The AI Revolution | ITK with Cathie Wood feat. Frank Downing & Will Summerlin

foreign [Music] greetings everyone uh well it's uh in the know employment Friday is in the know for Ark invest so welcome again but we're going to change it up a bit today we know that AI has captured the imagination of the world consumers and businesses of course chat gbt really started it all off and now everyone is scrambling to figure out what the ramifications are companies are trying to figure out how best to use it as our consumers and of course investors are trying to figure out you know where is going where's the value going to accrue how much commoditization will take place well we have many experts at ARC but two in particular two of our analysts focus on uh artificial intelligence and actually we've got Frank Downing here who is our director of research for the Next Generation internet which includes importantly artificial intelligence and will Summerlin whose co-lead of our venture Capital fund and is focused on AI as well but from different angles and so I I'd like to start this off by talking about how we've been AI everything and everywhere in terms of our analysis practically since the beginning of the firm so every stock in our portfolio has been analyzed with that lens on we've been doing this for a while and to give you the best example of this Nvidia 2014 Tasha keaney comes into our brainstorm and announces after we've tasked her with figuring out what's going to go into an autonomous vehicle she comes back during one of our brainstorms with her aha moment and that was that the brains or the central nervous system of an autonomous vehicle remember this is back in 2014. we're going to be gpus now we owned Nvidia we were exposed to Nvidia uh back then uh as a gaming company in fact all it was in the mind minds of most uh investors was a PC gaming chip company and gaming was growing rapidly so in many growth portfolios but as soon as as Tasha said that I said Tasha nobody knows this nobody knows this this is not in the price of Nvidia at all Nvidia at that time was a five dollar stock on the split adjusted basis and now it is a four hundred dollar stock five dollars and somewhere in the five to ten billion dollars now has scaled to a trillion it is now 25 times Revenue so now people do understand that AI is a big idea and uh many are treating Nvidia like it is the only a i i idea out there well we have uh we have a different perspective and uh I would like to now introduce you all to Frank Downing who will start off uh this part of our AI analysis thanks Kathy and I think to help kind of frame what's going on in the market and especially for investors it's helpful to add some historical perspective here uh when we look at kind of the the foundational shifts in Computing architecture over time uh you can look at the shift from the Mainframe to personal Computing and the internet that took place in the in the 90s and the the companies that delivered the hardware that was fundamentally required for that shift Intel and Cisco for example did really well during that time period but if you look towards uh and their cyclical Cycles within there if you look at the mid 90s for example uh but when you look towards the end of the decade uh by the end of the decade 2000 2001 companies like Microsoft that were delivering the the kind of new products and services with Windows and office Oracle on the database side uh Microsoft actually surpassed Intel and revenue and now uh 10 20 years later is multiples of Intel's Revenue so the the hardware was the necessary investment first but the companies that were delivering the the software experiences on top of it uh were able to generate uh much more Revenue uh after that initial investment cycle uh and at higher gross margins as well and I think you can look at the next change and infer something similar which is the transition from PCS to mobile Computing where you had companies on a market cap basis like Qualcomm and arm do very well around the 2010 period once the iPhone came out as this aha moment that mobile Computing and smartphones were going to be a thing those companies did great and then a lot of value accrued to the companies that deployed software and services on top of those mobile phones uh be it Google or Apple Services really accruing a lot of that value that came after that initial surge in hardware and I think you know following companies like Nvidia since 2014 like Kathy mentioned when when people didn't really see the potential for AI now that we've had the chat GPT moment the the fastest application to 100 million users ever everybody is scrambling to invest in the hardware so that they can deliver these products and services down the road so you can think of every purchase of AI Hardware today uh going to fund some product or service that's delivered through software in the future or even in the physical world if you look at Tesla on the autonomous driving side and so I think now that you know everybody is crowding into companies like Nvidia the the question that we have is where is the value going to accrue next and it's not to say that Nvidia don't do well I think this Market is going to be so big there will be room for NVIDIA and others to come into the hardware space and do well uh but uh they're only doing well because there's an anticipation of future products and services in the software Market that are going to capitalize on what this AI hardware and accelerators are unlocking and so now I'll hand it over to will to talk more about kind of how our research suggests that uh software opportunity with AI is going