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- [00:00]
Bison Wealth Advisor
How much growth could your 401k be missing right now? Did you set it and forget it? That could be expensive. Studies show professionally managed 401ks could add hundreds of thousands by retirement. That's where Bison comes in. Our advisors actively manage your existing 401k. No transfers or rollovers helping power your retirement. Try the no obligation calculator at powermy401k.com. Bison wealth is a Fiduciary SEC registered investment advisor. See powermy401k.com for additional information.
- [00:29]
IBM Representative
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions. Not noise proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM Find home
- [01:00]
Sonesta Hotel Representative
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- [01:38]
Maren Sumset Webb
Bloomberg Audio Studios Podcasts Radio News. Welcome to Marin Talks Money, the podcast in which people who know the markets explain the markets. I am Maren Sumset Webb and with me today is Cathie Wood, CEO and CIO of investment management firm Ark Invest. Now Ark Invests, I think many of you will know in disruptive and innovative technologies of all kinds. So we're going to talk about quite a few of those today. AI, robotics, cryptocurrencies, all this kind of thing. Kathy, absolute pleasure to have you with us today in our London studio. Welcome.
- [02:22]
Cathie Wood
Thank you, Merritt. Very, very happy to be here. Right. We have got a lot to cover. I know big ideas. There are a lot of big ideas out there.
- [02:29]
Maren Sumset Webb
That's where I want to start with the big ideas. So you put out at the beginning of every year a big ideas report where you talk about what's going on, which is a lot. And this year, one of the main idea in it was that there are, there's this amazing convergence of different types of technology coming together to create a wave of tech innovation the likes of which we really haven't seen before. And the consequences are going to be enormous. So can we just talk through to get us started those technologies and the convergence that you're expecting?
- [02:59]
Cathie Wood
Sure. So there are 15 different technologies and they're included in the five major innovation or five innovation platforms that are evolving today. So AI, the ChatGPT moment really did awaken investors to, you know, some things going on here. So AI robotics, energy storage, blockchain technology and multi omic technology. And you're right, the 15 technologies are converging. Two of the biggest trends coming out of this convergence have to do with AI applications. So embodied AI, the physical and the digital world coming together. So if we look at autonomous mobility, so robo taxis, that involves three of the major innovation platforms converging. So autonomous vehicles are robots, they will be electric and they will be powered by AI.
- [04:06]
Maren Sumset Webb
AI robotics, energy storage.
- [04:08]
Cathie Wood
Yes. And so if you think about those, those are three different S curves in the world of innovation. Slowly, slowly, then all at once, and they're beginning to feed each other. Tesla launched its robo taxi service in Austin in June. And we're seeing now a quickening of the pace. Waymo is now moving more quickly into different cities. So there's a competitive dynamic that is going to accelerate the trend towards robo taxis in the United States. And because robo taxis are safer, we've just crossed the human threshold of safety and we'll continue to be fair. Yeah, that's true, that's true. So that's one. And we think that's the biggest application of AI from a revenue generation point of view, other than the productivity tools that we're using right now. We're already using. Yes, absolutely. And, and we're paying for them and we're going to pay more and more because they are that useful. The second major trend is in health care. It's the most profound application of AI and it includes the convergence of sequencing technologies, AI and CRISPR gene editing. So sequencing, we have 35 to 40 trillion cells in our body generating data. And AI is a data project. Proprietary data is key to success. So that sequencing technologies, AI, now that we can find mutations which are programming errors in our body, we have 6 billion bits of code, if you think about 3 billion base pairs of DNA pairs. So 6 billion bits of code, we can now see when one of them has gone awry, when there's been a Mutation. And we can see it because of AI. We couldn't have done any of this five, 10, 15 years ago. Now that we can see it, we can use CRISPR gene editing to reprogram the genome. And we're already seeing cures for beta thalassemia and sickle cell disease. And we're seeing revenue generation. CRISPR Therapeutics is the company and Vertex, its partner, generating revenues and curing disease. Those are rare diseases. We think these technologies will impact common diseases in the not too distant future.
