Cathie Wood, founder and CEO of ARK Investment Management, is famous for her unwavering conviction in disruptive innovation and the companies behind it. The firm’s ARK funds gained prominence, and legions of investors, in 2020 as interest rates plummeted and growth stocks lifted off, although gains turned to losses in the next two years as the companies stumbled and rates rose.
Cathie Wood, CEO of ARK Investment Management
This year, ARK is riding high again, paced by huge gains in stocks such as Tesla (ticker: TSLA), Coinbase Global (COIN), and Roku (ROKU). The firm’s flagship ARK Innovation exchange-traded fund (ARKK), with about $8 billion of assets, gained 54.5% through July 26, compared with a 19% increase in the S&P 500 index. ARK’s other funds, which invest in themes such as the genomic revolution, autonomous tech and robotics, and financial-technology innovation, similarly are outpacing the broad stock market, although they are still well below their early-2021 peaks.
Barron’s talked with Wood in mid-July about future innovations, including her bold predictions for Tesla’s robotaxi fleet, her bullish view of cryptocurrencies, and the beneficiaries of generative AI. An edited version of the conversation follows.
Barron’s: You were a big buyer of Tesla stock last fall and winter as the shares sold off. Now that Tesla has rebounded, you have been selling. What is the thinking behind your recent sales?
Cathie Wood:The main reason for the trade is portfolio management. Tesla has gone up more than 2½ times in the past six months, and some of our other stocks are still near their lows. When Tesla moves above 10% of the portfolio, we would cut it back and redeploy into other stocks that we think aren’t well understood.
Yet, you maintain a $2,000 price target on the stock. It recently traded for $264. You have bold projections for electric-vehicle sales and ride-sharing revenue—too bold, many skeptics say.
Our confidence has increased since Tesla is cutting prices. It is one of the few auto manufacturers that can afford to do that, because it is riding down the cost curve of consumer electronic batteries. This is going to hurt the other manufacturers whose costs are much higher. Last year, Tesla sold seven million electric vehicles globally. By 2027, we expect 60 million to be sold and Tesla to essentially keep its market share.
You also have lofty projections for Tesla’s robotaxi business: $227 billion in Ebitda [earnings before interest, taxes, depreciation, and amortization] by 2027. That’s more than Apple’s [AAPL] current Ebitda. Why such confidence in the company’s robotaxi rollout?
We already have proof of concept for autonomous cars. I took a ride in a Cruise automation car in December and told it to go to my son’s apartment in San Francisco. It took me there and back in about half an hour of riding.
Tesla’s competitive advantage is the billions of miles of real-world driving data it has compiled, which are used to train models to teach the car how to adjust to rare situations. No one has been able to do this because they don’t have anywhere near as much data.
We believe Tesla is in the core position to be the autonomous taxi platform in the U.S., and it will price the service below Uber and Lyft. With new technologies, what causes costs to go down is unit growth. As with EVs, we believe Tesla will pass the cost declines along as it scales.
Is it reasonable to expect that people will feel safe riding in robotaxis in three or four years?
I don’t know about you, but I’d prefer to get into a driverless car that I trusted than one with a driver I know nothing about. There are about 45,000 fatalities a year from auto accidents, and 80% to 85% of those are caused by human error. If we take humans out of the situation, there will be many fewer accidents. We already have data to show this: A fully self-driving Tesla has one accident every 3.2 million miles, whereas a Tesla with human drivers has one every 600,000 miles. The average car has one every 500,000 miles.
You also sold Nvidia [NVDA] recently. Why?
A lot of people have made a big deal that our flagship fund no longer owns the stock. For people who don’t think that we pay any attention to valuation, it was valuation that got us to take it down. Nvidia is selling at a very high multiple of revenue right now.
You also bought Meta Platforms [META] last month for the first time. What attracted you?
Facebook’s shift from the metaverse to AI [artificial intelligence] is one of the big reasons that the stock has turned around. The other reason is, the company’s engagement numbers have been better than expected. Meta has a segmentation strategy—older people are on Facebook; younger people are on Instagram and WhatsApp. It remains to be seen for Threads, but I don’t think it will be the same as Twitter.
