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Investing in Disruptive Innovation | Catherine Wood | Exponential Finance

Jun 06, 2021
I started Ark 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 that there were so many opportunities in these

exponential

growth curves or industries that we needed to dedicate all of our resources to focusing on them, so before we get into the big ideas, I'd like to talk about five general-purpose technology platforms that you've been on. in this conference so you've certainly heard of them we focus on them because they are writing cost curves creating tremendous unit growth productivity and ultimately wealth those are genomic sequencing robotics and automation , energy storage, so battery technology, the next generation of the internet, and yes, I'm going to spend a lot of time on that, but I'll also mention these others, that's really what it's all about. artificial intelligence and finally blockchain technology those are the innovative

innovation

platforms that we call that are creating

exponential

growth opportunities that is what arc invest is dedicated to servicing and

investing

in research and investment so the big ideas we think innovation is key to growth again John mentioned this at the beginning of his talk a lot of growth in the last I'm going to say 20 years has been financially engineered since the bubble and the bursting of technology and telecommunications and the risk aversion entered the stock markets we think also because of the bubble and the collapse of tech and telecom and Oh 8 or 9 that risk aversion has really characterized the market to such an extent To the extent that we believe in public markets that there is a massive misallocation of capital right now and why it is happening the way it is what is happening is that fund managers are becoming passive or investors are looking for active returns and are very disappointed in them over the years are moving passive passive means

investing

according to a benchmark benchmarks are where they should be to what has happened historically so they're back Looking to the future we don't focus on the past, we focus on the future and we believe there are tremendous opportunities in the public market because of this shift to passive again tremendous inefficiencies, one of the other things we've done is create a research ecosystem. we've added new dimensions to it because to capitalize on exponential growth that's moving very, very fast we need a lot more research resources now that we're a small company we use all the traditional research resources that traditional asset managers use but we have to do lots of original research and we are focused on using social media to help us examine our ideas. they're peppered across social media all of our blockchain and cryptocurrency contacts come from twitter blockchain lives on twitter that community lives on twitter so our blockchain leads sharper Nevsky started interacting with the blockchain community and we ended up collaborating with coinbase, which is the largest US dollar-based cryptocurrency exchange in the world, so it has been very effective. blog aggregators take our research from our site and we post all of our research on our site and put it on your site because what's going to drive traffic gives us a lot of feedback on where we might be going wrong in our assumptions so I'm going to go over some of these great ideas very quickly.
investing in disruptive innovation catherine wood exponential finance
They have been addressed in different ways at the conference. What we're doing is evaluating the opportunity for Silicon Valley Silicon Alley Silicon to couple all the silicones around the world that are dreaming. I dream they're innovating we're sizing the opportunity that's what we do so here are the seven big ideas now what we did this report is coming out next week so I'm gi As you take a look you know Mary Meeker does her annual internet report So we're building on that idea. What we found very interesting about Mary's report this year and I know Mary grew up as an analyst back in the day that she was at Morgan Stanley and I was at Jennison she's focused on the internet interestingly enough blockchain couldn't exist without the internet and , according to our research director, I was out last week since it came out, you didn't mention crypto blockchain and crypto assets there, so we think it's a very, very young space, but it's explosive if you've been looking at it and we think we understand why, so I'll get to that at the end.
investing in disruptive innovation catherine wood exponential finance

More Interesting Facts About,

investing in disruptive innovation catherine wood exponential finance...

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 report is going out today Bill Gates has said that a learning innovative automatic would be worth 10 Microsoft so Microsoft has five hundred and fifty six hundred billion dollars well we think deep learning will double that and here you can see why we think the internet was big with trillions and trillions of dollars in capitalization But it hasn't dabbled in some industries like it has in others, so deep learning is a subset of machine learning, which is a subset of artificial intelligence.
investing in disruptive innovation catherine wood exponential finance
I think we're getting a lot more attention in general, this whole idea of ​​

