Investing in Disruptive Innovation | Catherine Wood | Exponential Finance



I started Ark invest three and a half years ago to focus on solely on disruptive innovation so John's talk right now was very relevant we decided that there was so much opportunity in these exponential growth curves or industries that we needed to devote all of our resources to focusing on them so before I go into the Big Ideas I'd like to talk about five general purpose technology platforms you've been at this conference so you've certainly heard about them we focus on them because they are writing down cost curves creating tremendous unit growth productivity and ultimately wealth those are genomic sequencing robotics and automation energy storage so battery technology next generation Internet and yes I'm going to spend a lot of time on that but I'll touch on these others as well that's really all about artificial intelligence and finally blockchain technology so those are the those innovative innovation platforms we call them are creating exponential growth opportunities that is what arc invest is dedicating dedicated to servicing and investing in so research and investment so the big ideas we believe innovation is key to growth again John touched on this early in his talk a lot of growth in the last I'm going to say 20 years has been financially engineered certainly since the tech and telecom bubble-and-bust and risk aversion entering the stock markets we believe that also because of the tech and telecom bubble and crash and Oh 8 o 9 that risk aversion has really characterized the market to such an extent that we believe in the public markets that there's a massive misallocation of capital taking place right now and the reason that's happening in the way it's happening is fund managers are going passive or and investors looking at active returns and being very disappointed by them over the years they are moving passive passive means investing according to an index of benchmark benchmarks are where they are because of what has happened historically so they're backwards looking we are not focused on the past we are focused on the future and we think there are tremendous opportunities in the public marketplace because of this shift towards passive again tremendous inefficiencies one of the other things that we've done is created a research ecosystem we've added new dimensions to it because in order to in order to capitalize on exponential growth which is moving very very fast we need many more research resources now we're a small firm we use all the traditional research resources that traditional asset managers use but we have we do a lot of original research and we are focused on using social media to help us vet our ideas we're collaborating with communities out there so we push all our research as it is evolving not when it all the teaser cross eyes are dotted into social media all of our blockchain and cryptocurrency contacts came from Twitter blockchain is living on Twitter that community is living on Twitter so our blockchain lead crisper Nevsky started interacting with the blockchain community and we ended up collaborating with coinbase which is the largest exchange US dollar based exchange of cryptocurrency is in the world so it's been very effective we push our research to linkedin into their affinity communities and we are very happy when blog aggregators take our research from our site and we publish all of our research on our site and put it on their site because they thing is going to drive traffic gives us lots of comments about where we could be going wrong in our assumptions so I'm going to go through some of these big ideas very quickly they've been touched on in different ways at the conference what we are doing is sizing the opportunity so Silicon Valley Silicon Alley Silicon dock all of the silicones around the world they are dreaming the dream they are innovating we are sizing the opportunity that's what we do so here are the the seven big ideas now what we did this report is coming out next week so I'm giving you a glimpse into it you know that Mary Meeker does her annual Internet report so we've we're leveraging off that idea what we found very interesting about Mary's report this year and I know Mary we grew up as analyst in the day she was at Morgan Stanley and I was at Jennison she is focused on the Internet interestingly blockchain could not happen without the Internet and according to our director of research I've been out the last week since it came out she did not mention crypto blockchain and crypto assets there so we think it's a very it's a very very young space but it's explosive if you've been watching it and we think we understand why so I'll get to that at the end so deep learning mobility as a service 3d printing CRISPR genome editing mobile payments robotics crypto assets all of these are a derivative of those five general purpose technology platforms I mentioned so deep learning this reports coming out today Bill Gates has said a breakthrough machine learning would be worth 10 Microsoft's so Microsoft is five hundred and fifty six hundred billion dollars well deep learning we think is going to be twice that and here you can see why we think that the internet was big its trillions and trillions of dollars in market cap out there but it hasn't made inroads into some industries like it has in others so deep learning is a subset of machine learning which is a subset of artificial intelligence deep learning basically is you know modeling learning after the brain and we think it's going to be extremely disruptive I think we're getting a lot more attention generally this whole idea of disruptive innovation because we're seeing the retail sector fall apart you hear you hear everyday news of a company saying we don't have pricing power rule losing traffic we've got too much inventory Amazon's eating our lunch we think deep learning is going to create in financial services which has already been affected by the internet a hundred to a hundred and seventy billion dollars in either profits or savings from four companies because of better credit scoring for example or in the automotive space we think autonomous taxi networks which are going to exist because of deep learning we think that that market is going to be a seven to ten trillion dollar market in ten to 15 years and autonomous taxi networks so that's probably twenty percent of the total autonomous opportunity will be roughly a two trillion dollar opportunity again driven by deep learning we think that and I'll get into this later that is going to be subject to natural monopolies so the opportunities for several companies let's say five to seven companies out there two trillion dollar revenue market huge opportunities we've definitely got our eyes focused on that we've done three years of intensive research on it healthcare we think there's a 16 billion dollar opportunity in radiology because of deep learning again getting at that mammogram and understanding maybe three times before in stage one instead of instead of stage three that a woman has breast cancer here here we're saying so Bill