to evolve thank you Frank so if we step back for a second and think about knowledge work as a category uh human knowledge workers are paid about 32 trillion dollars a year to do things that are increasingly automatable by AI imagine writing software code creating spreadsheets reviewing legal agreements and we're already seeing this productivity uplift in software engineering GitHub recently put out a study showing that software Engineers using GitHub copilot their AI coding assistant are twice as productive as software Engineers who are not using AI a company called replit which is a startup recently said that up to 80 of new code on the platform is generated by AI coding assistance and so that's a 5x productivity uplift and when we think about software Engineers this is a high skilled high value job category software engineers make hundreds of thousands of dollars a years in many cases and we're already seeing AI more than double their productivity so we think that's representative of what we're going to see across many job categories from doctors to lawyers to software engineers and when we think about the opportunity from an investment standpoint we think that by 2030 AI could increase the productivity of knowledge workers by more than fourfold that means AI would create more than AI software specifically would create more than a hundred trillion dollars in value through the productivity uplift and if we look back historically at the value capture opportunity for software enterprise software companies generally capture between 10 and 25 percent of the value created by their software and so if an Enterprise software company is able to save a customer 10 million dollars a year they would be able to capture one to two and a half million dollars in value through Revenue that's a rough framework that we've seen work historically if we apply that to AI a hundred trillion dollars in value creation means software companies should be able to capture between 10 and 25 trillion dollars a year in Revenue in our base case we assume that software companies will be able to capture about 14 trillion dollars in Revenue by 2030. and if we compare that to Enterprise software today enterprise software generates about one trillion dollars in revenue and so we think we'll go from one trillion dollars in revenue for software spend to 14 trillion by 2030. obviously there are some sensitivities in this assumption if you go to our big Ideas report we have a sensitivity table where you can actually look at different scenarios play out variable both on productivity uplift as well as the value capture but the base case here is that AI is going to create a lot of value with the software and application layer based on our research so how do we actually pick the companies that we invest in well first off we look for applications that are creating a lot of value for customers so you can take Ai and build a product but if that product doesn't create value for your customers it's not going to generate meaningful Revenue so the first thing we do is look for applications that are creating a lot of value for customers one area that we think will create a lot of value and where AI will create a lot of value is in the contact center contact centers are not a great source of of Labor the average churn is over 100 So Soft the average contact center employee stays for about seven months and then quits so by the time you get them trained they leave so churn is a big problem it's also considered a cost center within most companies which means they're optimizing on ways to reduce costs at the same time you want to create good customer experiences right you want your customers to be delighted about the support they're receiving and so we see this as an opportunity that's right for automation we're already seeing applications of AI within the contact center so that's step number one is try to find use cases that create a lot of IU for customers and then when we look at the specific companies to invest in we really look at three variables the first is proprietary data the second is a distribution advantage and the third is leadership in the company who understands the opportunity and is leaning aggressively into AI so I'll talk about all three of those first proprietary data we think the best companies uh position or company's best position to capture the AI opportunity start with a proprietary data set that allows them to train or fine-tune models specifically for their use case and so if we look at a company like twilio twilio serves over a trillion interactions between customers and companies on an annual basis that's a lot of data that they can use to train or tune models but more importantly the companies that we believe are best position have a data feedback loop which means usage of their product generates Insight that allows them to continually train the model and get better and better over time and the more scale they get the better the model performs the harder they are to compete with one analogy I like here with Tesla is a blue stop sign so very few people know this but there are a couple of places in Hawaii that actually have blue stop sites and a human could probably Intuit rolling up to the stop sign that it's a stop sign right even though it's not red it's shaped like a stop sign and it says stop on it but an AI model that's powering a full self-driving vehicle might not know that it might roll up and say well that's not a stop sign it's blue and continue rolling on through but if the human intervenes and presses the brake it basically labels that event as a mistake and the system learns