- [06:44]
Maren Sumset Webb
And CRISPR is one of your big holdings in the innovation etf?
- [06:46]
Cathie Wood
It is, it is. I think it's our number two holding. It's earned its right. Tesla than crispr. Yes, yes. So. And one of the reasons it's up there is in its pipeline is a cure. Now it's in trials for bad cholesterol. Think about that. Cardiovascular disease is the biggest killer in the world. And what we're going to do here is shift sick care dollars. So just treating chronic disease, shifting sick care dollars or pounds or euros into really therapies that cure or prevent or. Or into diagnostic tools that diagnose cancer in stage one or before stage one with blood tests. So we think healthcare is going to transform completely here.
- [07:42]
Maren Sumset Webb
Okay. The idea there being that people will end up with a much, not necessarily a much longer life, but a longer health span, a longer period of healthy living.
- [07:50]
Cathie Wood
Yes. And we are writing a white paper about longevity. But you're absolutely right, Maren. The first order here is to extend healthy life, you know, increase the quality of life while we are alive.
- [08:07]
Maren Sumset Webb
Yeah. And if that happens, that is transformative for public finances apart from anything else.
- [08:11]
Cathie Wood
Right.
- [08:12]
Maren Sumset Webb
So you can remove the end of life. That last 10 years is the most expensive bit for any healthcare system and has for any government. You can take that out suddenly, possibly the fiscal situations of the western economies don't look quite so awful.
- [08:25]
Cathie Wood
Absolutely. And the U.S. is the worst that way because we spend nearly 20% of GDP on health care. I think in the UK it's less than 10%.
- [08:38]
Maren Sumset Webb
I think it's around 11. But it's huge.
- [08:41]
Cathie Wood
Okay, so it's huge. And in the US there's a lot. Because of our litigiousness, there's a lot of unnecessary spending. And so we will get those answers. Yes, spend and no, don't spend.
- [08:57]
Maren Sumset Webb
Okay, so we have this convergence of these extraordinary technologies which gives us this acceleration in everything. Right. Acceleration in productivity, acceleration in GDP growth. I know you're very optimistic about growth across the board as a result of all these innovations.
- [09:11]
Cathie Wood
Yes. If you look in Big Ideas, you'll see there's a chart, a timeline, and it's in the section called the Great Acceleration. So our chief futurist, Brett Winton, named his section the Great Acceleration. Thinking people would understand that, no, we're not going into the Great Depression, we're going into the Great Acceleration. I have to explain that I've told him because I didn't get it. So anyway, so the Great Acceleration, if you look, you'll find a GDP chart and the timeline is broken down by tech breakthroughs, you know, tech revolutions. So if you look in the years from 1500 to 1900, nothing much changed. And as best as Brett could ascertain with consulting, academia and so forth, global real GDP growth in that time period was about 0.6%. So very slow. And then we have really the Industrial Revolution. First the railroads and then building on the railroads, we had telephone, electricity and the internal combustion engine. And we had then a step function increase in growth to 3% real GDP growth globally for 125 years on average, with China joining in at the end. And now we believe with these five innovation platforms. So there were three major ones on top of railroads. There are five major ones on top of the Internet. The Internet was sort of the prelude, much like the railroads were. So five innovation platforms, platforms which involve 15 different technologies, which we think are going to take growth into the 7 to 8% range. Now many people think that sounds ridiculous, but that's not the last technology revolution which we, we don't think was as big as this one's going to be. We had a five fold increase, we're saying maybe a two and a half fold increase. So we think we're being conservative. But the other thing to note is these technologies are deflationary. So if we were to enter this 7 to 8% growth range, it probably would be accompanied by deflation. And many people just don't believe that. But the deflation being caused by AI alone, AI training costs are dropping 75% per year. AI inference costs. So what it costs to deliver an answer to your query, those are dropping 85 to. If you believe deep seek 98% per year.
- [12:01]
Maren Sumset Webb
Why are you falling so fast?
