Cathie Wood on What Comes Next in AI and Big Tech

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0:41Plus, earn unlimited 2 % cash back on every other purchase, giving you unlimited earned potential to invest cash back into your business. Inc. Business Premier is part of a suite of credit cards from Chase for Business, designed to meet your needs every step along the way. Learn more at chase.com forward slash business card. Chase for Business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank and a member FDIC. Hey, OddLots listeners, we're coming to D.C. We're finally doing it, Joe. It's going to be our first live show in Washington, D.C., our nation's capital.

1:18It's also finally going to be the time where we actually talk about the Jones Act. We've been talking about doing the Jones Act episode of OddLots for a long time, and it's become this recurring joke that we've never done. But we're going to do it in grand style because we're going to be doing it live in D.C. and it's actually going to be a debate. Yeah, so we have Sarah Fuentes from the Transportation Institute. She's going to be taking the pro side and we also have Colin Graybaugh of the Cato Institute. He'll be taking the against side. It's going to be really interesting to see how all of that shakes out.

1:53In addition to that, we're going to be speaking with Blair Levin, who was around during the telecom bubble. And we have Andrew Ferguson, the new head of the FTC, the one who's replaced Lena Kahn. We're going to be talking about mergers and acquisitions and all that stuff. So it should be a really fun night. If you want to come and join us for that evening, it's going to be on March 12th at the Miracle Theater. Go to Bloomberg.com forward slash oddlots and you can find the link to purchase tickets. We hope to see you there. Bloomberg Audio Studios. Podcasts Radio News.

2:38Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, I love it when we do live events. It's very fun. Sometimes there's audience participation, which is great. We get to, you know, sit on stage and look important. And this week we were on a very important stage. We were at the Bloomberg Invest Conference. This is our flagship conference of the year. And we got to speak to someone who I've wanted to interview for quite a long time. I like doing live events for sure. But, you know, I also love the comfort of my headphones, not having to worry about how I look.

3:16I do get nervous about guests showing up. Oh, I get nervous about guests. That's always – and they've always showed up. We've never done a live event where the guest didn't show up. Oh, you're going to jinx it now. I know. But that's right. But on Tuesday, March 4th, we were down at the Bloomberg Invest Conference and we got to interview Cathie Wood. That's right. So Cathie Wood, famously the founder and CEO of ARK Invest, famously an investor in some pretty big tech names like Tesla. So we got to ask her, you know, questions about Elon Musk and things like that and basically just hear what she thinks is coming down the pipeline in the upcoming years in terms of technology.

3:53She's very optimistic, Joe. She's very optimistic. She expects to see a golden age of tech investing, a golden age for American business bigger than the Reagan era, as she called it. So take a listen to our interview with Kathy. So the big story in markets right now is a widespread sell-off in the past couple of days. But even before then, we saw something specifically focused on AI. And the worries seemed to come out of nowhere. Suddenly, everyone was talking about DeepSeek, this Chinese AI model, and we saw a really intense sell-off. Were you aware of DeepSeek before that day? And how big a problem do you think something like that is for USAI?

4:39Actually, we were aware of DeepSeq R1. I think the paper came out in December. So our analysts had poured over it and thought it was a very interesting model. I think the surprise and the question was around, wait a minute, did this take only$6 million to build this large language model? And did they really do it on a high-end workstation? Are we going to need all this data center capacity after all? And I think with time, we've learned that they did a lot of pre-training before. Apparently, they have a 50 ,000 cluster of GPUs, which help with the pre-training. Nonetheless, as some of our finest technology experts, Sam Altman and Jensen Wong included, they commented they were terribly impressed by the algorithm itself.

5:40And I think what we were impressed by is it's open source. Anyone can use it. So here we go. Meta platforms was really the open source platform, large language model. Now we have DeepSeek. And I think yesterday, another one came out, Kung Fu. Oh, I totally missed that one. I love trying the new ones. I'll try it. I'll try it tomorrow. Right now, we're recording this March 4th. When the market sold off, there was this concern like, oh, will the greater efficiency mean at the margins, less demand for chips or less impulse to build out data centers? And there's no hard evidence of that. But the big tech companies, enormous CapEx budgets every single year.

6:24And they're throwing out these unbelievable numbers. There are hints here and there. Have you observed anything tangible, say over the last several weeks, that to you suggests that there is some change at the margin, deep seek aside, in how much businesses, hyperscalers, et cetera, are throwing at AI right now? I have not seen any change in the moment. There's no evidence of a slowdown. The power of these models is profound. And if anything, we just had a conversation with one of the largest LLM. We're under an NDA, so I can't talk about which one, providers. and it's clear that nations, educational systems, and enterprises are all saying, we have got to do this.