disruptive

innovation because we're seeing the retail industry fall apart you hear you hear news every day of a company saying we don't have pricing power rule loss of traffic that we have too much inventory amazon is eating our lunch we believe deep learning is going to create in financial services that have already been affected by the internet between one hundred and one hundred and seventy billion lion dollars in profit or savings for four companies due to a better credit for example or in the automotive space we think autonomous taxi networks are going to exist because of deep learning we think that market will be a seven to ten trillion dollar market in 10 to 15 years and taxi networks freelancers, so probably twenty percent of the total freelance opportunity will be about a of two trillion dollars again driven by deep learning we thought so and I'll get into this later that it's going to be subject to natural monopolies so multi-company opportunities, say five to seven companies have a revenue market of two trillion dollars big opportunities we definitely have our eyes focused on that we've done three years of intensive research on that health care we think there's a 16 billion dollar opportunity in radiology because of deep learning come back to do that mammogram and understand maybe three times before In stage one instead of stage three that a woman has breast cancer here here we are saying Bill Gates said machine learning would be 10 from Microsoft.
investing in disruptive innovation catherine wood exponential finance
We think deep learning could approach $17 trillion in market capitalization, which would be Amazon's 35 and I know a lot of people look at Amazon, which for a long time never made any money. Very few people or very few traditional asset managers for years could own that company because again, no p/e stratospheric profits. I think Amazon taught us a lot and many companies are now willing to invest in these incredible opportunities. They are willing to give up current gains because the opportunities out there are so huge. There are many companies that are in this. I have to grow 10% a year. they are going to be fair and I cannot invest as much for this or that they are going to be at a strategic disadvantage in this new world, so mobility is a service, this is the biggest change that the productive industry has faced we ever believe today that if you discount the cash flows if you present the cash flows that we expect from the autonomous taxi network that should be in the market today if we knew the companies that were going to be successful and as I mentioned earlier that these are going to be natural monopolies they should be worth about two trillion dollars today we now believe Tesla will be one of those companies Tesla is a fifty five sixty billion dollar company today many investors have had a bit of a problem with this one because they have defined it as a car company it is not, we believe it is ultimately an autonomous taxi network company, it is very interesting to hear the confessions conference calls that have set up the conference calls so it's just Q&A so we can get more of a glimpse of what the analysts think about the company than we do and in the last few questions at the end of their quarter there's no question about autonomous taxis. networks or nothing autonomous so we don't think Tesla is priced right we think if it got even five percent of this global market for autonomous taxi networks it should be worth another hundred billion dollars today so it's very easy for us to maintain that they store what is valued today so rideshare services here we say there's about a hundred and fourteen billion dollars in market capitalization which is super lift duty they're all private , us and it can go to 150 billion we think it should be the opportunity is a two trillion dollar opportunity we don't think uber is in the right position to capitalize on this opportunity and I would love to talk about that and if we have questions and answers or after so and you can see you can see the car manufacturers today that's a trillion dollar market so today the autonomous taxi network mos should be worth more than all the slogan makers that have to take two big leaps here, have to go electric. ic and they have to think about becoming a mobility service provider, it's going to be a very, very difficult cult, especially here in the United States because of the dealer networks and how they're really at a structural disadvantage to Tesla, which can do more. software updates over the air while that is illegal in many states or would alienate dealers who make more than all their profits from the service so Auto OMS will be in a lot of trouble we think here This is just a picture.
We do a lot of work on S-curves. All of our work is focused on rights law. Moore's law curves. like mobile advertising has done so we know we're in this weak point of the S-curve and you know it's very hard to stop something so you can see how big mobility as a service is gross twenty twenty percent of that will be the autonomous taxi networks how big those are relative to car sales we think we think car sales basically certainly in the developed world have peaked at six billion 3d printing dollars today McKenzie thinks that it could be almost half a billion by 2025 you know it's only eight years away and these are the huge numbers we're talking huge growth rates you can see what analysts at traditional firms at consultants 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 really becomes part of the manufacturing process industrial production so end use parts and listening to GE we think that will happen we are seeing it in aerospace and we think we will and certainly some medical. custom built and we think it will happen in automotive Chris Berg genome editing as well, so gene editing is not new, but CRISPR is a breakthrough now, which is really interesting to me.
As an investor, if we were back in the tech and telecom bubble, you know you just have to whisper a few names and people would be all over them if you said, "Hey, this company can really cure diseases, it can cure, it really can matter." Don't you hear the names in Telia edit ass or CRISPR? Those are the big three companies in this CRISPR space and we think they're on their way to achieving what you see here. We think they will there. there are about 10,000 monogenetic or single gene diseases only 5% are treatable today if we could get another 5% treatable and could make or the companies that make it could make about a hundred and seventy billion dollars in revenue per year and if you compare that with what the NIH National Institutes of Health has spent in the last five years on Rd, that's 27 billion, a pretty huge bounty, so we're very excited about this space, it has applications beyond therapeutics could be a great these are relatively small market caps for the opportunity and you can see if a company in this space has a strong IP position like Genentech did in 1980 then the rates ofgrowth can be huge again you don't hear these names and that's quite interesting to me we think that's quite a lot there are very low expectations in that space mobile payments we think this is a $15 trillion vs. $1 trillion opportunity we base this on penetration of smartphones and mobile payment acceptance that is growing and actually Asia is leading the charge here if you look at companies like $0.10 and Ali pay they are really moving very quickly into mobile and actually showing us the I walk in many ways, so again, it's a great opportunity here.
