The world is on the cusp of an innovation revolution not seen since the development of electricity, the telephone and the internal combustion engine, said Cathie Wood, founder and chief executive of ARK Investment Management.
“We are going to see the most spectacular period of innovation that we have ever seen”, built around five key sectors: DNA sequencing; robotics; energy storage; artificial intelligence (AI); and blockchain technology, Wood said in an interactive session on CNBC’s Pro Talks.
“The seeds of these technologies have been germinating for 25 years, but the likes of Oracle [ORCL], Dell [DELL] and Hewlett-Packard [HPE] were not going to lead us into the world of cloud and AI,” Wood said. “Now the tech is ready, the costs have collapsed and these innovation platforms are about to scale. I don’t think anyone understands this.”
“Now the tech is ready, the costs have collapsed and these innovation platforms are about to scale. I don’t think anyone understands this” - Cathie Wood
Wood’s funds have had a difficult year: the ARK Innovation exchange-traded fund (ETF) [ARKK] was down from $156 in mid-February, to $98.60 at the close on 1 December, with ARK Next Generation Internet ETF [ARKW] falling from $187 to $130 over the timeframe.
Dismissing concerns that the innovation stock bubble had started to burst, Wood stated that its woes this year had been down to fears over rising inflation and interest rates. “We had the vaccination campaign and people started going out and about again, and then the worry over inflation. The valuations in our portfolio just started to collapse from mid-February. But we are not in a bubble. Our strategies would be flying if we were. We have not begun rewarding the innovation which is about to happen. We couldn’t be more excited.”
Wood believes that Ark funds will quadruple in value over the next five years, adding that the bubble was, in fact, in benchmark stocks and that financial, energy and transport stocks were the ones in harm’s way. “This will be confusing for people, especially after broad-based benchmarks this year [the S&P 500 is up nearly 25%] seemed to be unable to do anything wrong,” Wood said.
“Wall Street algorithms associated with passive index-linked strategies are misclassifying innovation stocks. They are based on what has happened historically. There are huge inefficiencies in the market right now. We’re all about what is going to happen, we have an edge. I don’t think our research is wrong. I would put our team up against anyone.”
“This will be confusing for people, especially after broad-based benchmarks this year [the S&P 500 is up nearly 25%] seemed to be unable to do anything wrong” - Cathie Wood
“Apple [AAPL] has changed our lives, but it has not cured the disease. These three companies will be ringing the cash register with royalties,” Wood said.
Adhering to the medical theme, Wood said that Teladoc [TDOC] was primed to take advantage of the convergence of AI, DNA sequencing and gene editing to become the healthcare information backbone of the US. “Over half of their data is proprietary,” Wood said. “It follows patients from the physical world to online and will direct doctors, hospitals and insurance companies. The algos think it is just stay-at-home telemedicine. That is not what it is. It is one of the most underappreciated stocks out there.”
Wood believes that Twitter [TWTR] is also set to benefit from innovation around non-fungible tokens (NFTs). Ark Investment Management bought 1.1 million Twitter shares earlier this week after the stock plunged following the exit of founder and chief executive Jack Dorsey.
“The new CEO [Parag Agrawal] has been there for a while and we like what he is doing in terms of monetisation,” Wood said. “We love its positioning as a verification platform that is going to become huge with NFTs. We also think it is moving away from tween, teens and celebrities to more knowledge and ideas exchanging.”
“We love its positioning as a verification platform that is going to become huge with NFTs. We also think it is moving away from tween, teens and celebrities to more knowledge and ideas exchanging” - Cathie Wood
Wood also sees a great future for online broker Robinhood [HOOD], hit by controversies this year around meme stocks, a cyber hack and uncertainty over the future of payment for order flow.
“The stock is settling down. It has the best user interface out there for retail investors. It is also developing some interesting crypto strategies and has a shot at becoming one of the important digital wallets in the world. There will only be a few, and they will prove to be the most valuable financial companies in the world.”
Wood added that Ark still saw Tesla [TSLA] as a disruptor, given its high barrier to entry around its battery technology and AI chips. The funds are interested in fellow EV stocks, such as Rivian [RIVN] and Lucid [LCID], they needed to do more work in the autonomous vehicle field.
Wood pegs the metaverse as the next disrupter, describing it as a multi-trillion-dollar market opportunity. “It is more than a consumer idea. It will infiltrate every sector.”
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