
not go, at least on the public side when we see a real opportunity.
As we're doing our work on autonomous vehicles.
We concluded that the cost is going to drop so much that roads are going to
become very congested in the future, much more congested, if you can imagine
New York City. And so we then started doing work about
transportation in the skies. Is it possible?
Yes, it is possible. The FAA is the gating factor from a
regulatory point of view. There are two companies the FAA is
working very closely with. And and I think because of successes
elsewhere in the world, other companies are having success.
Where where regulators have not been as strict.
I think there's been a little more pressure on the FAA to pay close
attention here. And the two are Archer and Joby.
Our confidence went up when Boeing, which was suing it for patent
infringement, settle the case and actually took an
ownership position in Archer as as has Stellantis and United Airlines.
So three very deep pocketed partners who are also trying to figure out the future
of transportation. And and we know that they're on their
way both Joby and Archer to FAA certification.
Seems like the process is in motion and we haven't had a hiccup and and it has
an M.O. you with Abu Dhabi to launch an air taxi
service in 26 and pending regulation. It has an M.O.
you with Interglobe to launch an air taxi service in India.
Both of those have been much better from a regulatory point of view.
But how big of a concern is it to you that regulators here in the U.S.
could drag their feet? We did speak with an airline executive
recently who is concerned that the FAA is moving slower than other regulatory
bodies when it comes to this type of technology.
Yes. And that is why we pay a lot of
attention to regulatory arbitrage. We've seen innovation move abroad to
other countries, even Amazon. You know, the FAA wouldn't let Amazon
fly its drones ninth generation nearly ten years ago on its own property
outside. So it went to India and elsewhere.
I think the pressure is on the FAA now. And I also think that the bear market of
21 and 22 eliminated a lot of other competition that was brewing.
Just the funding markets were closed. And so I think this market is is much
more. Is that both Joby and Archer are going
to have much more share than otherwise would have been the case.
So we're pretty excited about the possibilities here.
Hey, Kathy, as you said, you know, one of the things about AAC, it's certainly
in its DNA is that you go places and take positions that other people maybe
don't do. And one of the things, though, that
increasingly I feel like the financial establishment, again, is interested,
very much so is in crypto. And I want to talk about your spot
Bitcoin ETF, if I may. The ARC 21 shares Bitcoin ETF.
What can you tell us about institutional interest in it?
Is there or is it mostly the funds that are going into it are mostly from the
retail side? Well, we are.
We know there's institutional interest because we're talking to a lot of
institutions, including state treasurers and and public pension funds.
And why why is this? Because they're trying to figure out if
this truly is a new asset class and if it is, they must have a point of view as
a fiduciary. If if there's a new asset class which is
uncorrelated or shows very low correlation in terms of returns relative
to other asset classes, then what what an asset allocator does is it will take
a position to increase returns per unit of risk.
That's what happens with low correlation of returns.
So definitely. Now, are they moving whole hog?
Not yet. And more are.
The big wirehouse is like the Morgan Stanley's and.
UBS. Wells Fargo.
Merrill Lynch. B of A.
They're all waiting to see who are the winners in terms of the ETFs because
they do not want to commit to an ETF that will close down and and makes it
and. Right so and they they're going to give
it what from what we're hearing three to 6 to 9 months.
So everything the net inflows that we've seen and
are away from those two spaces really it's part of it is our client base
switching from BTC into and other client bases into the ETFs, which are much
lower fee. All right.
But I do want to also then go to the next level and that is an ether ETF
being approved maybe in May. Are you optimistic that it's going to
happen by that May deadline? Are what obstacles might be still out
there that it won't make that deadline? Yeah.
So the the biggest obstacle is staking and I don't think the regulators will
allow staking in this first round if they allow the first round at all.
Now, we and one other firm are are we'll see our final deadline in May.
If they reject if they reject our filings, then we'll have to refile.
But my guess is my guess is they will move more now to a first come first
serve when this next round goes through. So if it's may, it will be without
staking. If it's later, there's a better chance
for staking. If we if it's in, I would say 2025,
because I think legislators and legislation is starting to get involved
here and taking it away from simply the regulators.
Hey, Cathy, I don't want to leave without asking you.
It is International Women's Day and I think about your path.
We Tim and I have been talking a lot to many women who have made their way in
male dominated fields. And I'm just curious
how you think about your trajectory from where you started and what you've
achieved. You started two firms or have co-founded
one and started your own firm. How you think about that path and what
is top a top of mind in terms of those other individuals and other women that
are out there that are maybe trying to do the same?
Yes. Well, I think the most important thing
in early years is to make your own bosses look brilliant, because younger
people, younger people coming into the business know so much more about
technology and where the world is going almost innately than, shall I say, more
seasoned investors. So just make your bosses look brilliant
and educate them and, you know, generate enthusiasm, enthusiasm, excitement,
energy around around ideas and make sure you have good mentors if they're not
giving you a good shot after you've made them look brilliant, you know, time to
move on. So that's one thing.
As far as starting a business, I would say
make sure there's an unmet need in our case.
In the case of Arc, what we saw was the traditional world going more passive or
benchmark sensitive when we saw an explosion of innovation thanks to the
five major innovation platforms around which we have centered our research and
investing. And so I said to myself, you know,
someone has to do this. And
so we went off. And honestly, I think most people
thought we would fail for a couple of reasons.
One, we put a truly active, fully transparent equity portfolio inside an
ETF wrapper, and that had not been done at scale at all.
And no one, no one who was a passive world that we had entered.
And then the second was we're benchmark agnostic.
You can put us against any benchmark and you're going to have to give us some
time after the massive interest rate shock that we went through.
And now we're on the other side and, you know, performing better as a result over
the last year. Yeah, but over time, these these
innovations are going to transform the world and create massive wealth
with a I as back to back to that topic as the main catalyst.
So we couldn't be more optimistic about innovation.
All right. Kind of leave it there, Kathy, as
always. So appreciate all the time that you do
give us. Have a great weekend.
Cathie Wood, of course, the founder, CEO and CEO of Ark Invest, joining us from
Florida. Kathy, thank you.