7:16This is transformational in so many ways. Many are talking and thinking about productivity and efficiency, but others are thinking about deep research, especially with the new reasoning models and deep research is one of them and are just blown away by the results that we're getting. So I'm not seeing any slowdown at all. So you mentioned the fact that DeepSeek is open source and that was a big differentiator between it and some other models. I know you're a big fan of open source. How do you incorporate that aspect into, I guess, an investment analysis And also, did OpenAI make a mistake by not going open source?

8:02Well, we've been tracking closed models and open source ever since the chat GPT moment. And what you'll see is the closed models have been ahead of the open source models. But if you look at the slope of the line of the performance improvement, open source is actually a steeper slope. So the reason I love open source is it is helping along the competition, helping the movement along, helping it go faster. And I think that open source nipping at the heel of closed is a very good thing. So, you know, Chad GPT came onto everybody's radar, I guess, late 2022. And I think objectively, anyone who spends any time with these tools, in a sense, is just absolutely jaw-dropping, right?

8:56Are you surprised, however, that we're like this far into it? And the tools are so, in some sense, extraordinary, but we can talk about some of the flaws and limitations. And yet we really haven't seen much of a macro impact from their use. We haven't seen some sector of the economy or the labor force get laid off. We haven't seen some major surge in measured productivity gains, although that's infamously hard to measure. Are you surprised in any sense by the existence of the technology and what seems like sort of a modest macro impact? So I do think productivity has been boosted to some extent.

9:35And you're right, it's very difficult to measure this. My background's economics, and in the 80s, productivity was a big question mark, and we saw how flawed the measurements are and probably still are. So I can only tell you the rate of uptake is so much is that enterprises are seeing a difference. Maybe if they're not laying people off, they're not hiring them. And that's because these AI tools are making their own, especially engineers, so much more productive. Right? So you just don't have to hire that next person. If you've seen the number of coding employees in the United States has dropped like a cliff.

10:19I mean, off a cliff. It hasn't dropped like a cliff. It's dropped off a cliff. And I don't know if you've seen that chart. So that very much has happened. as engineers just become more and more productive. You know, one of the things that we're wondering is, okay, what part of the software stack will this, the traditional software stack, will this impact? And we think the AI revolution, what we see already losing share to some extent, it is still growing, but losing share is software as a service. And, you know, I think we're all paying very close attention to the revenue growth dynamics of these companies.

11:00As salesforce.com, revenue growth isn't picking up. In fact, it continues to decelerate. I think its next quarter will be, I think, 7 % down from 9%. That's not what's supposed to happen here. And so I think that might be what you're referring to. Wait a minute, where are the top line dynamics? Where are they coming from? Well, I think we have a lot of entrepreneurs in a lot of garages or in R &D centers who are creating the next big thing. And, you know, we look at two profound ramifications of AI that we understand. We've been researching them for so long. The largest AI project on Earth is robotaxis, autonomous driving networks.

11:51We think that's going to drive$8 to$10 trillion in revenue globally in the next 5 to 10 years, up from zero now. So that's called embodied AI. The most profound application of AI, we believe, is going to be in healthcare. And the convergence of sequencing technologies, artificial intelligence, and new technologies like CRISPR gene editing are already curing diseases. Sickle cell disease and beta thalassemia cured. CRISPR therapeutics has that cure. It is generating revenue now. People find this one very hard to believe because it hasn't happened before. But the R &D explosion in health care is like nothing I've ever seen.

12:45And we think we're going to return to the golden age for health care. I started in the 80s when Genentech had taken off and created the golden age for health care back then. Returns to R &D back then were in the 30 % range. Today, for the broad-based pharma biotech field, the returns are down in the 4 % range. We think with all of these new tools and the incredible productivity being added to research and discovery in the healthcare space, we're going back to the golden age where returns on R &D could be 30, 40 percent plus.

13:43Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency? Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. For enterprise organizations, managing all your food needs is a tall order. But with EasyCater, you get a single workplace food vendor with the tools and resources to make it easy.

14:24Giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform. All while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. Since you mentioned robo-taxis, we got to talk about Tesla. Of course. Obviously a big component of your portfolio. Elon Musk seems very busy nowadays, to put it mildly. As an investor, do you worry at all that he is perhaps distracted from ostensibly the day-to-day running of the company?