- [12:02]
Cathie Wood
This is technology, it's called learning curves. So the more units produced, in this case tokens in the world of AI, the lower costs go. It's the learning curves associated with technologies. So when a technology is mature, like the internal combustion engine, autos, there isn't much unit growth. So the costs don't come down anymore. Right now the unit growth in AI is exploding and therefore the costs and sort of the undertow, the deflationary undertows we think are picking up here. Now, of course, we have oil on the other side of this. We think this is temporary, better be temporary. Right. And this deflation is being somewhat obfuscated. But there is a measure, it's in the blockchain world, it's called truflation. It measures 10,000 items, 24, 7.
- [13:04]
Maren Sumset Webb
I keep an eye on that. And it's often very, very different to the official inflation numbers, isn't it?
- [13:08]
Cathie Wood
Yes, it was higher coming out of COVID It got to 11 12%, whereas the CPI in the US got to 9%. Now it's one and a half percent, whereas the inflation measures, especially with oil and tariffs, they're kind of sticky in this 2 to 3% range. Truflation, we think, is getting it right. It did drop below 1%, and now we've had a bit of a bounce because of energy prices.
- [13:38]
Maren Sumset Webb
But even, even if the oil price rise is temporary, even if the Middle east is sorted out and everything's fine, oil price falls back down again. Still, one of the main limitations to a lot of this is energy.
- [13:50]
Cathie Wood
Right.
- [13:51]
Maren Sumset Webb
And we know how energy intensive anything to do with AI is. So that still remains one of the limitations.
- [13:57]
Cathie Wood
Absolutely. And one of the limitations, of course, in the United States and elsewhere in the world is getting connected to the grid. It takes, takes five years. So Elon has gotten very creative and brought in generators and batteries. And so he was able to get his Memphis data centers x AI's up in. I think it was, it was fewer than eight months and most people thought it would take him years. And now he's thinking about data centers in space. And we're, we're doing that work. In fact, we have published our SpaceX model and anyone can go to our site or to GitHub and find it. And if they disagree with our assumptions, they can change them and see a different number which SpaceX is going to go public. So this is going to become more important. We are adding in data centers that will be additive to the model, and we do think it's possible.
- [14:56]
Maren Sumset Webb
Okay. And if you have your data centers in space, then they simply use solar energy.
- [15:00]
Cathie Wood
Solar and everything is very straightforward, very straightforward.
- [15:04]
Maren Sumset Webb
And this brings into play reusable rockets that just go up and down, up and down.
- [15:08]
Cathie Wood
Absolutely. And that's been the real breakthrough here. Without reusable rockets, it would be prohibitively expensive to put satellites into space. SpaceX has about two thirds of the satellites in space right now, and other rocket providers are attempting the reusable rocket space. But SpaceX is 10 years ahead.
- [15:32]
Maren Sumset Webb
Okay, so if, if we get to that point where most of the data centers are in space, then that takes away the energy limitation, it takes away the, the land limitation, the grid limitation,
- [15:42]
Cathie Wood
all of this regulatory, the bureaucracy. There's no bureaucracy. Does it take away the regulatory.
- [15:46]
Maren Sumset Webb
I mean, right now there is no bureaucracy or regulatory environment in space, but the more full space becomes, eventually there will have to be a regulatory regime around it, right?
- [15:55]
Cathie Wood
Yes, yes.
- [15:57]
Maren Sumset Webb
Who puts that in place? Who owns space? We don't know, do we?
- [15:59]
Cathie Wood
Exactly. That's, that's going to be a complex. I mean, it almost seems that this is a technology race, and that is why China is now racing to the moon and experimenting with reusable rockets as well.
- [16:16]
Maren Sumset Webb
Okay, how far away do you think that is, by the way, before we move on?
- [16:20]
Cathie Wood
Yes, orbital data centers. Yes, by our calculations, 2030, 2031. So we still will be dealing with the bureaucracy and the regulation here. So, yes, that time period is where we consider the energy drain.
- [16:38]
Maren Sumset Webb
The shift comes so fast, doesn't it?
