Investing in Disruptive Innovation | Catherine Wood | Exponential Finance

I started Arc Invest three and a half years ago to focus solely on

disruptive

innovation

, so John's talk at this time was very relevant. We decided there were so many opportunities in these

exponential

growth curves or industries that we needed to dedicate all of our time to. our resources to focus on them, so before we get into the big ideas, I'd like to talk about the five general purpose technology platforms that you've been on at this conference, so you've probably heard of them, we focus on them because uh, they're lowering the cost curves creating tremendous unit growth, uh, productivity and ultimately wealth, those are genomic sequencing, robotics and automation, uh, energy storage, battery technology, next generation internet and Yes, I'm going to spend a lot of time on that, but I'll do it. touch on these others too, that really has to do with artificial intelligence and ultimately blockchain technology, so those are those uh innov.

The

innovation

platforms we call them are creating

exponential

growth opportunities, that's what uh AR invest is dedicating to emerge and invest in that. research and investment, so the Big Ideas um we believe that innovation is key to growth again uh John mentioned this at the beginning of his talk uh a lot of growth in the last, I'm going to say, 20 years has been designed financially certainly since the teeken Telecommunications bubble and bankruptcy and risk aversion entering the stock markets. We think also because of the bubble and crash of Tekk and Telecom and 0809. That risk aversion has really characterized the market to such an extent that we believe in public markets. that there is a massive misallocation of capital happening right now and the reason why this is happening and the way it is happening is that fund managers are becoming passive or investors seeking active returns are very disappointed with them over the years, passive liabilities are moving.

It means

investing

according to an index, a benchmark, benchmarks are where they are because of what has happened historically, so they look back, we're not focused on the past, we're focused on the future, uh, and we believe there are tremendous opportunities in the public. Market because of this shift towards passive, again, tremendous inefficiencies, one of the other things we have done is create a research ecosystem, we have added New Dimensions to it because, in order to capitalize exponentially. growth that is moving very, very fast, we need a lot more research resources now that we are a small company, 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.

About using social media to help us examine our ideas, we're collaborating with communities, so we drive all of our research as it evolves, not when all eyes are spread across social media, all of our blockchain contacts and cryptocurrencies. came from Twitter blockchain lives on Twitter that community lives on Twitter so our uh blockchain uh leader uh Chris per perisi uh started interacting with the blockchain community and we ended up collaborating with coinbase which is the largest exchange uh dollar based exchange There are American cryptocurrencies in the world, so it has been very effective. We bring our LinkedIn research to their affinity communities and are very happy when blog aggregators take our research from our site and we publish all of our research on our site. and they put it on their site because they're going to drive traffic, they give us a lot of feedback about where we might be going wrong in our assumptions, so I'm going to go over some of these big ideas real quick.

It has been addressed in different ways at the conference. um what we're doing is sizing the opportunity for Silicon Valley Silicon Alley to couple all silicon around the world. They are dreaming the dream. They are innovating. We are sizing the opportunity. Unit. That's what we do. So here are the seven big ideas. What we did, this report will be published next week, so I'll give you a look. They know that Mary Merer does her annual Internet report. So we have uh we're building on that idea, which we found very interesting about Mary's report this year and I know Mary we grew up as analysts in her time, she was at Morgan Stanley and I was at Jennison, she's. focused on the internet, interestingly blockchain couldn't happen without the internet and according to our research director, I've been away for the last week, since it came out, she didn't mention crypto blockchain or crypto assets there, so we think it's a ve 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 Sharper genome editing Mobile payments Robotics Cryptoassets all of these are a derivative of those five general purpose technology platforms that I mentioned, so deep learning that this report is published today Bill Gate to achieve a breakthrough in machine learning would be worth 10 microsofts so Microsoft is worth 550 600 billion dollars well deep learning I think it's going to be double that and here you can see why we thought the internet was big there are trillions and trillions dollars in market capitalization, but it hasn't made as much progress in some industries as it has in others.

