Q3 Update Webinar Summary

In our Q3 2024 Quarterly Webinar, ARK Invest’s CEO and CIO, Cathie Wood, joined ARK’s Investment Team to offer important perspectives on the current macroeconomic environment, the outlook for innovation, and emerging opportunities across a range of sectors. As always, ARK remains committed to identifying and investing in disruptive technologies that are reshaping industries globally. Below, we provide a summary of the key discussions from the webinar, including insights into monetary policy, China’s economic challenges, innovations in space and AI, and our perspectives on specific companies within ARK's portfolios. This article summarizes our perspectives on key questions asked during the webinar and on the investment landscape as we move into the final quarter of 2024. For additional insights, we invite you to view the full Q3 Update Webinar here.

Economic Outlook: Uncertainty Shifting Toward Opportunity

Cathie Wood opened the webinar by offering a detailed analysis of the macroeconomic environment. While employment data are giving mixed signals—highlighting both upward revisions and surprises to the upside—the overall picture remains consistent with the rolling recession we have been discussing for the past two years. Housing, commercial real estate, autos, and small business sentiment continue to reflect economic uncertainty.

However, three former headwinds—interest rates, market concentration, and valuation compression—are now becoming tailwinds for innovation-based strategies. With the U.S. Federal Reserve (Fed) cutting rates and market concentration in the Mag-6 stocks¹ easing, we are seeing renewed potential for disruptive innovation to outperform. ARK’s portfolios are well-positioned, with valuations now at reasonable levels compared to broader benchmarks, suggesting strong upside potential for the innovative companies in which we invest.

The Fed's Policy Shift and Innovation’s Resurgence

The Fed’s recent 50 basis point² rate cut was a key topic of discussion. While shares of innovation companies rallied initially, the momentum appeared short-lived. Cathie Wood noted that this temporary response stems from the market’s myopic focus on short-term economic statistics, which are frequently revised. As interest rates continue to decline and election-year uncertainty recedes, we expect a return to a more innovation-focused market environment—much like the periods of sustained growth seen in the 1980s and 1990s. With five major innovation platforms evolving simultaneously today, we believe the potential for outperformance from active management in the innovation space is significant.

China’s Economic Challenges and Investment Considerations

Cathie also addressed the ongoing economic struggles in China, noting that while the country is not facing an outright collapse, it is in the midst of debt deflation. China has not done enough to restore confidence in its economy, especially as exports have weakened. While innovation is becoming more central to China's long-term strategy, the country’s high fixed-cost base in property and legacy industries presents a formidable obstacle to growth. ARK’s exposure to China remains measured, with a position in BYD³ through ARKQ, while we carefully monitor China’s approach to innovation and its impact on potential investment opportunities.

Hong Kong’s Bitcoin ETFs and Mainland China’s Regulatory Outlook

The discussion shifted to Bitcoin ETFs in Hong Kong, where recent launches have seen slower-than-expected growth. Yassine Elmandjra, ARK’s Director of Digital Assets, highlighted that Hong Kong’s smaller market size, regulatory challenges, and intermediary misalignment are limiting ETF adoption. With mainland China still imposing strict restrictions on cryptocurrency participation, we do not expect Chinese investors to access these ETFs anytime soon. However, other Asian countries, like South Korea, are reviewing crypto regulations, offering a more promising outlook for broader regional adoption.

UiPath and Unity: Long-Term Potential Amid Short-Term Challenges

Turning to specific companies in the public equity space, Frank Downing and Nick Grous provided updates on UiPath and Unity, respectively. UiPath, a leader in robotic process automation (RPA), has faced short-term execution issues, including sales misalignment and customer confusion over generative AI. Despite these hurdles, ARK remains confident in UiPath’s long-term prospects, particularly as generative AI continues to enhance workflow automation.

For Unity, the removal of the runtime fee and new leadership under Matt Bromberg have positioned the company for recovery. Despite facing challenges in its advertising business and market perception, Unity maintains its leadership in game engine development, particularly in mobile, augmented reality (AR), and virtual reality (VR) markets. ARK’s long-term thesis for Unity remains strong as the company works through its current issues and refines its product offering.