15:08We've been getting this question practically since the beginning. So Tesla and then he starts all these other companies, right? And people are saying, does that not concern you? So I'll answer that first, then we'll bring in the government overlay. The reason it doesn't concern us is Elon Musk is probably the inventor of our age, but who understands that we're in the midst of the most profound convergence among technologies really catalyzed by AI. and he understands that the name of the game in terms of who's going to win all this, through all of this, are those companies that, number one, have deep domain expertise, they take AI seriously and they're investing in it, and perhaps most important, they have data that no one else has, proprietary data.

16:07Think of all the data spewing out from all of these companies, even Neuralink, that's biological, data. And the most prolific data explosion out there is in the healthcare space. We have 37 trillion cells in our body, and they turn over every quarter. And now we have something called single cell sequencing that we can combine with AI to unlock the secrets of life, health, and death. And that's what we're going to do. He understands that. Neuralink's a part of this. Okay, overlay overlay in the government sector. I agree he's doing something certainly for his country. I know he believes that. He's tweeting a lot, that's for sure.

16:52He's what? He's tweeting a lot. He always has tweeted a lot, right? He always has tweeted a lot. Anyway, so he's, I think what we have found with his companies, and we own in our venture fund, the private ones, as well, of course, as Tesla. And as we go through the quarterly reports and dialogue with management, critical to us is that he is keeping his eye on the technology balls that are his competitive or barrier to entry. And what Elon is expert at doing is if there's a bottleneck, he'll go in there and blow it up. And he will use first principles thinking. And he's surrounded himself by business people and engineers who want to work on the hardest projects in the world, the hardest projects that are going to help transform the way we live and work and so forth.

17:58Doge is another big project. It's not his full-time job, even though one would not know that. But we have talked to our counterparts, and we aren't talking to Elon as much these days, but to other very important decision makers. And they're really not skipping a beat. Now, the politics of what's going on have hit sales. And so, yes, that is true. That is why. And we knew that was going to happen. So there are a couple of calls this year, actually probably three. We knew Model Y was going to be completely refreshed, largest selling car in the world. That is beginning to happen throughout the world.

18:45And if the Model 3 refreshes any indication, this should work out very well. Perhaps more important is the lower-cost car that they are going to put out in the first half of this year. So$30 ,000 or less, and think less, especially with different credits. This is going to open up Tesla to a whole new market. As Elon says, and people don't believe him in this political dynamic, but its problem is in demand. There are people who have been waiting for a car. They just can't afford it. And they're very excited to have their first Tesla. So that's the second thing. The third thing, and we've watched this very closely, as you all know, autonomous.

19:32We do believe while they're launching in Austin in June, another important milestone. Now analysts have to integrate into their models what autonomous will mean for Tesla. And so anyone who's been viewing Tesla as an EV manufacturer is going to have to go back to the drawing board and realize that the gross margins of its autonomous network, its autonomous platform, will be in the 70 % to 90 % range, whereas their EV gross margins are in the mid-teens right now. That's a double-take. This is turning into a software-as-a-service model. And that finally, I think, will bring technology investors and analysts into the stock.

20:26They understand SaaS and how different the model is compared to an EV model. And the other thing about the AI opportunity in autonomous is it's winner take most. And we do believe that Tesla is in the pole position here in the United States. Anyone who's tried a Waymo car, as I have in both San Francisco. We all have. Big Waymo fans. Big Waymo fans. Big fans. If you look in Big Ideas 2025, which is our annual report, you will see why, and kudos to Waymo. I agree. It's a delightful ride. But in terms of the economics for Waymo, their car is uneconomic, totally uneconomic. It's going to be very difficult for them to scale without deciding to lose a lot of money.

21:22And you'll find that delineated in Big Ideas 2025. Since you mentioned the stock and the idea of tech investors coming back, let's talk about tech stocks. Because obviously, they've gotten really hit hard over the last week. But overall, you know, there was that furious post-election rally sometime, you know, the various peaks in things December. There's been this decline. What's going on? Is there a macro story behind the tech sell-off when you look at how the markets behaved? What's your answer? Well, I think, I mean, fear and greed is, you know, a constant trade-off. And I think after the election, the day after the election, the market started broadening out enormously away from just the Mag6 towards our kind of stock.

