March 11, 2025 • 34 mins
Markets have been selling off, with shares of tech companies like Nvidia down almost 20% so far this year. But even before the recent selloff, DeepSeek rattled the AI market and sparked questions over how US platforms will compete and actually monetize their technology. Despite all these hurdles, some investors remain tech optimists. Cathie Wood, the founder, CEO and chief investment officer of ARK Investment Management, is one of the most prominent, with ARK's Innovation Fund heavily invested in companies like Tesla, Coinbase and Roku. In this conversation, recorded live on stage at Bloomberg Invest, we discuss Cathie's view of potential opportunities in the space, and why she's expecting the Trump administration to create a Reagan Era-esque "golden age" for investors.
Read More:
Cathie Wood Sees Trump Era as ‘Golden Age’ for Wall Street
Cathie Wood May Have Lost $14 Billion. But She’s Interesting
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Episode Transcript
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Speaker 1 (00:00):
Hey, Odd Loots listeners, We're coming to DC.
Speaker 2 (00:02):
We're finally doing it, Joe. It's going to be our
first live show in Washington, DC, our nation's capital. It's
also finally going to be the time where we actually
talk about the Jones Act.
Speaker 1 (00:13):
We've been talking about doing the Jones Act episode of
Odd Lots for a long time and it's become this
recurring joke that we've never done on But we're going
to do it in grand style because we're going to
be doing it live in DC and it's actually going
to be a debate.
Speaker 3 (00:28):
Yeah.
Speaker 2 (00:28):
So we have Sarah Fuentes from the Transportation Institute. She's
going to be taking the pro side, and we also
have Colin Graybou 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.
Speaker 1 (00:43):
In 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 Kong. We're going to be
talking about mergers and acquisitions and all that stuff. So
it should be a really fun name.
Speaker 2 (00:59):
If you want to come and join us for that evening,
it's going to be on March twelfth at the Miracle Theater.
Go to Bloomberg dot com forward slash odd Lots and
you can find the link to purchase tickets. We hope
to see you there.
Speaker 4 (01:14):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (01:29):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Tracy Allaway.
Speaker 1 (01:34):
And I'm Jill Wisenthal Joe.
Speaker 2 (01:36):
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
(01:56):
who I've wanted to interview for quite a long time.
Speaker 1 (01:59):
I like doing live events, for sure, but you know,
I also love the comfort of my headphone. It's not
having to worry about how I look.
Speaker 2 (02:07):
I do get nervous about guests showing up.
Speaker 1 (02:09):
I get nervous, but that's always and they've always showed up.
We've never done a live event where the guests didn't
show up.
Speaker 3 (02:15):
Oh you're going to jinx it now, I know, but
that's right.
Speaker 1 (02:18):
But on Tuesday, March forward, we were down at the
Bloomberg invest conference and we got to interview Kathy Would.
Speaker 2 (02:24):
That's right. So Kathy Would famously the founder and CEO
of ARC 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.
(02:44):
She's very optimistic, Joe.
Speaker 1 (02:46):
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.
Speaker 2 (03:00):
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 deep Seek, this Chinese AI model,
and we saw a really intense sell off. Were you
(03:21):
aware of deep Seek before that day? And how big
a problem. Do you think something like that is for USAI.
Speaker 3 (03:30):
Actually we were aware of deep seek are one. 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 six million dollars
to build this large language model? And did they really
(03:54):
do it on a high end workstation? Are we going
to need all this data center capacity after? And I
think with time we've learned that they did a lot
of pre training before. Apparently they have fifty thousand, fifty
thousand cluster of GPUs which helped with the pre training. Nonetheless,
(04:19):
as some of our finest technology experts, Sam Altman and
Jensen Wang included, they commented they were terribly impressed by
the algorithm itself. And 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
(04:41):
platform large language model. Now we have deep Seek, and
I think yesterday another one came out Kung Fu.
Speaker 1 (04:49):
Oh I totally, I totally missed that one. I love
trying the new ones.
Speaker 4 (04:53):
I'll try it.
Speaker 1 (04:53):
I'll try it tomorrow. Right now, we're recording this March fourth,
when the market sold off, was this concern like, oh, well,
the greater efficiency mean at the margins, less demand for
chips or less impulse to build out data centers.
Speaker 3 (05:07):
And there's no.
Speaker 1 (05:08):
Hard evidence so that you know, there's you know, the
big tech company's enormous CAPEX budgets every single year and
they're throwing out these unbelievable numbers their 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,
(05:32):
et cetera are throwing at AI right now, I.