over a couple of instances that blue stop signs are also stop signs and so then if this were a Tesla every Tesla in the fleet would then realize that blue stop signs are also stop signs and that's a data feedback loop that's very powerful and hard to compete with so that's proprietary data second is distribution we think companies that already own workflows right companies that are already deployed within an Enterprise are able to distribute AI features and products more easily than those who are coming in net new is a is a challenger and so if we think about a company like twilio mention them from a data Advantage perspective they already have most of the Fortune 500 as a customer and so it's easy for them to go into their customers who are already using twilio in the contact center for example and upgrade their contact center software to include AI features and functionality and so it's in our view an easy yourself for a company like twilio that already is in a company already managing these workflows than it is for a challenger to come in and try to sell them an entirely new contact center solution the third is leadership and we really look for leadership that not only understands the opportunity but is aggressively pursuing the opportunity and oftentimes what this means is taking everything you know about your company taking everything you know about your product roadmap throwing it out and starting over with the context of AI being a new disruptive platform and you know one of the things that we've realized is Founders are actually better at this than most professional CEOs so if you look across our portfolio many of the companies that we invest in are founder-led and the founders are willing to really see this as a chapter too throw out what they knew before and start from scratch and that's one of the things that we look for that we find compelling so with that I'll hand it back to Kathy to talk more broadly about the implications from a productivity standpoint sure and uh before before I go into that I'd like to leverage off of something that both Frank and and will were talking about uh competition and Hardware uh and who are some of the other players they're somewhat surprising actually uh sure there's the they're the amds of the world and and of course uh Taiwan semi is is going to accommodate all of these players um but there are other companies and Tesla is a good example it has designed its own AI chip so has meta platforms so has Google uh and in in Tesla pulled its Nvidia chip out of uh its cars and uh put in its own which is more of a a special purpose AI chip as opposed to a more generalized uh AI chip um so so that's on the hardware side and then on the software side what's fascinating today is you know to see Hardware like Nvidia get a multiple like 25 or 26 times revenues that's not times earnings that's times revenues whereas most of these many of the software companies uh in which uh we have or to which we have exposure uh they are priced in the well twilio itself is two times revenues and others and that's an unusual one that's a that's that's quite an unusual one others though are in the single digits as a multiple of revenues so it sort of flipped the world on its head most uh most investors have gotten used to Hardware being lower multiple and software being higher multiple so it's a very interesting time and as far as the ramifications broadly I think we are going to be shocked at the productivity gains uh that uh artificial intelligence will unleash and I think that we're at a moment in time from an economic point of view uh where companies are going to really want AI they're going to be looking for ways to cut costs why because we think they're losing pricing power covid was a very special time or postcovid during the supply chain uh problems very special time from a pricing point of view these this was a major Supply shock to the global economic system and uh and so pricing Powers you know demand increased relative to supply pricing power these companies had they're losing it now and we believe the economy and we'll go into this in a moment is closer to a hard landing and it is during periods of turmoil and recession that companies and consumers are willing to change the way they're doing things and we think we're moving into that kind of moment uh so thank you Frank and and will uh and I'm sure that we will um uh invite many questions uh with this uh with some of the things you've said and uh and uh we will we would uh suggest that people go to our big Ideas 2023 to get a sense of where we think AI is going and just stay tuned on Twitter uh to both Frank and will uh to learn more about it as uh as it changes uh at a very very rapid pace so thanks uh Frank and will and now we'll get on with the typical thank you uh we'll get on with the um normal program uh which is going through more macros we'll we'll start with fiscal policy monetary policy then we'll go through economic indicators and market indicators now what I realized that I do sometimes is I delve into the deeply into the details uh and then don't don't conclude uh um strongly enough so I'm going to start with the conclusion now many of you know we think there's going to be a harder Landing out there in the economy than most uh most people expect and um and we're beginning to see uh that the the stock market is actually appreciating now doesn't that seem inconsistent no no uh for the past two years when it relates to Innovation and for and and for all of 22 for the broader Market we went into a bear market and in some parts of the market an extreme bear Market the likes of