Taiwan Semiconductor: Positioned to Lead in the AI Era

Taiwan Semiconductor (TSMC) remains a cornerstone of ARK’s portfolio due to its critical role in semiconductor manufacturing. Frank highlighted that TSMC’s first-mover advantage in chip fabrication has allowed it to dominate the market for high-end chips used in smartphones and data centers. As the AI-driven data center market continues to grow, TSMC is well-positioned to maintain its leadership, benefiting from the increasing demand for AI-optimized semiconductors.

Tesla's We, Robot Event: A Glimpse into the Future of Robotaxis

At Tesla’s We, Robot event in early October, Cathie Wood and Tasha Keeney were on-site for the unveiling of Tesla’s CyberCab and Robotaxi platform. Tesla demonstrated the future of autonomous transportation with rides in the CyberCab, which features no steering wheel or pedals, signaling their serious commitment to launching autonomous ride-hailing services. Importantly, Tesla is targeting a $.30 - $.40 cent price-per-mile for its robotaxis, which aligns closely with ARK’s long-standing estimate of $.25 cents per mile, and would disrupt the current market, where traditional Uber rides cost around $2 per mile.

This significant cost reduction could open the robotaxi market, expanding well beyond today’s ride-hailing industry, which is worth hundreds of billions of dollars. With Tesla’s vast real-world driving data and leadership in autonomous technology, the company could be the first to scale, despite other players like Waymo leading in early market entry. ARK continues to see Tesla as a long-term leader in this space, with significant potential for growth as robotaxis become a mainstream mode of transportation.

OpenAI: Leading the Foundation Model Market

Frank Downing also highlighted ARK’s increased position in OpenAI within the ARK Venture Fund. As one of the category leaders in AI, OpenAI has been a focal point of innovation with the successful launch of ChatGPT and its rapid rise to over 100 million users. OpenAI continues to push the boundaries of AI with its latest model, O1, which introduces reasoning capabilities, allowing the model to “think” before providing responses. This advancement promises significant improvements in generative AI performance and new use cases.

With revenue expected to triple over the next year to more than $11 billion, OpenAI is rapidly scaling its business and is positioned as one of the few likely winners in the private foundation model space. ARK believes that OpenAI, with its strong foundation model, vast data resources, and partnerships with companies like Microsoft, will remain a key player in the evolving AI landscape.

Read our full investment thesis on OpenAI here.

ARKG and Genomics: Navigating Market Volatility

Finally, Brett Winton provided an update on the performance of genomics companies within ARKG, particularly tools companies like 10x Genomics. Despite significant advances in genomics technologies, stock prices in this sector have lagged, largely due to the interest rate environment and the capital-intensive nature of these companies. Many genomics companies are in pre-revenue stages, heavily investing in pre-clinical and clinical trials, which requires substantial upfront capital.

However, as genomic technologies become more integrated into therapeutic development and diagnostics, ARK expects significant value creation. Tools like single-cell sequencing from 10x Genomics and long-read sequencing from Pacific Biosciences are driving scientific discovery, particularly in oncology. These advancements, paired with AI’s ability to analyze molecular data, hold the potential to deliver capital-efficient cures and breakthroughs in healthcare.

Conclusion

The October Quarterly Webinar provided insights into the evolving macroeconomic landscape and the opportunities for innovation across a variety of sectors. As interest rates decline and innovation platforms mature, we expect disruptive innovation to outperform once again. ARK remains focused on identifying the companies and technologies that we believe will lead the next wave of transformation, ensuring that our portfolios are positioned to capture the long-term value created by innovation.

Stay tuned to our In The Know video series for deeper insights about deflation, innovation, and macroeconomic developments.

Important Information

The information provided in this material is for informational purposes only and should not be used as the basis for any investment decision and is subject to change without notice. It does not constitute, either explicitly or implicitly, any provision of services or products by ARK, and investors should determine for themselves whether a particular investment management service is suitable for their investment needs. All statements made regarding companies or securities are strictly beliefs and points of view held by ARK and are not endorsements by ARK of any company or security or recommendations by ARK to buy, sell or hold any security. Historical results are not indications of future results. 

Certain of the statements contained in this material may be statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. ARK assumes no obligation to update any forward-looking information. ARK and its clients as well as its related persons may (but do not necessarily) have financial interests in securities or issuers that are discussed. Certain information was obtained from sources that ARK believes to be reliable; however, ARK does not guarantee the accuracy or completeness of any information obtained from any third party.

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