Speaker 3 (05:35):
Have not seen any change.
Speaker 1 (05:36):
In there's no evidence of the power.
Speaker 3 (05:38):
Of these models is profound. And if anything, we just
had a conversation with one of the largest m we're under,
an NDA said, I can't talk about which one providers.
And it's clear that nation's educational systems and enterprises are
(06:03):
all saying we have got to do this. This 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 researches one
(06:23):
of them and are just blown away by the results
that we're getting. So I'm not seeing any slowdown at all.
Speaker 2 (06:32):
So you mentioned the fact that deep seek 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 open AI make a mistake
by not going open source?
Speaker 3 (06:53):
Well, we've been tracking closed models and open source for
quite ever since the chat GPT moment, and what you'll
see is the goal 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
(07:18):
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.
Speaker 1 (07:33):
So, you know, chaed GPT came on to everybody's radar.
I guess it's late twenty twenty two, and I think objectively,
anyone who spends any time with these tools in a sense,
just absolutely jaw dropping, right. Are 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
(07:55):
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 any sense by the existence of the
(08:16):
technology and what seems like sort of a modest macro impact.
Speaker 3 (08:21):
So I do think productivity has been boosted to some extent,
And you're right, it's very difficult to measure this. My
background's economics, and in the eighties, 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
(08:45):
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
(09:08):
United States has dropped like a cliff, I 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
(09:29):
the software stack will this 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. A Salesforce, dot com
(09:53):
revenue growth isn't picking up. In fact, it continues to decelerate.
I think it's next quarter will be I think seven percent,
down from nine percent. That's not what's supposed to happen here,
and so I think that might be what you're referring
to Wit a minute. Where are the top line dynamics,
where are they coming from? Well, I think we have
(10:14):
a lot of entrepreneurs in a lot of garages or
in R and 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 reaching researching
them for so long. The largest AI project on Earth
(10:38):
is robotaxis autonomous driving networks. We think that's going to
drive eight to ten trillion dollars in revenue globally in
the next five to ten years, up from zero now.
So that's called embodied embodied AI. The most profound application
(10:58):
of AI, we believe is going to be in healthcare,
and the convergence of sequencing technologies, artificial intelligence and new
technologies like Crisper gene editing are already curing diseases sickle
cell disease and beta thllocemia cured. Chrisper Therapeutics has that cure.
(11:22):
It is generating revenue. Now. People find this one very
hard to believe because it hasn't happened before. But the
R and D explosion in healthcare is like nothing I've
ever seen, and we think we're going to return to
the golden age for healthcare. I started in the eighties
when genentech had taken off and created the Golden age
(11:45):
for healthcare. Back then, returns to R and D back
then we're in the thirty percent range. Today for the
broad based pharma biotech field, the returns are down in
the four percent range. We think with all of these
new tailed, new tools and the incredible productivity being added
(12:08):
to research and discovery in the healthcare space, we're going
back to the golden age where returns on R and
D could be thirty forty percent plus.
Speaker 2 (12:35):
Since you mentioned robotaxis, 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 has
perhaps distracted from, ostensibly the day to day running of
(12:56):
the company.
Speaker 3 (12:57):
We've been getting this question practically since the beginning, So
Tesla and then he starts all these other companies, right,
and people were 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
(13:22):
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
(13:47):
seriously and they're investing in it. And perhaps most important,
they have data that no one else has, proprietary data.
Think 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.
(14:09):
We have thirty seven 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 in the government sector.
(14:33):
I agree, he's doing something certainly for his country.
Speaker 2 (14:36):
I know he believes that he's tweeting a lot, that's
for sure. He's tweeting a lot.
Speaker 3 (14:43):
He always has tweeted a lot, right, He always is
tweeted a lot. Anyways, 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
(15:06):
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.
(15:29):
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. Doje is
another big project. It's not his full time job, even
(15:51):
though one would not know that. But we have talked
to our counterparts and you know, we aren't talking to
Elan 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
(16:14):
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 why it was going to be completely refreshed, largest
selling car in the world that is beginning to happen
throughout the world. And if the Model threees refresh as
(16:36):
any indication this, 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 thirty thousand dollars or less and think less, especially
with different credits. This is going to open up Tesla
(16:57):
to a whole new market, as Elon says, and people
don't believe him in this political dynamic, but its problem
isn't demand. There are people who have been waiting for
a car that 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
(17:19):
you all know autonomous, We do believe well. 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
(17:41):
drawing board and realize that the gross margins of its
autonomous network. It's autonomous platform will be in the seventy
to ninety percent range, whereas their EV gross margins are
in the mid teens. Right now, that's a double tape.