We believe that data is the hidden asset that many companies have. It doesn't surprise us that Amazon is now targeting the lower revenue tiers because data comes with a lot of data in the small transaction space, we think data is going against roughly $100 billion runs as the companies are learning more and more not only about their high end customers but also about their lower end customers and you know how companies like Netflix and others have been able to transform industries because they know so much about their customers robotics you know Amazon rang the bell in 2014 they passed from 1,000 robots at the beginning of the year in their DCs to 15,000 at the end, they have about 50,000 today and they've never fired anyone other than for performance reasons in their DCs, so we know a lot of people are very afraid of what could happen due to robotics.
University study that said that in the next 10 to 20 years, 47% of all jobs in the United States will be lost due to robotics, automation, artificial intelligence. We took your study, the 700 job classifications there along with the salaries and then we used our research in robotics and the decreasing cost curve there and when robotics would be appropriate to enter the various industries and we agree that there will be a lot of displaced It's not what they didn't do and what a lot of people don't do, but Marc Andreessen and Ray Kurzweil are definitely thinking this way, they're not looking at the impact of technology, so productivity gains with new products and services if you do. you do.
What that research finds is that by the year 2035 the GDP due to robotics and automation technology will exceed well in the United States will be $12 trillion more than it would have been without robotics and automation, so instead of a twenty eight trillion dollar economy and by 2035 we will have a forty trillion dollar economy this is the story of technology productivity new products and services so it's our job as investors to figure out where that $12 trillion is of dollars. We can't even imagine it right now. You have no idea what the internet was going to do to us in the early 90's so here you can see robotics has been most effective in the auto industry so it's kind of a high volume assembly line environment like Q Peter was talking earlier that we are moving into a world of collaborative robots so we think robotics is going to have a tremendous impact and our expectation is based on the cost curve but laziness will have it in the robotics space I think the robotics industry is going to be much bigger than BCG or other consultants.
Blockchain crypto assets could lower the cost of transactions and reshape the economy. us he does polls that's something we do the cryptocurrency community is very well versed in Twitter so we'll do these types of polls so about two months ago I think this was May 8th so it doesn't even a month since we did this survey and the cryptocurrency community thinks we are looking at a trillion dollar market so this week all cryptocurrencies are available, over 700 cryptocurrencies. It's counted in terms of what we would consider a hundred billion dollar market capitalization, so when you put it in the context of Apple stock, which is roughly eight hundred billion dollars, you know it's pretty interesting because we think that Blockchains are cryptocurrencies, crypto assets. crypto products whatever you want to call them are going to be transformational so on May 8th the community thought we were looking at a trillion dollar opportunity it's been on fire we're in a very speculative phase here we think this is going to be characterized by boom dips but here you have the largest vote just one day after prices started to skyrocket and you have a much larger one to five trillion percent lower there but still larger 10 trillion so which is a very hot very hot space I know many people have trouble embracing this space.
I'm just going to throw in some analogies and examples, so I remember back to the early days of the int. Internet technologists said technology analysts or futurists said they know voice is going to be free and I remember thinking what, how is that going to happen, yes voice is going to be free, we couldn't conceive how that would happen, Well, voice over IP is indeed free, the same is going to happen with the money that we are going to go to, so the transmission of money at this time there is a lot of friction in the system.
Western union gets 8% and 8% of us workers transfer money to mexico or philippines money over ip ultimately will let them do it for free now today when you do there you have to pay in either side of the transaction to convert from fiat to crypto and then vice versa, but if you look from the corridor from the Philippines to South Korea, what you're already seeing is that bitcoin represents 20% of the remittance market. Now, remittances at any time. I see 10-20%. I think the S-curve is very powerful, especially in the emerging markets when they're trying to save money this way the remittance market is 500 billion to 600 billion dollars market we think the market could come in to really become part of the crypto world now what is also interesting the blue pen is the company that has the philippines corridor of south korea, the migrant workers who transmit currency do not know that bitcoin is what allows them a transaction with such a low fee, it's the rails effectively so you just see Fiat transfer so we think we think it's going to be a very exciting market we also think I mean when you think really greatly value transfer of any transfer of any value could end up going to the blockchain and aha moment for me.
It came when I thought about supply chain management well supply chain management which is a transfer of value and supply chain management is obviously a great huge opportunity out there this market is nascent there are t There are many problems of growth happening right now in the crypto world, but if the promise is there, we actually believe that the internet was never intended to be monetized in the early days and that crypto assets and the networks that use them are the answer to That's what I'm going to switch to this third FinTech lesson a conference we sub-advise for a Japanese company a fintech fund I think Asia is ahead of us in fintech so to speak you can see how the financial services break down here global revenue of approximately fourteen billion dollars, we believe that FinTech will touch eighty for every dollar of the 80 trillion of dollars in GDP over the years, you can see how we think the most interesting observation I think is in this graph and I'll be very interested in getting involved in the insurance section.
We believe that big data machine learning is going to disrupt 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 retail banking cryptocurrency for investment banking venture capital could also be very disruptive to that world so we are very excited about all that disruptive innovation has to offer and would be happy to be here to answer any question you may have i think i ran out of time thank you very much

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