- [16:40]
Cathie Wood
Last time we talked to Kathy, when
- [16:41]
Maren Sumset Webb
we talked about the energy limitations on AI, we talked about nuclear energy and about how that was the solution, but we've already pushed that to one side because it doesn't matter anymore because we're going to space.
- [16:51]
Cathie Wood
Well, what's interesting is the Trump administration recognizes that economic activity is energy transformed. Now, what has happened in the last 15, 20 years was a movement towards more efficient energy use. So that was good, and that was very good, and we've become much more efficient. But now, because we believe GDP growth is going to accelerate, we need more, more energy. And so nuclear, absolutely is an answer. And I am shocked at the regulatory, the speed of regulatory change in the United States. Now, what's interesting, this is another race. China has about 30 nuclear plants, big ones being built today. The US has zero. And so this is shocking to those of us who believe that real GDP growth is going to accelerate and we need the energy to do so. So we're now seeing some approvals, but we're also seeing breakthroughs in small modular reactors. And of course, OpenAI with Oclo really started that movement in the public equity markets. There is a lot more going on in the private equity markets.
- [18:12]
Maren Sumset Webb
It's interesting, isn't it, how we've, as you say, we've been through this phase where the driver behind everything has been to try and use less energy. And that is not the way that wealth lies, is it?
- [18:22]
Cathie Wood
That's right. I do think going through that period was important because there was a lot of waste and we have gotten a lot better. But now we're going to have to step up energy production of all kinds in order to accommodate this new world.
- [18:45]
Bison Wealth Advisor
How much growth could your 401k be missing right now? Did you set it and forget it? That could be expensive. Studies show professionally managed 401ks could add hundreds of thousands by retirement. That's where Bison comes in. Our advisors actively manage your existing 401. No transfers or rollovers helping power your retirement. Try the no obligation calculator at powermy401k.com Bison wealth is a Fiduciary SEC registered investment advisor. See powermy401k.com for additional information.
- [19:15]
Public Investing Representative
Support for the show comes from Public Lately it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth on public. You can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts? Yep. High Yield Cash? Yes again. They even have direct indexing. Public has modern design, powerful tools and customer support that actually helps go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market ad paid for by Public Holdings Brokerage services by Public Investing member finra SIPC Advisory Services by Public Advisors SEC Registered Advisor crypto services by ZeroHash all investing involves risk of loss. See complete disclosures@public.com, disclosures so there's a
- [20:14]
IBM Representative
lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions. Not noise Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM.
- [20:51]
Maren Sumset Webb
Let's talk about the winners and the losers here, because it sounds like everything is becoming a little bit more clear. We have more of an idea of what the future is going to look like than maybe we did even a year or two ago as these things converge. But when you look at stock markets and listed companies, then you can now begin to see who might win and who might lose.
- [21:11]
Cathie Wood
Yes, well, I have to start with Tesla. It's our largest position, at least in our flagship fund. Europe is really, I think, approaching our, and maybe it's because of your podcast, Marin, but approaching our strategy in the correct way as a satellite strategy. So our largest position in the flagship strategy and in our AI and robotics strategy. I mean, there's a bit of a competition there, but it's up there is Tesla, because that is the largest AI project on Earth and it embodies this idea of the convergence among technologies. And in fact, Elon very recently kind of giving us a clue that he was going to combine SpaceX and Xai. He said, you know, my companies are going to converge more than I ever thought. And we thought that was a victory for us. Us because we've been using this word convergence for a while and we've been describing Tesla in this way. And ultimately it could be that Tesla, Xai and SpaceX do get together, but we don't think yet, because I do think Elon wants to reward those of us who have been patient shareholders with the robotaxi takeoff. And now that analysts are being forced to look at this new world, they are seeing Tesla's model shift from 16% gross margins in electric vehicles to ultimately with Robo taxis. Just that opportunity segmented, that's 80 to 90% gross margins.
- [22:53]
Maren Sumset Webb
But it's still a very competitive market, isn't it?