which we have never seen before uh Innovation stocks were hurt more uh in this go around than they were in the tech and Telecom bust when we were ready for prime time uh in terms of the these new technologies the cloud didn't come about until 06 uh AI the first big big breakthrough deep learning not until 2012 and then uh the Transformer architecture and artificial intelligence 2018 the Tekken Telecom bubble happened because too much Capital chased too few opportunities too soon the Technologies weren't ready and the costs were prohibitive well now the costs are are coming down to uh an extreme degree and and AI is a great example of this and the Technologies are ready just in terms of costs um chat GPT if that model had been developed in 2015 it would have cost 800 million dollars to develop it was developed in 2020 and it cost roughly five million dollars think about that what a rapid cost decline that was and uh if it were to be developed today it would be uh less than 500 000 and by the year 2030 that model would cost thirty dollars so AI training costs are dropping at a a rate of 70 percent per year we've never seen anything like this this is twice as fast maybe more than twice as fast as Moore's Law and we think the explosive growth opportunities will happen very quickly as well I think Nvidia going from -13 rev Revenue growth uh in its latest quarter the April quarter and guiding to a 63 increase in Revenue in the next quarter gives you a sense of how quickly companies uh and consumers are scrambling to take advantage of this new technology uh so the conclusion here is we do think we're going into a hard Landing uh or let's just say a harder Landing than most expect we do think a lot of that is discounted but it will be uncomfortable enough for companies who are losing pricing power and um and experiencing margin pressure it is going to force them to adopt these new technologies faster than otherwise would be the case Innovation solves problems it always does and we believe companies are going to be looking at a major problem and that is margin degradation that they will want to protect against um and an example of the market having discounted a good deal of this bad news is uh in the last 10 days Home Depot Home Depot guided down its same store sales for the entire year down to something like minus zero minus five percent uh in a Range and when you think about it Home Depot should be benefiting it benefited a lot during covet of course but a lot of people are not moving from their homes because their mortgage rates are so low and today's mortgage rates are so high in comparison that they they can't afford to to to move and so they they are continuing to renovate and and fix up their homes and yet Home Depot is saying its sales are going to fall this year and what does that mean that's both price and and units at work here and yet when it announced that when it revised down that number the stock really didn't go down that much and that's because we went through a bear market last year and the market in its wisdom saw the future now what is the market looking at well we believe that the market is beginning to discern that interest rates and inflation are going to come down much more than anyone now specs and while the market has been very narrowly focused to Mega tech companies you can look at that in one of two ways the negative way is wait a minute this this Market is way too narrow it is rewarding just a few stocks and that's you usually a a bad sign it is sometimes it certainly was in the late 60s early 70s with the nifty 50 and in the Tekken Telecom bubble which which basically rewarded only technology companies but many other times it's actually the opposite it is this narrowing gives way to a broadening out especially if the economic backdrop improves and when we say economic backdrop up in in this case inflation and interest rates and we've been saying for quite some time we think that the bigger risk going forward uh out there is not inflation it's a deflation and we believe that the the fixed income markets began to recognize that last October mid-october uh interest rates the 10-year treasury bond yield in the United States peaked at 4.3 percent uh and and it is still lower than that at about 3.7 today so uh that's the punch line and now we'll go through the the usual drill fiscal policy um as as we expected uh we had we have a debt deal now uh that uh President Biden is going to sign we're not going to have to worry about this until early 2025. they're taking this off the table uh for uh election Year campaign season uh and it makes sense um it's astonishing how fearful the market was of default though credit default swaps on U.S sovereign debt uh Rose at its peak to 325 325. um now this is an insurance the price of an insurance policy against default so it it went up to 325 and uh within the last few days is down to 10. uh so the the fear out there was extreme and the market is enjoying the stock market uh some uh some of a relief rally associated with that fear going away okay so that's fiscal policy monetary policy M2 uh officially now uh dropped 4.6 on a year-over-year basis uh in April and we think that it will continue uh to accelerate to the downside we think it'll be down five percent or more in in May um I'll I'll say it again it is shocking to me that the Fed never talks about money supply um I I start I was early in my career when fed chairman volcker was focused on inflation and all we talked about was money supply so quite a big difference so the question now is is the Fed going to pause and we keep getting uh different stories from