While many investors have been concerned about rising interest rates and inflation, Cathie Wood, the founder and CEO of Ark Invest, believes that innovative technologies like artificial intelligence (AI) will act as a deflationary force and drive growth stocks higher.
Wood expressed her confidence in the power of innovation, stating, “Innovation solves problems—especially AI.” She believes that most advisors and asset allocators are not exposed enough to disruptive innovation and that investing in disruptive technology and growth companies is a winning strategy.
Although Wood’s flagship fund, the Ark Innovation ETF, faced challenges in recent years, it has started to bounce back. In 2022, the fund is up nearly 25%, compared to the S&P 500’s 11% gain. Over the long term, the fund has a solid track record with an annualized return of over 10% since its inception in 2014.
Wood gained recognition after her flagship fund returned more than 150% in 2020 by investing in “disruptive innovation” stocks like Zoom, Roku, and Teladoc. However, when pandemic stocks eventually fell, her fund lagged behind the S&P 500 index in 2021 and 2022.
Last year, tech stocks were hit hard by the Federal Reserve’s interest rate hike campaign, but they have since recovered. Wood believes that her fund will outperform the market as innovation trends act as deflationary forces and boost growth stocks.
Wood pointed out that inflation is correlated with higher oil prices, but gas futures are down significantly, indicating demand destruction. Additionally, the strength of the U.S. dollar is a deflationary force, especially considering the liquidity concerns in other parts of the world.
While Wood predicts a harder landing for the economy than most people expect, she is “not at all worried” about a financial crisis similar to 2008. She believes that there has already been weakness in areas of the economy such as housing, auto sales, and inventories.
Wood sees a “convergence” of several exciting technologies, including AI, robotics, and energy storage, that will fuel exponential growth in the future. Costs for these technologies are declining, and their growth is “feeding into each other.”
As for specific stock picks, Wood believes that companies like Tesla, Zoom, Teladoc, and UiPath will benefit from this convergence of technologies. She estimates that Tesla’s share price will reach $2,000 by 2027. Wood also recently added air taxi company Archer Aviation to her portfolio.
While Wood sees the potential in AI, she has been trimming her holdings in chipmaker Nvidia due to excessive valuation. She has also taken profits on other longtime holdings like Tesla, Shopify, and DraftKings.
Despite the challenges faced last year, Wood is optimistic about the future, stating, “We are earning our way back…a lot of our companies' earnings and revenue have started to surprise to the upside.” She believes that deflationary forces brought about by innovation will cause rates to go down, which is good for growth.
In conclusion, Cathie Wood is confident that AI and other innovative technologies will act as deflationary forces and drive growth stocks higher. She remains committed to her playbook of investing in disruptive technology and growth companies, and her portfolio’s recent performance shows signs of a rebound. Wood’s optimism for the future is based on her belief in the power of innovation and the convergence of exciting technologies that will fuel exponential growth.
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