Deep learning is a subset of machine learning, which is a subset of artificial intelligence. Deep learning is basically, 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 overall. This whole idea of ​​disruptive innovation because we're watching the retail industry fall apart, you hear, you hear every day news from a company saying we don't have pricing power, we're losing traffic, we have too much inventory, Amazon is eating our lunch. We believe that deep learning will create in financial services, which have already been disrupted by the Internet, between $100 and $170 billion in profits or savings for businesses due to Better Credit scoring, for example, or in the automotive space .

Let's think about autonomous taxi networks that will exist thanks to deep learning. We think that market will be a 7 to 10 billion doll market in 10 to 15 years and autonomous taxi networks, so it will probably be 20% of the total autonomous. The opportunity will be about $2 trillion again driven by deep learning, we believe that, and I'll talk about this later, that it will be subject to natural monopolies, so the opportunities for multiple companies, say five to seven companies, exist. . $2 trillion revenue market, huge opportunities that we definitely have our eyes focused on we have done three years of intensive healthcare research, we believe there is a 16 billion opportunity in Radiology because of deep learning again getting to that uh uh mammography and understanding maybe three times earlier in stage one instead of stage three that a woman has breast cancer here we are here we are saying it Bill Gates said that machine learning would be 10 microsofts we believe that the deep learning could get close to the $17 trillion in market cap that would be 35 Amazon and I know a lot of people look at Amazon, which for a long time never made money, very few people in uh or very few traditional asset managers for years were able to. own that company because again there are no stratospheric PE gains.

I think Amazon taught us a lot and a lot of companies are now willing to invest in these incredible opportunities, they are willing to give up current profits because the opportunities that exist are so huge that there are a lot of companies that are in this. I have to grow 10% a year, they are going to be and I can't invest as much for this or that, they will be at a strategic disadvantage in this new world, so mobility is a service uh uh, this is the biggest change that the automotive industry has ever faced. We believe today that if the cash flows are discounted, if the value is presented, the cash flows that we expect from the autonomous tax network, which should be today in the market if we knew the companies that were going to be successful and, as I mentioned Previously, these will be natural monopolies, they should be worth about $2 trillion today, now we believe that Tesla will be one of those companies, Tesla is about a 5.56 billion company today, many investors have had quite a few problems with this one because they have defined as a car company, it is not, we believe it is an autonomous taxi network company, ultimately very interesting to listen to. the conference calls, they've scheduled the conference calls, so it's just Q&A, so we get more of a glimpse into what the analysts think about the company than we do and in the latest Q&A at the end of their quarter. uh, there hasn't been a single question about autonomous taxi networks or anything autonomous, so we don't think Tesla is priced right.

We believe that if you got even 5% of this global market for autonomous taxi networks, it should be worth it. another hundred billion today, so it's very easy for us to hold that stock, which is valued today, so the ride-sharing services here we say have about $114 billion dollars in market capitalization, that's Uber Lyft DD, uh, they're all private, we, and it can be as high as 150 billion, we think it should be that the opportunity is a $2 trillion opportunity, we don't think Uber is in the right position to capitalize this opportunity and I would be I'm happy to talk about that, in case we have Q&A or afterwards, so, and you can see, we can see the automakers today, that's a trillion doll market, for What today the autonomous taxi network should be worth more than all the The car manufacturers that are there have to take two big leaps here, they have to go electric and they have to think about becoming a mobility service provider.

It's going to be very, very difficult, especially here in the United States because of the dealership. networks and how much they really are, are at a structural disadvantage for Tesla, which can do over-the-air software updates, while that is illegal in many states or would alienate dealers who earn more than all their profits from the service, so automakers they will have a lot of problems we think, so here is just a picture, we work a lot on S curves, all our work is focused on rights law. Moors Law, uh, S curves, we are very focused on 10 to 20% market share, if any trend moves to 10 to 20%, like retail has done, like mobile advertising has done in U, so we know we're in the sweet spot off the scurve and um you know it's tremendously difficult to stop something, so you can see how big mobility as a service is, this is gross revenue 20, 20% of that will be the autonomous taxi networks, how big they are relative to car sales, we think, we think.

