Cathie Wood on What Comes Next in AI and Big Tech

of pre training before. Apparently they have fifty thousand, fifty thousand cluster of GPUs which helped with the pre training. Nonetheless, 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

platform large language model. Now we have deep Seek, and I think yesterday another one came out Kung Fu.

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 of them and are just blown away by the results that we're getting. So I'm not seeing any slowdown at all.

the movement along, helping it go faster. And I think that open source nipping at the heel of closed is a very good thing.

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 technology and what seems like sort of a modest macro impact.

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, 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 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

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 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 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 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. 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 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 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.

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. 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. 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.

I agree, he's doing something certainly for his country.

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. Doje 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 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 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 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 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 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 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 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 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, 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 that delineated in Big Ideas twenty twenty five.

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.

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 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, 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 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 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 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 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 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 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.

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.

cost decline dynamics. What 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 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, 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. 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

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 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 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 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 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. 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 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 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 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 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, 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, 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. 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, 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.

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