This is turning into US software as a service model
(18:05):
and that finally, I think will bring technology investors and
analysts into this stock. They understand SaaS and how different
the model is compared to an EV model. And the
other thing about the AI opportunity and autonomous is its
(18:29):
winner take most. And we do believe that Tesla will
be in the is in the pole position here in
the United States. Anyone who's tried a Weiymo car as
I have in fans, big, big fans. If you look
at Big Ideas twenty twenty five, which is our annual report,
(18:50):
you will see why. And kudos to Weimo. I agree
it's a delightful ride. But in terms of the economics,
for Weimo, car is uneconomic, totally economic. It's going to
be very difficult for them to scale without deciding to
lose a lot of money. And you'll feel you'll find
(19:12):
that delineated in Big Ideas twenty twenty five.
Speaker 1 (19:14):
Since you mentioned the stock and the idea of like
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 sometimes 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
(19:37):
at how the markets behaved, what's your answer?
Speaker 3 (19:40):
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 mag six towards our kind
of stock. And the reasons for that include deregulation. Deregulation
(20:06):
or regulation has been a menace for innovation generally. But
even the FTC not only allowed not allowing M and
A and not allowing strategic price discovery to say, hey,
this new innovation is going to be worth a lot
and we need it.
Speaker 1 (20:23):
Now, the FTC is keeping the same merger guidelines. Pardon
the FTC is maintaining the merger guiden guidelines. So we
haven't seen this big anyway.
Speaker 3 (20:33):
I think, I think I think we will see it.
I think deregulation is critical to this administrative administration's mandate.
It feels it's one of and it's one of the
most important variables, because if you think about what was
going on before no M and A, even if companies
(20:56):
didn't compete directly with one another, they disallowed so much
M and A that you know, the big companies kind
of could sit back fat DOWMN 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 or profit sharing and so forth. So I think,
(21:18):
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 deep seek as we were
talking about, okay, they're on our tail right, Well, the
(21:41):
Trump administration is extremely competitive and has China in focus.
Shall we say, So this is this is a very
this is a good news thing. So let's let's do this.
The other reason I think the market took off, or
there are many reasons, but I think tax rates coming
(22:01):
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 Haszard, it seems there's a quid pro quode
developing here where Wait a minute, in the early days,
in the early days of our country, all of government
(22:23):
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, tips, social Security? And over
time those are very appealing to the lower to middle
(22:47):
income demographic. Right, I think lowering all tax rates are
going to 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 Laugher,
lowering tax rates deregulation is we think going to is
(23:15):
going to recreate something like the Reagan Revolution. But I
think it's going to be bigger. It's going to be
bigger because there are five innovation platforms now fourteen different technologies.
Whereas back then it was the PC, it's the PC
now we have five robotics, energy storage, AI, blockchain technology,
multiomix sequencing five at the same time. They involve fifteen
(23:38):
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 I was there and it was so enjoyable.
(24:01):
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, and
that was pretty good.
Speaker 2 (24:31):
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 robotaxis.
Speaker 3 (24:46):
I guess my.
Speaker 2 (24:46):
Question is, at some point the promise of that world
has to come to fruition and actually be monetized. Do
you ever set yourself deadlines for positive turns or is
there a time frame you have in your mind for
when this will pay off?
Speaker 3 (25:05):
So we are 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 and
(25:27):
something called rights law. I don't know if you want
me to go into it. It's a relative of More's law.
It's a way to understand how quickly the cost associating
with the associated with each technology or falling. So we
have had a good sense of all of these technologies
cost decline dynamics. What was one of the biggest things
(25:50):
that happened over the last five years. Unit growth plunged
during COVID, and then we faced all of these massive
supply construcs 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,
(26:11):
we're on the other side of three major headwinds over
the last four years that really hurt our strategy. First
was the boombust associated with COVID and all of the
accesses around that. Second, interest rates, very importantly a response
twenty fourfold increase in little more than a year's time.
(26:35):
That was a major shock to the system. Now, do
higher interest rates always hurt our strategy? Not at all.
