Q1 2026: Commentary From ARK's CIO

By Cathie Wood

Chief Executive Officer, Chief Investment Officer, Portfolio Manager

Cathie founded ARK to focus solely on investing in disruptive innovation while adding new dimensions to research. Through an open research approach, Cathie believes ARK can identify large-scale investment opportunities resulting from technological innovations.

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Market Backdrop

Unsettled global markets in the first quarter of 2026 echoed those during the first quarter of 2025. As was the case last year, innovation-oriented equities underperformed broader benchmarks, with the ARK Innovation ETF (ARKK) declining 12.22%, compared to the ~4% and ~6% declines in the S&P 500 and Nasdaq 100 Indexes, respectively, benchmarks more heavily weighted toward mega-cap incumbents than pure-play innovation exposures. Last year’s tariff escalation and policy uncertainty weighed heavily on sentiment and disrupted market momentum. This year, geopolitical tensions, including the war in Iran, reintroduced fears of higher inflation and weaker global growth.

While recent inflation data continue to spark concerns, the underlying trajectory seems more nuanced, particularly because producer price inflation is higher than consumer price inflation. Alternative real-time consumer price metrics from Truflation¹ suggest that inflation has dropped and remains below government measures, as the deflationary undercurrents associated with technological progress—AI, robotics, energy storage, and other innovation platforms—are pressuring costs. At the same time, the Federal Reserve’s dual mandate brings labor market dynamics into sharper focus. Signs of employment weakness, particularly among recent college graduates, could reflect AI-driven productivity shifts, baby-boom retirements, and a drop in immigration, among other forces. Geopolitical pressures, including those linked to Iran, could exacerbate the near-term volatility in inflation, though notably core inflation² as measured by Truflation has decelerated to 1.72% as of March 31, 2026.

Other sources of market volatility during the first quarter included a reassessment of AI, hyperscaler³ capital expenditures, and value distribution across the software ecosystem, all of which aggravated fourth-quarter concerns about the dislocations that frontier AI models are causing. That dynamic—also called “SaaSpocalypse”—ignited a broad repricing of software and Software as a Service (SaaS)-related equities as investors confronted the possibility that AI platforms, agents, and usage-based models could disrupt traditional seat-based software economics more rapidly than anticipated. Breakthroughs from leading model providers highlighted how quickly they might automate knowledge work, ultimately challenging the economic foundations of seat-based software. While the advancements are validating the scale and speed of the platform shifts now underway, in our view the market response was indiscriminate—de-risking of anything perceived as “software”—overlooking the companies aligned with AI and enabling the AI transition.

For several years, ARK has been little exposed to traditional SaaS models, preferring exposure to AI platforms, infrastructure, and other areas of the technology stack that we believe are capturing disproportionate value. Our view that AI would evolve as a platform shift rather than a feature set was a key contributor to the ARK Innovation ETF (ARKK)’s outperformance relative to broad-based benchmarks⁴ in 2025, as it outperformed the S&P 500 by more than 17 percentage points.⁵ As a result, while creating volatility in equities, SaaSpocalypse also validated ARK’s differentiated strategies. ARK’s investment process remains highly active, seeking to capitalize on the structural transitions that can create dislocations between prices and fundamental value. 

Our portfolio activity during the quarter—exemplified by initiations and exits during SaaSpocalypse—highlighted our concentration into our highest conviction holdings.

Outlook

In our view, markets will continue climbing the wall of worry created by geopolitical uncertainty, evolving monetary policy expectations, and ongoing reassessments of the impact of artificial intelligence. Developments in the Middle East could continue to influence energy markets and inflation expectations, while central banks remain committed to driving policy based on data. Investors continue to assess the balance between near-term AI capital intensity and longer-term productivity gains—crosscurrents that are likely to sustain debate, market volatility, and dispersion among equity strategies.

In our view, this environment is fertile ground for long-term investors. Periods marked by uncertainty tend to create “walls of worry” that sustain bull markets. The current wall of worry reflects a market digesting a major technology platform shift—not one nearing exhaustion. The repricing across software, compute infrastructure, and adjacent sectors is a function of identifying areas of value accrual in an AI-driven economy.  

From an innovation perspective, we believe AI will shape the next phase of economic growth. While software has commanded much attention, the opportunity set is likely to expand well beyond that layer of the tech stack, toward infrastructure, platforms, robotics, autonomy, energy systems, aerospace, defense, space technologies, and multi-omics. The convergence among these technologies could create astounding opportunities and broaden the scope of innovation-led returns.

In our view, many of the most compelling opportunities are not well represented in conventional benchmarks. By design, index construction tends to lag structural change, often concentrating exposure in incumbent business models while offering little exposure to emerging leaders. Capturing the full breadth of innovation requires a more active and research-driven approach. Periods characterized by volatility, narrative shifts, and indiscriminate selling can create opportunities to build positions in mispriced companies with significant long-term potential relative to short-term uncertainty. In our view, the current repricing is helping to clarify the potential value accrual across the AI ecosystem. While it could persist in the short term, volatility is improving the entry point for long-duration innovation strategies.

Click here to download the full report, including Fund Commentary.