- [22:55]
Cathie Wood
It seems so there are a lot of companies trying to enter. We do think this is a winner take most market because the company to get passengers from point A to point B, the safest, the fastest and the least expensively. And that last one is where Tesla will ultimately win, will win the lion's share. It's a little bit like Uber and Lyft. There's a network effect and, and so we think Tesla will win the lion's share. So if we're right, then globally, the revenue generation from autonomous taxis is going to globally, including China, is going to scale to north of 10 trillion within the next five to 10 years. And we're talking about only a billion dollars right now. And again, lion's share will go to a few companies. The platform providers will get most of the profits. Tesla is a platform provider. Waymo is as well. But Tesla, because it's vertically integrated, from a manufacturing point of view, we believe that by 2030 its costs will be 50% lower than Waymo's costs. Given what we know now. And so it will be able to pass those lower costs on and provide a less expensive ride. And then of course, China is where a lot of other companies are evolving. So Baidu's Apollo Pony, AI, we ride. And then of course, Uber is partnering with a lot of auto manufacturers here in the uk. You have Wave. We had the pleasure yesterday of taking a ride in Wave and I have to tell you, I was truly impressed. Very impressed. And you know, we've been, we cut our teeth on Cyber Cab and Waymo and so forth. So here in London, the streets being as complicated as they are and pedestrians all over the place, I was truly impressed. And it is partnering with all the OEMs because there's a sense of urgency now. They all pulled away during COVID from these investments in the future and now they realize they should not have done that. So now they're scrambling and Wave seems to be in the catbird seat.
- [25:20]
Maren Sumset Webb
Okay, interesting. And winners across the AI space, we've moved slightly on from the days of Mega7, haven't we? And we saw all the disruption in the software space, et cetera. It's becoming more obvious that not everyone's going to win here.
- [25:35]
Cathie Wood
And this has been a wake up call. So we noted from our big ideas that if you split the tech stack into its three, three major components. So infrastructure, so that's data centers, chips and so forth. Platform as a service, which is really customized software, often generated internally. But now Palantir is turbocharging, the customization of company data and company ontology. You know, every company has its own language, so that's in the middle. And then the third was applications, so infrastructure, platform as a service, applications. And we saw all of them growing very nicely over the past five years. But when you do the second derivative, we learned that, wait a minute, platform as a service is capturing much more of the incremental growth than applications. What's going on here? It was that. It was the Saskopolis. It is Palantir. And all of these customization efforts that are possible with AI now is taking share from sas, which is one size fits all. That was an important clue to us. So we did pull away in recognition, not understanding that there would be SAS coupleips, but just that there would be more opportunity in the platform and, and the infrastructure part of the tech stack.
- [27:09]
Maren Sumset Webb
Some of that was a surprise to other people.
- [27:10]
Cathie Wood
Yes.
- [27:12]
Maren Sumset Webb
When you look ahead now, what is the thing that you're most uncertain about? That you look ahead? Because we've talked a lot about what you can see and what you can expect. What is it that you look at and you say, well, I just don't know how that's going to unfold. What are the big unknowns in these sectors?
- [27:27]
Cathie Wood
Well, I think the most important question for us. Thank you. Is unit growth. What would impede the unit growth of these technologies? And we learned an important lesson in Covid. We had no idea that there would be. That this supply shock would cause supply chain issues for three years. And that did slow down a lot of our technologies. So we learned an important lesson there. Anything whether it's just geopolitical risk. And sure, we have this Iran war and the question coming out of it is, oh my gosh, is this another supply shock that's going to cause another few years? We don't think so, but it is the right question. One of the reasons we don't think so is what did we learn from COVID We learned that just in time. So JIT manufacturing had gone too far. We need buffers. So we need just in case, and I think that's what we have done during the last few years, is we've started building in those buffers. But that's the most important unknown to us.
- [28:43]
Maren Sumset Webb
And I suppose the other thing is that we're talking about supply crunches is the possibility of supply problems with rare earth metals and various commodities. Not just oil, right? Yes. Just about fossil fuels.