In fact, twenty seventeen and eighteen we had some of
our best years one in and 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
(26:56):
the interest rate headwind and we're done. If you think
about it. Today, the long bond yield hit four point
one two percent. I don't know where it ended, but
who expected that a few months ago. That's telegradet graphing
something and I'll get into that in just one minute.
But interest rates, they're not going up. We do not
(27:17):
believe they're going up. Second was the concentration in the
market towards the mag six, and that really started after
eighth nine. This desire for large cap, lots of cash
and yes, touches, something sexy like AI right, so that
(27:37):
went into overdrive. We've never seen a more concentrated market
in our history, not even the Great Depression, which was
a binary will this company survive or not back then.
So to see the same kind of underlying fear and
crowding into a few names tells me there's been a
lot of fear out there. I think the first sort
(27:59):
of impact of the election was okay, some of that
fear can dissipate. Now we have a whole new set
of fears, but we can talk about that in a second.
So we think that the market will it has started
and will continue to broaden out. This market if it
continued towards MEG six not a healthy market, just not
(28:21):
by definition. Two things happen after a major concentration one
of two things, either a bear market like tech and
telecombust and early seventies, the end of the nifty to fifty,
or the other four major episodes of concentration. The other
four major ones ended up in bull markets that broadened out.
(28:43):
We think that has started, there will be two and FROs.
Maybe the most important and surprising to many people of
the headwinds which we are no longer facing is valuation.
If you look at enterprise value to IBADAT, which is
our chow and metrics, so the entire cap structure divided
by ibadah, which is not subject to financial engineering, you'll
(29:08):
see that our portfolio and we worked with SMP adjusting
for SBC and R and D and we can go
into that if you want our portfolio basically hit a
market multiple during the encry trade unwind, and after these
last few weeks we're getting close there again. Relative to
the SMP. Our portfolios really are at the low point
(29:33):
in terms of that valuation metric throughout all of our history.
So the valuation headwind is gone. I think what's shaking
the market up right now is a recession. Now. We
have been saying since the FED jacked rates up so
quickly that we've been in a rolling recession for the
last three years, and housing the housing market certainly agrees
(29:58):
with that. Aut punk small businesses have been decimated. They
couldn't get credit for a time. Their net income is
down thirty percent over the last three year three yesh years,
So one sector after another gave way with small and
medium business. Really that's the backbone of employment, right The
(30:21):
last shoot to drop is consumer. Walmart just telegraphed we're
beginning to lose the consumer, and Walmart had been saying
high end had been a source of their incremental surprises
to the upside, Target and Best Buy today, so I
think we're at the last leg. It is the consumer,
(30:41):
and why is this happening. I think the velocity of
money is slowing down dramatically, and in fact, if you
look at sequentially, it dropped in the fourth quarter and
it looks like it'll drop again. What does that mean?
Means people are holding onto their money. Why, Well about
I'm going to say say, if you include federal, state,
(31:02):
and local government and quasi government in the healthcare and
education space, we're probably looking at thirty percent of the
people out there saying I don't know if my job
is safe. And then you've got another layer of people
out there in the higher income end of the spectrum saying,
wait a minute, AI can do a lot of my job.
(31:26):
What's going on here? And you see that with the
coding fall off. So you've got uncertainty right now. But
what is this going to do? Is going to give
President Trump's administration and Chairman Powell all kinds of degrees
of freedom. If we do have negative GDP growth, We're
already seeing long rates coming down. What's that telling us? Yep,
(31:50):
real activities coming in. But I think the shocker going forward,
consider the source I've been saying this for a while,
is that inflation is going to surprise shockingly on the
low side of expectations.
Speaker 1 (32:03):
Kathy Wood. Thank you so much for joining od Lots
at Bloomberg invest.
Speaker 3 (32:07):
Thank you, thank you very much for inviting me.
Speaker 1 (32:10):
Thank you.
Speaker 2 (32:22):
That was our conversation with the CEO and founder of
ARC Invest, Kathy Wood, recorded live at the Bloomberg Invest Conference.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1 (32:33):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Kathy Wood, She's at Kathy d.
Speaker 4 (32:40):
Wood.
Speaker 1 (32:40):
And check out all of the writing that they do
at ARC invest. Follow our producers Carmen Rodriguez at Carman
armand Dash'll Bennett at Dashbot and Cal Brooks at Cale Brooks.