different fed Governors and presidents and so forth um if you look at the two variables that the FED has focused us on uh employment and you look at the headline numbers including today's we'll get into that in a moment um you'd say no way are they going to pause they're going to keep keep lifting rates employment is too strong if you look at the details inside today's report and maybe I will go through that now you'll see that they may be having second thoughts while the headline number non-farm payroll was up 339 000 I believe much stronger than the 250 to 280 000 expected um the another number which is actually a leading indicator of employment but it's very deep deeply into the report is called household employment so payroll employment is a survey of Corporations household employment is a survey of households and that number was down down three hundred and ten thousand uh which is pretty shocking to see that kind of a Divergence but it does happen at turning points in the cycle and it has happened a number of times uh in the last really year and a half we've seen um the three-month moving average of the household employment numbers go negative uh while the non-farm payroll numbers uh um churn ahead and what What might explain this in our view it could be because the payroll employment just counts the number of jobs household employment those workers some of them are working two and three uh jobs at a time and uh so but they're just one person employed so it could be that they are losing some of those jobs um we'll we will see it tends to capture uh the small and medium businesses more than the non-farm payroll does and they're the first to lay off people so that may be what's going on if you look at the CPI um well the FED is going to have some interesting statistics we think in the next couple of months um and and it's mostly because of what happened last year as opposed to this year it looks like the CPI is going is settling into the 0.1 to 0.3 range the comparison from last year uh for May was 0.9 and for June it was 1.2 that's month to month so we're going to be dropping off some big numbers here and we wouldn't be surprised to see the number in July reported in July for June to be around 3 percent and to give you a sense of that a year ago June the number on a year-over-year basis was nine so nine to three within one year's time and we think the evidence is brewing that that number is going to continue down and probably will go negative and when the fed recognizes that that is the case as the as we believe they will there are all kinds of leading indicators which I'll share with you in a minute uh then it is going to change its tune and uh by that time we're probably going to see more increases in the unemployment rate so today we got an increase from 3.4 percent to 3.7 percent uh and the reason was that household measure fell 300 310 000 while the labor force so the people out there looking for work actually increased by nearly 150 000 people so that's a three-tenths of an increase uh in in the unemployment rate the other negative piece of news from an economic activity point of view was that the work week shrank by 0 0.3 percent uh and that has a disproportionate impact it doesn't sound like a lot 0.1 hours equals 0.3 percent but it does have it is a depressant on uh economic indicators uh and in fact if you look at uh total hours worked uh in the economy they have essentially been flat to slightly down now since January so there are a number of employment related indicators that are suggesting weakness even though there are others like the jolts index job openings soared in the last month uh initial claims started coming down again uh that the Challenger job survey uh that one showed that layoffs surged 287 percent year over year these are layoffs of their reductions in force so a layoff of a group of people at uh at the same time so we're getting all kinds of conflicting uh indicators which is again typical at turning points and you'll know I've been using that phrase turning points for a while now and one of the reasons for that is it does feel like we've been through rolling recessions housing and autos and two negative GDP quarters uh in the in the first half of last year uh and um and so it feels like this is one heck of an extended uh uh turning point in in the economy it was interesting to note today that uh Larry Summers came out again I mean he's all over the place uh he was you know a an extreme Hawk at one point Hawk means uh he was he was suggesting that the FED raised continue to raise interest rates by 75 basis points at a clip and and then he pulled back when he saw some economic weakness now he's saying well if they pause they should increase by 50 basis points in July so we've still got a A lot of people out there who do not believe that the FED has conquered inflation and who do believe that we're in a 70s style inflation we just think that's flat out wrong um the other thing that I'd like to update uh on you on was something that we started to share a couple of months ago and that is this identity MV equals PQ and if you you'll remember PQ is nominal GDP and MV is money times the rate at which money turns over in the economy per year so that's called velocity so MV must equal PQ that's an identity so we've got the first quarter numbers in I talked about them uh last time around nominal GDP was up seven percent in the first quarter but money was down about two percent on average for the quarter M2 on a year-over-year basis and so what did that mean that meant velocity increased nine percent to offset that decline in money now uh the