- [28:54]
Cathie Wood
Yes. And I do think that President Trump in his negotiations with President Xi Jinping is focused on this quid pro quo. We have the oil that they need, especially if Iran and others energy is shut down in some way. I think China gets 80% of whatever flows through the Straits of Hormuz. Right. So we can be that fallback. They need to give their rare earths and we in the United States need to deregulate. Why don't we have rare earths? Because in 1980, our regulators decided that any waste from rare earths should be treated like nuclear waste. So everyone stopped. That is changing. Yes, that's changing, yes. Changing. Yeah. Yes.
- [29:51]
Maren Sumset Webb
Well, that brings me to the other limitation that you might find around pretty much everything, which of course is regulation.
- [29:57]
Cathie Wood
Yes.
- [29:57]
Maren Sumset Webb
And, you know, increasingly the whole conversation around AI gets quite emotional, doesn't it?
- [30:02]
Cathie Wood
Yes.
- [30:02]
Maren Sumset Webb
And if you look on social media, you'll see that these stories playing out of these terrible end games, one of them, of course, being mass unemployment, et cetera. So does it. Is there a concern that the regulatory buildup around the use of AI might turn into a headwind?
- [30:18]
Cathie Wood
Well, in the United States. There was a regulatory buildup, there was an executive order which President Trump rescinded first thing. And now we're seeing in New York ridiculous legislation being proposed saying no corporation can use large language models. It's like, that's crazy. If New York wants to continue the exodus from New York to my state of Florida or Texas or other more business friendly, capital friendly states, that's the way to do that. That's the way to do it. And I think this mass unemployment that is, it is the unions who are behind this legislation. Mass unemployment I think is exaggerated. There will be displacement. And in fact, already we're seeing in the cohort 16 to 24 years old, that unemployment rate is going up. It's at 9.5% in the US versus 4.4 for the overall unemployment rate. So those entry level jobs, those are disappearing and giving way to AI. What's happening in the US though, interestingly, is despite what we just heard from Meta platforms, laying off 20% of its workforce to afford the capital spending, we are seeing more people holding their jobs. They're not, they're not layoffs. And so we're already starting to see entry level jobs disappearing. But those who are at work are taking up that challenge and saying, I'll run with this AI. I know in our firm, everyone's really excited about what we can do. And in fact, everyone's asking for bigger budgets and so they can do more. So I think the saying goes that those who lose their jobs, it won't be because of AI, it will be because of someone else using AI and becoming much more productive. So that's a clarion call for everyone to just really delve into this opportunity. It is a huge opportunity for everyone to, to increase productivity. And we, you know, the history of technology is net job creation long term. Sure. Short term, with a lost generation along the way. Yes, well, but they have an opportunity. You know what's so wonderful about this AI opportunity or technology opportunity? This isn't going to coders and developers. Sure, the developers, the most, the most productive ones are benefiting. It's going to almost anyone. If you speak a natural language, you can vibe what's called Vibe code, vibe code with ChatGPT or Claude and start your own business, solve a problem that you see out there. And I'm counseling young people especially to do that because maybe it takes six months on average to find a job. If you're unemployed in the US the median is three months. But if you look for the job, but in the meantime, try and Start your own business using AI, you're going to become much more attractive to employers out there. Anyone with AI, initiative. And again, this is all natural language.
- [33:42]
Maren Sumset Webb
So it's about initiative, not skill.
- [33:44]
Cathie Wood
Exactly, exactly. And creativity and imagination.
- [33:49]
Maren Sumset Webb
Speaking of which, the big IPOs that everyone's talking about, SpaceX, Anthropic, OpenAI, are you still expecting those this year? Or do you think maybe the Middle east, etc. Will have pushed it out a bit?
- [34:01]
Cathie Wood
I think the reason we'll see more this year than otherwise might have been the case is because of the midterm elections. If the Republicans lose the House, it could be that we'll be in a more stringent regulatory environment.
- [34:18]
Maren Sumset Webb
Yes, they might come forward.
- [34:20]
Cathie Wood
Right, right, right. Interesting.