22:11And the reasons for that include deregulation. Deregulation or regulation has been a menace for innovation generally, but even the FTC not allowing M &A and not allowing strategic price discovery to say, hey, this new innovation is going to be worth a lot and we need it. Now the FTC is keeping the same merger guidelines. Pardon? The FTC is maintaining the merger guidelines. So we haven't seen this big M &A wave. I think we will see it. I think deregulation is critical to this administration's mandate, it feels. And it's one of the most important variables, because if you think about what was going on before, no M &A, even if companies didn't compete directly with one another.

23:09They disallowed so much M &A that, you know, the big companies kind of could sit back fat, dumb, and happy, and their shareholders didn't want them to buy anything because that would take away from their own, whether it's share repurchases or profit sharing and so forth. So I think that this administration is going to provide a really beautiful runway from a regulatory point of view for innovation. And I feel that what is also behind this, as you might imagine, China with DeepSeek, as we were talking about, okay, they're on our tail, right? Well, the Trump administration is extremely competitive and has China in focus.

23:58shall we say. So this is a good news thing. So let's do this. The other reason I think the market took off, or there are many reasons, but I think tax rates coming down broadly, which I think they will, as an offset to some of the tariffs, and I understand tariffs. I don't like tariffs. Tariffs are taxes. But if you listen to Kevin Hassert, It seems there's a quid pro quo developing here where, wait a minute, in the early days of our country, all of government was funded by tariffs. All of it. And now very little of it. I think they might be into a little bit of a rebalancing game. And what the clue there is, in terms of tax rate reductions, what are the first ones they've announced?

24:50Tips, Social Security, and overtime. Those are very appealing to the lower to middle income demographic, right? I think lowering all tax rates is going to be much more acceptable with that kind of dynamic at work as well. He's looking out for the little guy like he said he would, right? And so I think as a student of Art Laffer, lowering tax rates, deregulation is, we think, going to recreate something like the Reagan revolution, but I think it's going to be bigger. is going to be bigger because there are five innovation platforms now, 14 different technologies, whereas back then it was the PC.

25:39It was the PC. Now we have five robotics, energy storage, AI, blockchain technology, multi-omic sequencing. Five at the same time, they involve 15 different technologies, and they're converging. Autonomous taxi networks, convergence of robotics, energy storage and AI. Those are each, each one of those has its own S curve. And now they're going to be feeding one another. I mean, I think the Reagan revolution, and I was there and it was so enjoyable. It was the heyday, golden age of active equity management. And I think that's coming back. I think it's coming back big time. I think this will dwarf that.

26:24And that was pretty good.

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27:24The point is, you're engaged with your investments, and Public gets that. That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus an industry leading 3.8 % APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com. Paid for by public investing. All investing involves the risk of loss, including loss of principle.

28:03Brokerage services for U.S. listed registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc. Member FINRA and SIPC. Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at public.com slash disclosures. I want to ask a sort of general question about your investing strategy. And I know you emphasize that you're making long-term bets on transformational technology like AI, which we've been discussing, or robo-taxis. I guess my question is, at some point, the promise of that world has to come to fruition and actually be monetized.

28:39Do you ever set yourself deadlines for positive returns, or is there a time frame you have in your mind for when this will pay off? So our investment time horizon is five years. What's very important about the way we do our research, the most important variable in terms of determining how quickly these technologies are going to scale is units. Now, units, and something called Wright's Law. I don't know if you want me to go into it. It's a relative of Moore's Law. It's a way to understand how quickly the costs associated with each technology are falling. So we have had a good sense of all of these technology's cost decline dynamics.

29:31What was one of the biggest things that happened over the last five years? Unit growth plunged during COVID. And then we faced all of these massive supply constraints. That hurt the rate of change for some of our technologies. We're on the other side of that. We are on the other side of that. In fact, we're on the other side of three major headwinds over the last four years that really hurt our strategy. First was the boom bust associated with COVID and all of the excesses around that. Second, interest rates, very importantly, a response, 24-fold increase in little more than a year's time. That was a major shock to the system.

30:21Now, do higher interest rates always hurt our strategy? Not at all. In fact, 2017 and 18, we had some of our best years, one in an up year, one in a down year for the market when we were up. Interest rates growing up both years. I think we've just been through a very unusual circumstance. So we're done with the interest rate headwind. And we're done, if you think about it today, the long bond yield hit 4.12%. I don't know where it ended. But who expected that a few months ago? That's telegraphing something. And I'll get into that in just one minute. But interest rates, they're not going up. We do not believe they're going up.