Car sales, basically, certainly, in the developed world have peaked with 3D printing, 6 billion dollars today, McKenzie thinks it could be almost 500 billion by 2025, you know, it's only 8 years away. that, and these are the huge numbers we're talking about, huge. growth rates, you can see what traditional business analysts believe 3D printing will be in 2022 or 2020. You can see where we think M and M will be in 20 20 and McKenzie in 2025. McKenzie will be right if 3D printing really becomes part of the industrial production process, so the 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 do it.

Look, and certainly a tailor-made medical thing, and we think it's going to happen in automotive genome editing as well, so Gan editing is not new, but Chrisper is a big breakthrough now, which is really interesting for me as an investor. . is that if we were back in the technology and telecom bubble, you know you would just have to whisper some names and people would be all over them, if you said hey, this company can really cure diseases, diseases, it can cure, it can. You're completely cured, uh, no, you don't hear the names Intellia Editas or Crisper, those are the three big companies in this Crisper space and we think they're on their way to achieving what you see. here we believe that there will be approximately 10,000 monogenetic or single gene diseases, only 5% are treatable today if we could get another 5% treatable, we could generate or the companies that did that would be able to generate approximately$170 billion in revenue per year, and if you compare that to what the NIH's National Institutes of Health has spent in the last five years on R&D, that's $27 billion, a pretty huge payoff, so that we are very excited.

This space has applications beyond therapeutics, it could be a very large space, these are relatively small market limits for the opportunity and you can see if a company in this space has a strong intellectual property position, as Genentech did in 1980, so the growth rates can be huge again, you don't hear these names and that's quite interesting to me, we think there are very low expectations in that space, mobile payments, um, we think this is a $15 trillion opportunity in compared to 1 billion we had. Base this on smartphone penetration uh and um uh mobile payment acceptance which is growing and in fact Asia is leading the charge here look at companies like uh 10 cent uh and alipay um they are really moving very quickly towards mobile devices and in fact they are showing us the way in many ways, so again, a huge opportunity here we believe that data is the hidden asset that many companies have, we are not surprised that Amazon is now targeting the lower revenue levels because the data comes, there is a lot of data, in the small transaction space, we think the data opportunity is about a hundred billion dollars, as companies increasingly learn not only about their high-end customers, but also about their low-end customers, and you know, companies like Netflix and others have been able to transform industries because they know a lot. about their customers robot robotics uh you know uh 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, today they have approximately 50,000 and they have never fired anyone other than for performance reasons in their distribution centers uh so um robot robotics we know um that a lot of people are very afraid of what could happen because of uh robotics um we took the Oxford University study that said that uh in the next 10 to 20 years 47 The percentage of All jobs in the United States will be lost due to robotic automation, artificial intelligence.

We took their study of the 700 job classifications there along with salaries and then used our research on robotics and the declining cost curve there and when robotics. It would be ripe for entry into the various industries and we agree that there will be a lot of displacement from what they didn't do and what so many people don't do, but Mark Andreen and Ray Kerswell are definitely thinking about this. Somehow, they are not analyzing the impact of technology, so productivity gains with new products and services. If you do that research, Arch. What you discover is that by the year 2035, the GDP due to robotics and automation technology will be TW in the United States will be 12 trillion dollars more than it would have been without robotics and automation. automation, so instead of a $28 trillion economy in 2035 you will have a $40 trillion economy.

This is the story of Technology Pro productivity, new products and services, and that's it. Our job as investors is to find out where that trillion is. We can't even imagine it now. We couldn't imagine what the Internet was going to do to us in the early 90s. So here you can see that. Robotics has been most effective in the automotive industry, very high volume, in an assembly line type of environment, as Peter was talking about before, we are moving towards a world of collaborative robots, so we believe that robotics is going to be more effective. It's going to have a tremendous impact and our expectations are based on the cost curve, the law of rights, if it will have it in the robotics space, we believe that the robotics industry will be much larger than BCG or other consultants.