- [34:23]
Maren Sumset Webb
Let me then connect a question. Evaluations. Now, one of the things that is often talked about, of course, is the high valuations across lots of companies that you invest in. And I suspect that your view obviously is that your companies will grow into their valuations. The other view, of course, is that they will collapse into their valuations, into the correct valuation.
- [34:41]
Cathie Wood
Yes, yes, It's a very good contrast. To help me explain what we're doing, yes, our companies do sell at premium multiple. Why? Because we want them to sacrifice short term profitability and invest aggressively to capitalize on these really massive opportunities. So while they do have premium multiples right now, our assumption is that that valuation will compress to a market market multiple during the next five years. And our analyst and portfolio managers must believe that the revenue growth and margin expansion is going to overwhelm that headwind. And you're right, grow into the valuations is another way of saying it. But to visualize it mathematically, we're saying, no, that is a big headwind for the next five years. And our analysts and portfolio managers must believe that revenue growth, margin expansion will overwhelm the valuation compression and deliver a minimum hurdle rate of return of 15% at a compound annual rate during the next five years.
- [35:54]
Maren Sumset Webb
Okay. And if that happens, everything really is fine.
- [35:56]
Cathie Wood
Yes, yes, yes, yes.
- [35:58]
Maren Sumset Webb
Okay. Let me ask you one, one last question, because our listeners will not forgive me if I do not. Bitcoin, the one thing we haven't talked about is the monetary system and possible changes within. Are you still fully confident in your view here?
- [36:10]
Cathie Wood
Yes. Bitcoin, absolutely. Bitcoin, we believe, is going to be the most important crypto asset for three reasons. It's really three big ideas in one. The first is it's a new technology we have now currency native to the Internet, which is going to take out a lot of friction from the buying process, especially as we move to agentic AI where machines will be buying from other machines. So that's the first thing. The second is it is a global monetary system and we're beginning to see it react to the events in the Middle East. And it has stabilized after something called a flash crash from last October, which caused auto deleveraging which caught a lot of people offsides. We think that's all washed through. We think Iran now is taking center stage and that bitcoin will serve its role as a store of value. Just hit 20 million bitcoin minted ever and we're going only to 21 million gold. With the increase in price, I guarantee you miners have accelerated their search for more gold and will be producing more. Bitcoin is mathematically metered and its growth rate has already slipped below that of gold. And we also think with the huge intergenerational wealth transfer taking place, that bitcoin will be the store of value of choice. And then the third big idea is bitcoin. And we wrote this paper in 2016. I'm very proud of our team. Bitcoin, the first of its kind in a new asset class. If you look at bitcoin, its correlation relative to other assets is very low, even to gold. Many we call it digital gold. But if you look at the correlation since 2019, really since institutions started thinking about this, the correlation between gold and Bitcoin is 0.14, hardly any correlation. And if you look at a matrix, I put it in my New Year's letter in January, we have a matrix. You'll see the correlation with other assets is very low. So what does this mean? Asset allocators are looking for low correlation assets because if they in the satellite strategy that we offer, if they put a lower correlation asset in their mix, their risk adjusted returns go up over time.
- [38:57]
Maren Sumset Webb
So maybe everyone should just hold bitcoin and gold and be done with that.
- [39:01]
Cathie Wood
If you want a store of value. Yes.
- [39:04]
Maren Sumset Webb
Kathy, thank you very much for joining us today. Really appreciate it.
- [39:07]
Cathie Wood
Thank you very much.
- [39:09]
Maren Sumset Webb
Foreign. Thanks for listening to this week's Merin Talks Money. If you like our show, rate, review and subscribe wherever you listen to your podcasts and keep sending your questions or comments to marinmoneylumberg.net you can also follow me and John on Twitter. I'm marionsw and John is johnsteffek. This episode was hosted by me, Marin zamazep Webb. It was produced by Samisad and Moses Andam Sound design by Blake Maples. And many, many thanks to Cathie Wood.
- [39:45]
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- [41:17]
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