Artificial intelligence is already making waves with consumers and businesses. Greg Bonnell speaks with Cathie Wood, CEO and CIO of Ark Invest, about the societal impact of AI and possible opportunities for investors.
Transcript
Greg Bonnell: Technology stocks had a strong start to the year after a pretty challenging 2022. But could that run continue amid some signs of slowing growth? Joining us now to discuss– Cathie Wood, CEO and Chief Investment Officer at ARK Invest. Cathie, it’s great to have you on the program with us.
Cathie Wood: Thank you, Greg. I’m very happy to be with you.
Greg Bonnell: Technology has been a very interesting space. Let’s start off a little bit about talking about the investment philosophy at ARK if you’re thinking about technology. What kind of thinking are we doing here? Are we doing long-term thinking?
Cathie Wood: Yes, ARK’s investment time horizon is five years – so yes, long-term. And that’s somewhat contrarian in this market, but we think it’s very important to keep our eyes on the prize and do deep research on how technology is going to evolve. And we think it’s going to evolve very quickly during the next few years.
Greg Bonnell: All right. As we talk about this quick evolution, I want to talk about some of the things that perhaps you have your eye on. Everyone has been talking for several months now about ChatGPT. Really, at the core of that, we’re talking about artificial intelligence and people saying that the changes there could be swift. What are you anticipating in this space?
Cathie Wood: Well, we’ve been doing research on this space ever since ARK was founded in 2014. And we think it’s terrific that finally something in the innovation space, like ChatGPT, has captured both the consumer and the business imagination and is really helping people understand that the world of innovation is changing very quickly, and the changes are pretty profound. I’m not sure if you’ve experimented with it.
But from an educational point of view, it’s going to change education. It’s going to change work completely, even in areas like developers, engineering. We’re seeing coding productivity go up two-fold within less than a year. And we actually think that could go up tenfold.
And of course, that’s been an area of great labor shortages. So I know there was also an announcement today. IBM said it was going to hire no more people in the back office. And so for back office work, ChatGPT, and AI generally, is probably going to take the place of human beings. But in that regard, it’s going to take people out of some areas that are tedious, shall we say, and create other opportunities that we think are going to be pretty exciting.
Greg Bonnell: Because I mean, when the discussion is had around artificial intelligence, obviously there is excitement about what it can deliver. And I have experimented with some of these apps that you were talking about. But there’s also a bit of fear and trepidation among people about a change of this scale. A wholesale change, almost, could be pretty disruptive for society.
Cathie Wood: I think you’re right, and I think that we’re going to need retraining and re-education. But these technologies are very exciting and also hold great promise for those who get on the right side of change. So I think just experimenting with ChatGPT, you see the power behind AI. And you can also see how you can learn a lot of these new technologies by yourself.
For example, with natural language processing, we’re all going to become programmers, effectively. And now a year ago, most people would think, oh, I could never be a programmer. But now some of our analysts have used ChatGPT to design their own website, copying another website, and that’s in less than a day. So it’s pretty provocative. I think you have to really want to engage with it and experiment. And those with initiative and creativity, I think, are going to have a lot of fun and very enjoyable careers.
Greg Bonnell: That’s one of the big themes right now in AI. But I am noticing now that we’re in the thick of earnings season, we’ve had some of the heavyweight big tech names already report that a lot of them like to talk up artificial intelligence as well. It’s creeping into everyone’s statements and what they have to say about the future of the business going forward. What are you taking away so far from some of the big tech names we’ve seen this earnings season?
Cathie Wood: Well, I think that the larger platforms – the larger social platforms – are taking advertising share from the smaller ones. That’s clear. And it’s been a pretty quick shift, I would say. I think all of them were suffering last year, and the larger ones are now grabbing share.
Yes, AI is discussed quite a bit in most of these calls. But we think that it’s a real risk to a company like Alphabet (GOOG) (GOOGL). I have never really enjoyed Google Search myself. I wish it could be smarter. I’m sure we’ve all had that experience.
Well, guess what? ChatGPT, once they start pulling it through and including recent times as well, I think is going to usurp Search. Now, Google or Alphabet says that it’s on it. It’s on the case. And it should be because it has some of the best AI experts in the world. It bought a company called DeepMind.
But somehow they’ve been risk-averse, and OpenAI has stolen the march with ChatGPT. And then the other thing with plug-ins and ChatGPT, we’re trying to understand what will be the impact on Apple (AAPL).
It could be that ChatGPT will disintermediate apps with so-called plug-ins and really just take us directly to wherever we want to go, whatever website we want to go. It’ll anticipate it. So I think while mega-cap tech recently has come on strong, we’re looking at the disruption and disintermediation risks that they are facing here as well.
Greg Bonnell: These are disruptions, obviously, that will have longer term effects on the tech sector, shape the tech sector going forward. Right now it’s hard to ignore the fact that investors are concerned about slowing growth. We’ve heard that from some of the companies, too, in terms of their clients getting a little more cautious on spending in the cloud and some other areas – also, what the Federal Reserve might deliver, what the interest rate path is going forward. What should we be thinking about for the rest of this year in terms of some of the volatility out there?
Cathie Wood: Well, I think that – and it’s really in the US that we’re seeing the regional bank fallout here. And I think it’s accelerating, contrary to what Jamie Dimon said after buying First Republic (OTCPK:FRCB) or piece parts of it. We believe that because of the Fed interest rate hikes – 20-fold increase in one year – that deposits are leaving the system and moving into Treasury funds.
And Treasury funds do nothing but sit there. They can’t be loaned out. They can’t encourage business activity. Whereas deposits and banking system – the other side of those can be loans. And so we have a feeling that we’ve started in the early stages of a credit crunch that is going to be much more serious than I think most are expecting.
I think that the regional bank index is beginning to telegraph that. It has broken down, which tells us deposits will continue to outflow until the Fed reverses its position – until the Fed pivots. And we do see – you mentioned the oil price. I think it has defied most people’s expectations this year, especially everyone expecting China to come back once it dropped its zero-COVID policy. And that has not happened.
So something’s going on out there that is broader than even the US. We do believe that there is much more weakness in the global economy than most appreciated. And I would say, it’s interesting because China was shut down for so long. I think we all expected a little bit more than we’ve seen.
Some consumer companies have seen some activity, but the oil market has not. And one of the things that is going on – it doesn’t seem like Russia has been forced to cut production. And it seems like it’s still selling its production at a discount, and now that is beginning to infect the rest of the market.
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