the second quarter consensus expectation for uh GDP nominal GDP both price and units is six percent five to six percent but we already know that money is going to be down about five percent that means velocity has to accelerate uh to 10 to 11 to make that uh identity work if GDP is up five to six percent now we had the Regional Bank crisis at the end of March and we don't think it's over or we think deposits will continue to outflow seeking higher yields in Money Market funds so that crisis is not over uh and crises tend to hurt velocity meaning uh businesses and consumers pull back and they don't spend money quite as quickly and they start cutting budgets and they start laying people off and you know you get into a little bit of a vicious cycle such that velocity actually uh Falls now if you assume velocity doesn't fall but does flatten out is flat on average from the first quarter to the second quarter uh then what what would have to have what would what that would translate into is a year-over-year increase of only eight percent not that 10 to 11 percent that we need in order to get that six percent five to six percent in nominal GDP growth um that is why we think we're going to see a a bit of a harder Landing here than than many people expect it's velocity not continuing to accelerate and uh so what will what will that mean it means that something will have to give in nominal GDP either pricing or units or both so we would not be surprised to see nominal GDP growth on a year-over-year basis disappoint uh in the second quarter and if not the second quarter then certainly the third quarter that is how we get uh our hard Landing okay on to economic indicators uh they were all over the place some surprising on the upside surprising on the the downside on the upside Capital spending non-defense capital goods orders ex-aircraft big surprise I think it was up 1.4 on a month-to-month basis and expectation was not much change at all we had as I mentioned before the jolts index job openings went from roughly 9.6 million uh to 10.1 million uh that's interesting and of course today we got non-farm payrolls also higher than expected on the negative side some of the uh surprises were University of Michigan consumer sentiment index relapsed relapse so we're back into deep covid and 0809 territory in terms of the sentiment index and it makes sense it's that Regional Bank crisis is consumers saying wait a minute what's going on are We safe are we safe in our banks that's a big one right uh so and and it was a big drop and a big surprise the other thing in that report was consumers saying I think inflation's going up and I think one of the reasons for that was gasoline prices did go up and the consumer is railing against price increases and that's why we think a lot of companies are going to start cutting prices Home Depot said it was going to start cutting prices in some categories and Costco which pointed on the same store sales front it too said something happened in March April many companies are saying this and we're going to cut prices to draw the consumer back in we also got the ism new orders index so this is on the manufacturing side it dropped to 42. this is recession territory for manufacturing and that's a pretty fresh number on the good news on inflation in terms of reported inflation the PPI was less than expected at 0.2 percent month to month which took it down to 2.3 percent from 2.7 percent on a year-over-year basis and we think it is about to flip into negative territory because commodity prices as measured by the Bloomberg commodity index are down about 29 on a year-over-year basis so that's the pipeline for the PPI and the PPI of course is a pipeline for the CPI at least in part now on to market indicators I mentioned earlier the equity Market has narrowed in terms of just a few stocks a mega cap tech stocks accounting for I think at 75 percent of the markets move this year the positive move this year uh we would expect if we're right on our inflation and interest rate call uh the market to broaden out uh and that will give us more Comfort uh narrowing tends to be if if sustained can be very negative it means we're setting up for a bear Market but it can also mean there's uncertainty now in this case about inflation and interest rates and when there's more certainty that those are under control and moving in the right direction uh then we think uh the the move will to be broadened to broaden out on the fixed income front we did go uh up in terms of the 10-year treasury yield from about 3.5 to 3.7 in the last month and I think some of the reason for that is the debt deal um the the the uh treasury has not been issuing debt because it had hit up against the debt ceiling and it was doing all kinds of fancy Maneuvers around cash management to make sure that it could the government could still pay its bills well now it can issue again and so the entire uh curve has has moved up and I think with today's employment report again superficially the headline numbers uh the the Market's basically saying okay the FED could raise now maybe they pause this time but uh they'll probably raise a couple of more times after that we're paying very close attention to this 4.3 percent which is where the treasury bond yield peaked in October and uh from 3.7 we'd be very surprised to see it uh go back to that level especially if we're right on what's about to happen to inflation also in the fixed income markets the yield curve uh the Regional Bank crisis with um the FED coming through with the bank facility and uh and uh Shoring up the the regional banking system with the The Lending