More Odlots content, go to Bloomberg dot com slash odd Lots,
where we have all of our episodes and a daily
newsletter that you can subscribe to. And if you want
to chat about all of these topics, including AI, including Tesla,
(33:02):
including the market, check out our discord where listeners are
hanging out twenty four to seven talk about all these
things Discord dot gg, slash.
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Absolutely ad free.
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All you need to do is find the Bloomberg channel
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Speaker 3 (34:00):
Eight
Hey, Odd Loots listeners, We're coming to DC.
Speaker 2 (00:02):
We're finally doing it, Joe. It's going to be our
first live show in Washington, DC, our nation's capital. It's
also finally going to be the time where we actually
talk about the Jones Act.
Speaker 1 (00:13):
We've been talking about doing the Jones Act episode of
Odd Lots for a long time and it's become this
recurring joke that we've never done on But we're going
to do it in grand style because we're going to
be doing it live in DC and it's actually going
to be a debate.
Speaker 3 (00:28):
Yeah.
Speaker 2 (00:28):
So we have Sarah Fuentes from the Transportation Institute. She's
going to be taking the pro side, and we also
have Colin Graybou 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.
Speaker 1 (00:43):
In 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 Kong. We're going to be
talking about mergers and acquisitions and all that stuff. So
it should be a really fun name.
Speaker 2 (00:59):
If you want to come and join us for that evening,
it's going to be on March twelfth at the Miracle Theater.
Go to Bloomberg dot com forward slash odd Lots and
you can find the link to purchase tickets. We hope
to see you there.
Speaker 4 (01:14):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (01:29):
Hello and welcome to another episode of the Odd Lots Podcast.
I'm Tracy Allaway.
Speaker 1 (01:34):
And I'm Jill Wisenthal Joe.
Speaker 2 (01:36):
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
(01:56):
who I've wanted to interview for quite a long time.
Speaker 1 (01:59):
I like doing live events, for sure, but you know,
I also love the comfort of my headphone. It's not
having to worry about how I look.
Speaker 2 (02:07):
I do get nervous about guests showing up.
Speaker 1 (02:09):
I get nervous, but that's always and they've always showed up.
We've never done a live event where the guests didn't
show up.
Speaker 3 (02:15):
Oh you're going to jinx it now, I know, but
that's right.
Speaker 1 (02:18):
But on Tuesday, March forward, we were down at the
Bloomberg invest conference and we got to interview Kathy Would.
Speaker 2 (02:24):
That's right. So Kathy Would famously the founder and CEO
of ARC 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.
(02:44):
She's very optimistic, Joe.
Speaker 1 (02:46):
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.
Speaker 2 (03:00):
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 deep Seek, this Chinese AI model,
and we saw a really intense sell off. Were you
(03:21):
aware of deep Seek before that day? And how big
a problem. Do you think something like that is for USAI.
Speaker 3 (03:30):
Actually we were aware of deep seek are one. 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 six million dollars
to build this large language model? And did they really
(03:54):
do it on a high end workstation? Are we going
to need all this data center capacity after? And I
think with time we've learned that they did a lot
of pre training before. Apparently they have fifty thousand, fifty
thousand cluster of GPUs which helped with the pre training. Nonetheless,
(04:19):
as some of our finest technology experts, Sam Altman and
Jensen Wang included, they commented they were terribly impressed by
the algorithm itself. And 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
(04:41):
platform large language model. Now we have deep Seek, and
I think yesterday another one came out Kung Fu.
Speaker 1 (04:49):
Oh I totally, I totally missed that one. I love
trying the new ones.
Speaker 4 (04:53):
I'll try it.
Speaker 1 (04:53):
I'll try it tomorrow. Right now, we're recording this March fourth,
when the market sold off, was this concern like, oh, well,
the greater efficiency mean at the margins, less demand for
chips or less impulse to build out data centers.
Speaker 3 (05:07):
And there's no.
Speaker 1 (05:08):
Hard evidence so that you know, there's you know, the
big tech company's enormous CAPEX budgets every single year and
they're throwing out these unbelievable numbers their 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,
(05:32):
et cetera are throwing at AI right now, I.
Speaker 3 (05:35):
Have not seen any change.
Speaker 1 (05:36):
In there's no evidence of the power.
Speaker 3 (05:38):
Of these models is profound. And if anything, we just
had a conversation with one of the largest m we're under,
an NDA said, I can't talk about which one providers.
And it's clear that nation's educational systems and enterprises are
(06:03):
all saying we have got to do this. This 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 researches one
(06:23):
of them and are just blown away by the results
that we're getting. So I'm not seeing any slowdown at all.