Gates said machine learning would be 10 Microsoft's we think that deep learning could approach 17 trillion dollars in market cap which would be 35 Amazon's and I know a lot of people look at Amazon which for a long time never earned any money very few people in or very few traditional asset managers for years could own that company because again no earnings p/e stratospheric I think Amazon taught us a lot and a lot of companies are willing now to invest against these amazing opportunities they're willing to forego current day profits because the opportunities out there are so enormous the there are many companies who are on this I've got to grow 10% a year they are going to be a just and and I can't invest this much for this out or the other they're going to be at a strategic disadvantage in the in this new world so mobility is a service this is the biggest change that the automotive industry has ever faced we believe today that if you discount the cash flows if you present value the cash flows that we expect from the autonomous taxi network that it should be today in the marketplace if we knew the companies who were going to succeed and as I mentioned earlier these are going to be natural monopolies they should be worth roughly two trillion dollars today now we think Tesla is going to be one of those companies Tesla is about a fifty-five sixty billion dollar company today a lot of investors have had a quite a bit of trouble with this one because they have defined it as an auto company it is not we think it is an autonomous taxi network company ultimately it's very interesting to listen to the conference calls they've set the conference calls up so it's just Q&A so we get more of a glimpse into what analysts are thinking than we do about the company and in the last several q a's at the end of their quarter there's not doing one question about autonomous taxi networks or autonomous anything so we do not believe that Tesla is priced correctly we think if it got even five percent of this global market for autonomous taxi networks that it it should be worth another hundred billion dollars today so it's very easy for us to to hold that stock what what is valued out there today so the ride-sharing services here we say there are about a hundred and fourteen billion dollars in market cap that's uber lift duty they're all private we and it may be as high as 150 billion we believe it should be that the opportunity is a two trillion dollar opportunity we do not believe that uber is in the right position to capitalize on this opportunity and I'd be happy to talk about that and if we have any Q&A or afterwards so and you can see we you can see automakers today that's a trillion dollar market so today the autonomous taxi Network should be worth more than what all the motto makers who are in who have to make two great big leaps here they have to go electric and they have to think about becoming a mobility as a service provider it's going to be very very difficult cult especially here in the United States because of the dealer networks and how really they're at a structural disadvantage to Tesla who can do over-the-air software updates whereas that's unlawful in a lot of states or it would alienate the dealers who earn more than all of their profits from service so Auto OMS are going to have they're going to have a lot of trouble we think so here here's just a picture we work a lot in s-curves all of our work is focused on rights law Moore's law s curves we're very focused on ten to twenty percent market share if any any trend moves to ten to twenty percent as retail has as mobile advertising has then we know we're in this weak spot of the s-curve and you know it's awfully hard to stop something then you can see how big mobility as a service this is gross revenues twenty twenty percent of that will be the autonomous taxi networks how big those are relative to Auto Sales we thought we think auto sales basically certainly in the developed world have peaked 3d printing six billion dollars today McKenzie thinks it could be nearly five hundred billion by 2025 you know that's only eight years away and these are the enormous numbers we're talking about enormous growth rates you can see what analysts out there in traditional firms in consultants where they think 3d printing will be in the year 2022 or 2020 you can see where we think they will be and mikay in 2020 and McKinsey 2025 McKenzie will be right if 3d printing actually becomes a part of the industrial production process so end-use parts and listening to GE we think that's going to happen we're seeing it in aerospace and we think we'll see and certainly a medical anything custom-made and we believe it's also going to happen in automotive Chris Berg genome editing so gene editing is not new but CRISPR is is quite a big breakthrough now what's really interesting to me as an investor is if we were back in the tech and telecom bubble you know you just had to whisper a few names and people would be all over them if if you said hey this company actually can cure diseases it can cure it can really care you don't you don't hear the names in Telia edit ass or CRISPR those are the three big companies in this CRISPR space and and we think that they are well on their way to accomplishing what you see here we think that they will there there are roughly 10,000 monogenetic or single gene diseases only 5% are treatable today if if we could get another 5% treatable and we we would be able to generate or companies doing that would be able to generate roughly a hundred and seventy billion dollars in revenue per year and if you compare that to what the NIH National Institute of Health has spent over the last five years in Rd that's 27 billion quite an enormous payoff so we're quite excited about this space it has applications beyond therapeutics could be a very large space these are very relatively small market caps for the opportunity and you can see if a company in this space has a strong IP position as Genentech did in 1980 then the growth rates can be enormous again you don't hear these names and and that's quite interesting to me we think they're quite a they're very low expectations in that space mobile payments we think this is a 15 trillion dollar opportunity up from 1 trillion we base this on smartphone penetration and the mobile payments acceptance which is growing and actually Asia's leading the charge here you look at companies like $0.10 and Ali pay they are really moving very quickly towards mobile and actually showing us the way in many ways so again huge opportunity here we think that data is the hidden asset that a lot of companies have it does not surprise us that Amazon is targeting now the lower income levels because the data comes with there's a huge amount of data in the the small transaction space we think that the data opportunities roughly a hundred billion dollars as as companies learn more and more about not just their high-end customers but the lower end customers and you know like like companies like Netflix and others have have been able to transform industries because they know so much about their customers