Coinbase Global, the cryptocurrency exchange, is another of your holdings. The stock has doubled in the past month as the regulatory landscape appears to be shifting. What is the outlook?
Something very important changed in the past six months. At first, we were focused only on [regulatory efforts of] the executive branch—basically, those of the Securities and Exchange Commission and its chair, Gary Gensler. But the judicial and legislative branches of government are moving into motion and basically saying that the SEC has overstepped its bounds when it comes to its authorities as a regulator.
The court is questioning the SEC’s charter. And, odds makers think the SEC will lose its cases against Grayscale Investment and Ripple Labs.
[Shortly after Barron’s interviewed Wood, a U.S. district court judge ruled that Ripple’s XRP tokenisn’t a security when sold on public exchanges, but an unregistered security when directly sold to institutional investors. The ruling is generally viewed as a victory for the cryptocurrency industry, which is battling the SEC over whether its products fall under the regulator’s jurisdiction.]
Meanwhile, the legislative branch has awakened to the fact that crypto is a new asset class and we might need new legislatures to give the regulators some guidance. Those two branches of government have given us great confidence that Coinbase will come out of this as a winner. Many Coinbase competitors either haven’t entered the U.S. or moved out because of our regulatory system. Coinbase has stayed to fight. We think they’ll be rewarded accordingly.
Why do you remain bullish on cryptocurrencies?
We see three revolutions taking place because of crypto. Bitcoin will dominate the first one, the money revolution. The biggest proof is that when regional-bank stocks were falling apart earlier this year, Bitcoin went from $19,000 to $30,000. That was a flight to safety, and we expect it to accelerate. The centralized monetary system we have today is an aberration. We could be going back to the future—before the Federal Reserve existed—under a digital, rules-based monetary system with no government oversight.
The second revolution is in financial services, or the so-called DeFi [decentralized finance], which will be Ethereum-based. There are a number of infrastructure providers out there. It’s the survival of the fittest, and I’m excited to see who wins.
The third is digital property rights, or what many call NFT [nonfungible tokens] or the metaverse. People are already buying real estate in virtual worlds. Our young research associates come into the office wearing jeans and T-shirts with no logos, but they are getting their status in the virtual world.
Investors are obsessed with developments in artificial intelligence. What sorts of companies will benefit from generative AI, and how can they seize the opportunity?
When we view stocks through the lens of AI, we look for three things. The first is domain expertise and visionary management; the second is good distribution, and the third, critically important, is proprietary data that can be used to train AI models to improve products and services, cut costs, and increase productivity.
Today, we pay knowledge workers $32 trillion globally. If we’re right, this is the assembly-line moment for knowledge workers. Those costs are going to come down, and productivity is going to go up dramatically. Any company not thinking about this is going to have problems competitively, because many markets will become winner-take-most.
Twilio [TWLO] has data on trillions of interactions between businesses and consumers, so we think the company is going to be a huge beneficiary. We also believe Teladoc [TDOC] has the best shot at becoming the backbone of healthcare information in the U.S. Since doctors on Teladoc have to see the electronic health records of patients, the company is gathering information at a rapid pace. In the future, Teladoc models could give doctors recommendations on the best course of treatment.
Which other disruptive technologies are in the pipeline?
I expect to see more cures of rare diseases, because various kinds of gene sequencing are enabling us to identify mutations in our genome that Crispr gene editing is able to reprogram.
As autonomous taxi platforms take off, the costs associated with them will fall and the roads will get more congested. That means more commerce will have to go to the skies. We’re excited about drone delivery of food, groceries, and medical supplies. You’re going to see more drones and EVTOLs [electric vertical takeoff and landing vehicles] in the skies. Within a couple of years, you’ll be able to take an air taxi from Manhattan to JFK for the price of a taxi today.
Is there a stock about which you once had conviction and then changed your mind?
We owned Illumina [ILMN] for a very long time, but consolidated out of it in late 2020. We felt the company was making a strategic mistake by holding its [gene sequencing] price at $1,000 per sequence. That’s a mortal sin in innovation—you have to pass along cost declines to clients so that you can proliferate the technology and enjoy even more cost declines. This has given Pacific Biosciences of California [PACB] a chance to catch up. We sold Illumina and bought as much PacBio as we could.
Thanks, Cathie.
Comments