Speaker 2 (06:32):
So you mentioned the fact that deep seek 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 open AI make a mistake
by not going open source?
Speaker 3 (06:53):
Well, we've been tracking closed models and open source for
quite ever since the chat GPT moment, and what you'll
see is the goal 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
(07:18):
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.
Speaker 1 (07:33):
So, you know, chaed GPT came on to everybody's radar.
I guess it's late twenty twenty two, and I think objectively,
anyone who spends any time with these tools in a sense,
just absolutely jaw dropping, right. Are 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
(07:55):
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 any sense by the existence of the
(08:16):
technology and what seems like sort of a modest macro impact.
Speaker 3 (08:21):
So I do think productivity has been boosted to some extent,
And you're right, it's very difficult to measure this. My
background's economics, and in the eighties, 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
(08:45):
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
(09:08):
United States has dropped like a cliff, I 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
(09:29):
the software stack will this 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. A Salesforce, dot com
(09:53):
revenue growth isn't picking up. In fact, it continues to decelerate.
I think it's next quarter will be I think seven percent,
down from nine percent. That's not what's supposed to happen here,
and so I think that might be what you're referring
to Wit a minute. Where are the top line dynamics,
where are they coming from? Well, I think we have
(10:14):
a lot of entrepreneurs in a lot of garages or
in R and 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 reaching researching
them for so long. The largest AI project on Earth
(10:38):
is robotaxis autonomous driving networks. We think that's going to
drive eight to ten trillion dollars in revenue globally in
the next five to ten years, up from zero now.
So that's called embodied embodied AI. The most profound application
(10:58):
of AI, we believe is going to be in healthcare,
and the convergence of sequencing technologies, artificial intelligence and new
technologies like Crisper gene editing are already curing diseases sickle
cell disease and beta thllocemia cured. Chrisper Therapeutics has that cure.
(11:22):
It is generating revenue. Now. People find this one very
hard to believe because it hasn't happened before. But the
R and D explosion in healthcare is like nothing I've
ever seen, and we think we're going to return to
the golden age for healthcare. I started in the eighties
when genentech had taken off and created the Golden age
(11:45):
for healthcare. Back then, returns to R and D back
then we're in the thirty percent range. Today for the
broad based pharma biotech field, the returns are down in
the four percent range. We think with all of these
new tailed, new tools and the incredible productivity being added
(12:08):
to research and discovery in the healthcare space, we're going
back to the golden age where returns on R and
D could be thirty forty percent plus.
Speaker 2 (12:35):
Since you mentioned robotaxis, 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 has
perhaps distracted from, ostensibly the day to day running of
(12:56):
the company.
Speaker 3 (12:57):
We've been getting this question practically since the beginning, So
Tesla and then he starts all these other companies, right,
and people were 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
(13:22):
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
(13:47):
seriously and they're investing in it. And perhaps most important,
they have data that no one else has, proprietary data.
Think 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.
(14:09):
We have thirty seven 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 in the government sector.
(14:33):
I agree, he's doing something certainly for his country.
Speaker 2 (14:36):
I know he believes that he's tweeting a lot, that's
for sure. He's tweeting a lot.
Speaker 3 (14:43):
He always has tweeted a lot, right, He always is
tweeted a lot. Anyways, 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
(15:06):
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.
(15:29):
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. Doje is
another big project. It's not his full time job, even
(15:51):
though one would not know that. But we have talked
to our counterparts and you know, we aren't talking to
Elan 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
(16:14):
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 why it was going to be completely refreshed, largest
selling car in the world that is beginning to happen
throughout the world. And if the Model threees refresh as
(16:36):
any indication this, 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 thirty thousand dollars or less and think less, especially
with different credits. This is going to open up Tesla
(16:57):
to a whole new market, as Elon says, and people
don't believe him in this political dynamic, but its problem
isn't demand. There are people who have been waiting for
a car that 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
(17:19):
you all know autonomous, We do believe well. 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
(17:41):
drawing board and realize that the gross margins of its
autonomous network. It's autonomous platform will be in the seventy
to ninety percent range, whereas their EV gross margins are
in the mid teens. Right now, that's a double tape.