robotics you know Amazon rang the bell in 2014 they went from 1,000 robots at the beginning of the year in their distribution centers to 15,000 at the end they have roughly 50,000 today and they have never laid off anyone other than for performance reasons in their distribution centers so robot robotics we know that a lot of people are very fearful of what could happen because of robotics we took the Oxford University study that said that in the next 10 to 20 years 47% of all the jobs in the United States will be lost to robotics automation artificial intelligence we took their study the 700 job classifications there along with the wages and then we used our research on robotics and the declining cost curve there and when robotics would be right to enter the various industries and we agree there's going to be a lot of displacement what they didn't do and what so many people don't do but Marc Andreessen and and Ray Kurzweil are definitely thinking in this way they are not looking at the impact of technology so the productivity gains the new products and services if you do that research what you find out is that by the year 2035 GDP because of robotics and automation technology will beat well in the United States will be 12 trillion dollars more than it would have been without robotics and automation so instead of a twenty eight trillion dollar economy and 2035 we'll have a forty trillion dollar economy this is the history of technology productivity new products and services and so it is our job as investors to figure out where that 12 trillion dollars is we can't even imagine it right now we couldn't imagine what the internet was going to do with us in the early 90s so here you can see that robotics has has been most effective in the automotive industry so very high volume assembly line kind of environment as Peter was talking about earlier we're moving into a world of collaborative robots so we do think robotics is going to is going to have a tremendous impact and our expectation based on the cost curve right sloth you'll have it in the robotic space we think that the robotics industry going to be much bigger than BCG or other other consultants do blockchain crypto assets could slash the cost of transactions and reshape the economy Chris Byrne iski is our blockchain a products lead and he was very active on Twitter at our blockchain and we he does surveys that's one thing that we do out there the community cryptocurrency community is very conversant on Twitter so we will do these sorts of we will do these sorts of surveys so about a two months ago I think right this was May 8th we so not even a month ago we did this survey and the cryptocurrency community thinks that we're looking at a trillion dollar market so this week all of the crypto currencies out there so more than 700 crypto currencies tallied up in terms of what we would consider market cap to a hundred billion dollars so when you put that in the context of Apple stock which is roughly eight hundred billion dollars you know that's that's pretty interesting because we think that blockchains crypto currencies crypto assets crypto commodities whatever you want to call them they are going to be transformational so the community on May 8th thought that we were looking at a trillion dollar opportunity it has been on fire we're in a very speculative phase here we think this is going to be characterized by boom busts but here you've got the biggest vote just a day later after after the prices started soaring and you've got a much bigger one to five trillion lower percentage there but even bigger 10 trillion so it's a very hot very hot space I know that lot of people have trouble getting their arms around this space I'm just going to throw out a few either analogies and examples so I remember in the early days of the internet technologists were saying technology analyst or futurists were saying you know voice is going to be free and I remember thinking what how is that going to happen yeah voice is going to be free we could not conceive of how that would happen well voice over IP is effectively free right the same thing is going to happen to money we're going to go to so the transmission of money right now there's a lot of friction in the system Western Union gets 8% an 8% slice of when workers from the United States transfer money to Mexico or to Philippines money over IP ultimately will let them do that for free now today when you do it there you have to pay on either side of the transaction to convert from fiat into crypto and then back again but if you look at the Philippines to South Korean corridor what you're seeing already is that bitcoin is 20% of the remittances market now the remittance anytime I see 10 to 20% I think s-curve so and word-of-mouth is very powerful especially in the emerging markets when they're trying to save money in this way the remittance market is of 500 billion to 600 billion dollar market we think that market could could go in to really become part of the crypto world now what's also interesting blue pen is the company that has the South Korea Philippines corridor the the migrant workers who are transmitting currency they don't know that bitcoin is what's enabling them at such a low fee transaction it is it's it's the rails effectively so they just see the Fiat transfer so we think them we think that that's going to be a very exciting market we also think I mean when you think it really in a very big way transfer of value of anything transfer of any value could end up going on to the blockchain blockchains and and the aha moment for me came when I thought of well supply chain management supply chain management that's that's a transfer of value and supply chain management obviously is a huge huge opportunity out there this market is nascent there's there are a lot of growing pains take pains taking place right now in the crypto world but it the promise is there we actually think that the internet never was intended to be monetized in the early early days and that crypto assets and and networks using them are the answer to that I'm just going to switch to this lesson thrid of FinTech a conference we sub advise for a Japanese firm a fin tech fund Asia is I think ahead of us in in fin tech so to speak you can see how the financial services is broken out here global revenue roughly fourteen billion dollars we think FinTech is going to touch the eighty for every dollar of the 80 trillion dollars in GDP over the years you can see how we think the most interesting observation I think on this chart and I'll be very interested to sit in on the insurance section we do think the machine learning in big data is going to disrupt the insurance industry that industry hasn't changed in years and years and years so that's very exciting opportunity you can see mobile for retail banking crypto for Investment Banking venture capital it could be very disruptive for that world as well so we're pretty excited about everything that disruptive innovation has to offer and I'd be happy I'll be around here to answer any questions you may have I think I've just run out of time thank you very much