Blockchain cryptoassets could reduce the cost of transactions and reshape the economy. Chris Briski is our blockchain product lead and is very active on Twitter at AR blockchain. And we, he does surveys, that's something we do out there. community uh cryptocurrency uh The community is very familiar with Twitter, so we're going to do this kind of uh um, we're going to do these kind of surveys, so about two months ago, I think no, this was May 8th, uh, so neither not even a month ago. We did this survey and the cryptocurrency community believes that we are looking at a one trillion doll market, so this week all cryptocurrencies exist, so over 700 cryptocurrencies joined in terms of what we would consider a hundred market cap . billion, so when you put that in the context of Apple stock, which is about $800 billion, you know it's pretty interesting because we think that blockchains, cryptocurrencies, cryptoassets, cryptocurrencies, whatever you want to call them , they are going to be transformational, so the community in May.

The eighth thought we were looking at a billion-dollar opportunity. He's been on fire. We are in a very speculative phase. We think this will be characterized by booms and busts, but you have the biggest vote here. a day later, after prices started to skyrocket, and you have a much higher percentage, 1 to 5 trillion, lower, but even higher, 10 trillion, so it's a very hot, very hot space, uh, I know that many people have problems covering this space. I'm just going to throw out some analogies and examples, so I remember in the early days of the Internet, technologists were saying technology analysts or futurists were saying you know the voice will be free. and I remember thinking how is that going to happen?

Yes, the voice will be free. We couldn't conceive how that would happen. Well, voice over IP is effectively free. The same thing will happen with money. We will go. For money transmission right now there is a lot of friction in the system. Western Union gets 8% and a slice of 8% When US workers transfer money to Mexico or the Philippines, money over IP will finally allow them to do so. that free now today, when you do it there, you have to pay on both sides of the transaction to convert from Fiat to crypto and then back, but if you look at the corridor from Philippines to South Korea, what you are already seeing is that Bitcoin is 20% of the remittance market, now the mandate every time I see between 10 and 20%, I think it is like that and word of mouth is very powerful, especially in emerging markets when they are trying to save money this way in the remittance market.

It's a 500 billion to $600 billion market, we think that market could really become part of the cryptocurrency world. Now what is also interesting is the company that the corridor of South Korea, the Philippines, the migrant workers has. that are transmitting currency, they don't know that Bitcoin is what allows them such a low feed transaction, it's the rails effectively, so they just see the Fiat transfer, so we think, um, uh, uh, we think that's going to be very exciting market um we also think, I mean when you think really in a very big way transfer of value of anything transfer of any value uh it could end up uh going to blockchain uh blockchains um and and I, the aha moment for me came when I thought about good supply chain management Supply chain management that is a transfer of value uh and supply chain management is obviously a huge, huge opportunity in this market there aren't uh there are many growth plans that are taking place right now in um, the world of cryptocurrencies, uh, but uh, the promise is there, we actually think that the Internet was never intended to be monetized in the early days, uh, and that the cryptoassets and the networks that they use them are the answer to that.

I'm going to switch to the latter since we're at a fintech conference, um, sub advv versus a Japanese company, a fintech fund, uh, Asia is, I think, ahead of us in fintech, so to speak. , you can see how. uh financial services are broken down here. Global revenue of approximately $14 billion. We believe that fintech will reach 80 for every dollar of the 80 trillion dollars in GDP over the years. You can see what we think is the most interesting observation, I think, in this graph. and I will be very interested in participating in the insurance section. We believe that machine learning and big data are going to revolutionize the insurance industry.

That industry hasn't changed in years and years and years, so it's a very exciting opportunity. you can see mobile for crypto retail banking, for investment banking, venture capital, it could be very disruptive for that world as well, so we are very excited about everything that disruptive innovation has to offer and would be happy to do it. I'll be around to answer any questions you may have. I think I'm out of time. Thank you so much.