This is turning into US software as a service model
(18:05):
and that finally, I think will bring technology investors and
analysts into this stock. They understand SaaS and how different
the model is compared to an EV model. And the
other thing about the AI opportunity and autonomous is its
(18:29):
winner take most. And we do believe that Tesla will
be in the is in the pole position here in
the United States. Anyone who's tried a Weiymo car as
I have in fans, big, big fans. If you look
at Big Ideas twenty twenty five, which is our annual report,
(18:50):
you will see why. And kudos to Weimo. I agree
it's a delightful ride. But in terms of the economics,
for Weimo, car is uneconomic, totally economic. It's going to
be very difficult for them to scale without deciding to
lose a lot of money. And you'll feel you'll find
(19:12):
that delineated in Big Ideas twenty twenty five.
Speaker 1 (19:14):
Since you mentioned the stock and the idea of like
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 sometimes 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
(19:37):
at how the markets behaved, what's your answer?
Speaker 3 (19:40):
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 mag six towards our kind
of stock. And the reasons for that include deregulation. Deregulation
(20:06):
or regulation has been a menace for innovation generally. But
even the FTC not only allowed not allowing M and
A and not allowing strategic price discovery to say, hey,
this new innovation is going to be worth a lot
and we need it.
Speaker 1 (20:23):
Now, the FTC is keeping the same merger guidelines. Pardon
the FTC is maintaining the merger guiden guidelines. So we
haven't seen this big anyway.
Speaker 3 (20:33):
I think, I think I think we will see it.
I think deregulation is critical to this administrative administration's mandate.
It feels it's one of and it's one of the
most important variables, because if you think about what was
going on before no M and A, even if companies
(20:56):
didn't compete directly with one another, they disallowed so much
M and A that you know, the big companies kind
of could sit back fat DOWMN 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 or profit sharing and so forth. So I think,
(21:18):
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 deep seek as we were
talking about, okay, they're on our tail right, Well, the
(21:41):
Trump administration is extremely competitive and has China in focus.
Shall we say, So this is this is a very
this is a good news thing. So let's let's do this.
The other reason I think the market took off, or
there are many reasons, but I think tax rates coming
(22:01):
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 Haszard, it seems there's a quid pro quode
developing here where Wait a minute, in the early days,
in the early days of our country, all of government
(22:23):
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, tips, social Security? And over
time those are very appealing to the lower to middle
(22:47):
income demographic. Right, I think lowering all tax rates are
going to 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 Laugher,
lowering tax rates deregulation is we think going to is
(23:15):
going to recreate something like the Reagan Revolution. But I
think it's going to be bigger. It's going to be
bigger because there are five innovation platforms now fourteen different technologies.
Whereas back then it was the PC, it's the PC
now we have five robotics, energy storage, AI, blockchain technology,
multiomix sequencing five at the same time. They involve fifteen
(23:38):
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 I was there and it was so enjoyable.
(24:01):
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, and
that was pretty good.
Speaker 2 (24:31):
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 robotaxis.
Speaker 3 (24:46):
I guess my.
Speaker 2 (24:46):
Question is, at some point the promise of that world
has to come to fruition and actually be monetized. Do
you ever set yourself deadlines for positive turns or is
there a time frame you have in your mind for
when this will pay off?
Speaker 3 (25:05):
So we are 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 and
(25:27):
something called rights law. I don't know if you want
me to go into it. It's a relative of More's law.
It's a way to understand how quickly the cost associating
with the associated with each technology or falling. So we
have had a good sense of all of these technologies
cost decline dynamics. What was one of the biggest things
(25:50):
that happened over the last five years. Unit growth plunged
during COVID, and then we faced all of these massive
supply construcs 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,
(26:11):
we're on the other side of three major headwinds over
the last four years that really hurt our strategy. First
was the boombust associated with COVID and all of the
accesses around that. Second, interest rates, very importantly a response
twenty fourfold increase in little more than a year's time.
(26:35):
That was a major shock to the system. Now, do
higher interest rates always hurt our strategy? Not at all.
In fact, twenty seventeen and eighteen we had some of
our best years one in and 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
(26:56):
the interest rate headwind and we're done. If you think
about it. Today, the long bond yield hit four point
one two percent. I don't know where it ended, but
who expected that a few months ago. That's telegradet graphing
something and I'll get into that in just one minute.
But interest rates, they're not going up. We do not
(27:17):
believe they're going up. Second was the concentration in the
market towards the mag six, and that really started after
eighth nine. This desire for large cap, lots of cash
and yes, touches, something sexy like AI right, so that
(27:37):
went into overdrive. We've never seen a more concentrated market
in our history, not even the Great Depression, which was
a binary will this company survive or not back then.