23 thoughts on “Investing in Disruptive Innovation | Catherine Wood | Exponential Finance

  1. She made a $4000 Tesla call live on the News. The markets are going through the toughest time it has seen for over 10 year. A call like that does nothing but cause confusion. Timing is everything. It is all good buying into a disruptive stock BUT if u time it wrong u might have to wait 10 year before u break even again.

  2. Financial IQ investment securities… No banks, no brokers… No manipulative trade markets. Regulated by block chain partnerships, fossil fuel resources is obsolete thus financing war operations is economically not feasible, future medical 3d printing vital internal organ tech via Israel world leaders in robotics,
    Tesla will merge with hydrogen technologies due to industrial application demands… And the list goes on?

    My God! Are we actually transitioning as a civilization?
    Could it be… Actually having the ability to control of our own assets without dealings with government policy regulation harassments?

    20 years on and still early stages, 20 years into the future…. Who knows, maybe we all can share knowledge beyond the horizon of humanity?

    Would money still be a requirement yet a need?
    Would we transition again to trade commodities based on passion driven values

    We could never know our true potential of the human mind body and spirit.
    Earth may have hope… After all, she's the only home we have.

  3. Wall St. so corrupt that is the reason to go index. Seems ALL MANAGED funds cheat the investor. See most any "pension plan" oh, those are mostly already destroyed. So every one moved to 401k. right? Even John Oliver has done a program (worth searching YouTube). Sadly I am not smart enough to know how honest your group is. Don't ask me.
    Monopolies are very very profitable. Will we try to save capitalism again? Break up these corporations? Search, Amazon, facebook, twitter?

  4. I dunno man. Maybe someone can explain this to me. It seems to me, like investing in these small-ish companies that may or may not produce something disruptive 10 years from now, is a losing bet. It seems to me, that when you want to invest, is something like 2 years before they actually are going to produce the goods. And not 10 years, like with graphene, 10 years ago. Imagine the graphene original investors right now. How long will they have waited for it to pay off? 15 years? 20 years? Anyone have any insight in this?

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