facility um with that move the yield curve uh the inversion uh diminished to some extent it got to something like 110 or 115 basis points meaning that long-term treasury bond yields were 1.1 percentage point below short term two-year yields then it narrowed to 30 to 40 basis points and now we're back today to 80 basis points and that's the bond market talking saying wait a minute wait a minute the FED should not be tightening in here because the bond market in its wisdom is looking perhaps at a hard Landing but certainly lower than expected inflation and growth that said we we also are paying attention to credit default swaps which seem to that they're somewhat elevated but they seem to have settled in those are bets uh bets or insurance policies against a default uh there as I said the price of those is a bit elevated uh but but is um is not shooting out here and uh the spread in terms of corporate bond yields relative to treasury bond yields again a little elevated uh but nothing nothing alarming so uh the yield curve is flashing a a yellow light I would say and if we go back to that minus 100 115 basis points uh then then we think we may see another crack in the system uh whether it's regional Banks or commercial real estate we're certainly seeing strategic defaults as a problem for some companies out there on commodity prices another Market indicator I mentioned they're down 29 using the Bloomberg commodity price index all Commodities are down on a year-over-year basis the ones that we monitor except for gold and silver gold has been in a trading range for the last two and a half years uh now and as long as it stays in that trading range um we're we're fine I think part of the reason it's moved up from the 167 17 000 or 100 range up to the 1900 to 2 000 range was the flight to safety um some would say it's fear of inflation a hedge against inflation uh we would say it's more of a flight to safety much like Bitcoin enjoying enjoyed going from nineteen thousand to thirty thousand um oil prices have been very interesting uh you know OPEC had said that they were going to cut back by 500 000 barrels a day in in May and yet the oil the oil price rallied a little bit on the announcement but in May in the month of May has come straight down from the high 70s to the low 70s it broke into the 60s for a moment there and we do believe this is demand destruction at work because of electric vehicles and electric vehicle miles traveled now that uh Uber is renting cars and Hertz actually is renting cars is um buying cars electric vehicles because the maintenance costs are 50 to 60 percent lower than that for gas powered vehicles the dollar against all expectations has moved up in the month of May uh and and that's interesting it may be because we are we did not have the debt default so maybe another relief rally there but whatever it is it's anti-inflationary a rise in the dollar all other things equal brings inflation down in the U.S relative to other countries so um I'll end by saying or echoing what I I said the last time we have found it very interesting that Bitcoin and crypto generally rallied in the face of a crisis the Regional Bank crisis uh and that that was proof positive to us at least that uh that crypto and especially Bitcoin and and to some extent ether um have become flight to safety Vehicles much like gold and in fact it got us thinking about Innovation generally especially now uh that AI has is becoming so important top of mind all corporations now uh which means it's going to happen faster than otherwise would have been the case we think Innovation is going to be perceived broadly before all is said and done in this cycle as a flight to safety it's the opposite of the way uh investors and others have been perceiving it in the last couple of years they were looking at innovation in in a period when interest rates were going up as as uh a problem a problem in their portfolios because Innovation or any long-duration asset is very dependent on interest rates but if interest rates are going down then they turn from a headwind into a Tailwind so that's good but this other notion of flight to safety uh if if if and especially in the world of artificial intelligence if my competitor is doing something in the Innovation space specifically AI that I am not doing and I am going to lose then I need to get there quickly I need to this is a safety valve for me to get to innovate uh at least as fast if not faster than my competitors and uh AI certainly is bringing uh that that risk and that opportunity to life in a way that we couldn't have imagined in 2014 when we were doing our work on Nvidia and who else might be the beneficiaries of this very powerful movement so very exciting times thank you for joining me again and us I'm very happy you had a chance to meet uh Frank and will and with time you'll meet all of our analysts and you'll see the depth of the research that we're doing and many of you know Brett Winton our chief futurist at futurist who I've ever seen him more excited and obsessed by the way than he is today with the possibilities um that A.I is uh is delivering us so with that happy spring into summer and we'll be with you again next employment Friday foreign foreign

Channel: ARK Invest

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Keywords: innovation, investing, cathie wood, cathy wood, kathie wood, kathy wood, cathie woods, cathy woods, kathie woods, kathy woods, ARK, market news, fintech, frank downing, will Summerlin, AI, artificial intelligence, chat gbt, nvidia

Id: wbiEGHjlE4Y

Length: 53min 36sec (3216 seconds)

Published: Fri Jun 02 2023