So to see the same kind of underlying fear and
crowding into a few names tells me there's been a
lot of fear out there. I think the first sort
(27:59):
of impact of the election was okay, some of that
fear can dissipate. Now we have a whole new set
of fears, but we can talk about that in a second.
So we think that the market will it has started
and will continue to broaden out. This market if it
continued towards MEG six not a healthy market, just not
(28:21):
by definition. Two things happen after a major concentration one
of two things, either a bear market like tech and
telecombust and early seventies, the end of the nifty to fifty,
or the other four major episodes of concentration. The other
four major ones ended up in bull markets that broadened out.
(28:43):
We think that has started, there will be two and FROs.
Maybe the most important and surprising to many people of
the headwinds which we are no longer facing is valuation.
If you look at enterprise value to IBADAT, which is
our chow and metrics, so the entire cap structure divided
by ibadah, which is not subject to financial engineering, you'll
(29:08):
see that our portfolio and we worked with SMP adjusting
for SBC and R and D and we can go
into that if you want our portfolio basically hit a
market multiple during the encry trade unwind, and after these
last few weeks we're getting close there again. Relative to
the SMP. Our portfolios really are at the low point
(29:33):
in terms of that valuation metric throughout all of our history.
So the valuation headwind is gone. I think what's shaking
the market up right now is a recession. Now. We
have been saying since the FED jacked rates up so
quickly that we've been in a rolling recession for the
last three years, and housing the housing market certainly agrees
(29:58):
with that. Aut punk small businesses have been decimated. They
couldn't get credit for a time. Their net income is
down thirty percent over the last three year three yesh years,
So one sector after another gave way with small and
medium business. Really that's the backbone of employment, right The
(30:21):
last shoot to drop is consumer. Walmart just telegraphed we're
beginning to lose the consumer, and Walmart had been saying
high end had been a source of their incremental surprises
to the upside, Target and Best Buy today, so I
think we're at the last leg. It is the consumer,
(30:41):
and why is this happening. I think the velocity of
money is slowing down dramatically, and in fact, if you
look at sequentially, it dropped in the fourth quarter and
it looks like it'll drop again. What does that mean?
Means people are holding onto their money. Why, Well about
I'm going to say say, if you include federal, state,
(31:02):
and local government and quasi government in the healthcare and
education space, we're probably looking at thirty percent of the
people out there saying I don't know if my job
is safe. And then you've got another layer of people
out there in the higher income end of the spectrum saying,
wait a minute, AI can do a lot of my job.
(31:26):
What's going on here? And you see that with the
coding fall off. So you've got uncertainty right now. But
what is this going to do? Is going to give
President Trump's administration and Chairman Powell all kinds of degrees
of freedom. If we do have negative GDP growth, We're
already seeing long rates coming down. What's that telling us? Yep,
(31:50):
real activities coming in. But I think the shocker going forward,
consider the source I've been saying this for a while,
is that inflation is going to surprise shockingly on the
low side of expectations.
Speaker 1 (32:03):
Kathy Wood. Thank you so much for joining od Lots
at Bloomberg invest.
Speaker 3 (32:07):
Thank you, thank you very much for inviting me.
Speaker 1 (32:10):
Thank you.
Speaker 2 (32:22):
That was our conversation with the CEO and founder of
ARC Invest, Kathy Wood, recorded live at the Bloomberg Invest Conference.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1 (32:33):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Kathy Wood, She's at Kathy d.
Speaker 4 (32:40):
Wood.
Speaker 1 (32:40):
And check out all of the writing that they do
at ARC invest. Follow our producers Carmen Rodriguez at Carman
armand Dash'll Bennett at Dashbot and Cal Brooks at Cale Brooks.
More Odlots content, go to Bloomberg dot com slash odd Lots,
where we have all of our episodes and a daily
newsletter that you can subscribe to. And if you want
to chat about all of these topics, including AI, including Tesla,
(33:02):
including the market, check out our discord where listeners are
hanging out twenty four to seven talk about all these
things Discord dot gg, slash.
Speaker 2 (33:10):
Odlock and if you enjoy all blots, if you like
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Speaker 3 (33:26):
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Speaker 2 (33:27):
All you need to do is find the Bloomberg channel
on Apple Podcasts and follow the instructions there. Thanks for listening.
Speaker 3 (34:00):
Eight
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