Q3 2026: Commentary From ARK's CIO

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Market Backdrop

Last quarter, US equity markets hit record highs even though interest rates increased sharply. Before a September pullback, the S&P 500 and Nasdaq 100 Indexes set all-time highs, ending the quarter up ~2% and ~2.5%, respectively. Leadership remained AI-focused and narrow: the equal-weight S&P 500 Index finished the quarter down ~2%, while the small-cap Russell 2000 Index declined more than 7%. Meanwhile, the 10-year Treasury yield rose 85 basis points to 5.29%, 54-basis point of the surge in September, the largest monthly increase in four years.

For the first time since 2023, the Federal Reserve (Fed) has pivoted to hiking rates, raising its targeted Federal funds range by 25 basis points to 3.75%–4.00% on September 16 and signaling the potential for another increase this year. Contrary to conventional expectations, equities rose on the news, perhaps because investors welcomed the Fed's resolve and independence under Chairman Kevin Warsh.

Outlook

In our view, the official inflation data on which the Fed is relying overstates inflation. In August, inflation as measured by headline and core Personal Consumption Expenditures (PCE) was 3.4% and 3.0% year-over-year, respectively, while Truflation's real-time measures stood at 2.6% and 2.1% year-over-year by the end of September. Energy is masking deflation elsewhere: gasoline and other energy goods prices have increased ~37% year-over-year, adding ~0.7 percentage points to Truflation's headline reading. When the Strait of Hormuz reopens fully, oil prices could fall sharply.

Warsh's five task forces—three of them focused on inflation measures, inflation frameworks, and productivity—suggest Volcker-like discipline and an openness to alternative measures of inflation. A softer-than-expected August PCE inflation report at quarter-end, followed by a September payroll gain of only 29,000, has cut the odds of another hike in October to less than 20%, which sent the Nasdaq 100 Index to an all-time high. In our view, equity markets are viewing the increase in interest rates as less an indicator of inflation and more an indicator of accelerating real growth fueled by innovation.

Meanwhile, technology is unleashing deflationary undercurrents: AI inference costs—or the cost for OpenAI, Anthropic, Grok, Muse, or Gemini to answer questions—are dropping more than 99% per year. Unlike that during the Global Financial Crisis, this deflation is “good,” as it is accelerating the growth of unit demand and revenues dramatically. ARK’s AI platform thesis is unfolding faster than expected: Anthropic's annualized revenue run rate (ARR) soared more than seven-fold, from $9 billion last December to $65 billion in July, and could top $100 billion by year-end, with much higher-than-expected profitability. In seven months, Anthropic added more annualized revenue than Salesforce did in 25 years, countering the "AI hype" narrative. Even so, according to our research, the impact of AI is in early innings, given projections of autonomous mobility scaling from single-digit billion dollars of revenue today to $10s of trillions during the next five to ten years, as well as the convergence between multiomics sequencing technologies and AI that is creating profound applications: curing disease and extending healthy human lifespans.

That convergence has surfaced in the recent performance of ARK's multiomics portfolio holdings. The ARK Genomic Revolution ETF (ARKG) returned 29% last quarter and has returned 87% year-to-date, despite the rise in interest rates that often has pressured long-duration equities. Causing this re-rating are scientific and technological breakthroughs and proofs-of-concept. According to ARK’s research, the cost of whole human genome sequencing has collapsed from $2.7 billion per genome in 2003 to less than $100; the cost and time to discover and develop new drugs are shrinking 40-75%; the ability to diagnose disease in early stages is increasing dramatically; and CRISPR gene editing—supercharged by AI—is curing sickle cell disease and beta thalassemia. Now, investors are beginning to price in the potential for pharma and biotech returns on Research and Development (R&D) to recover from the mid-single digit range toward the 30%+ last seen in the nineties.

According to our research, the US is heading "back to the future": today's “wall of worry”—inflation, interest rates, deficits, tariffs, wars, and technology dislocations—seems much like that in the eighties and nineties. Indeed, fears that AI is a bubble echo investor sentiment during the PC and smartphone revolutions. Despite volatility, those worries gave way to the most durable equity bull market since the Roaring Twenties, as technology adoption translated into real productivity and earnings gains.

The convergence among AI, robotics, energy storage, public blockchains, and multiomics technologies could lift real Gross Domestic Product (GDP) growth well beyond the 2–3% range in place since the Industrial Revolution, creating productivity gains in the 5–6% range while inflation falls to between -2% and +2%. Short rates could rise with nominal growth while the yield curve inverts without a recession, as it did during the Industrial Revolution. In our view, this setup could create a new golden age for equities and an innovation super cycle favoring companies and stocks on the right side of change.

ARK Autonomous Technology & Robotics ETF (ARKQ)

The ARK Autonomous Technology & Robotics ETF returned -8.35% during the quarter, underperforming the S&P 500 and MSCI World Index, which rose 2.30% and 1.96%, respectively.

Among the top detractors were Tesla (TSLA) and Rocket Lab (RKLB). Shares of Tesla sold off sharply after second-quarter results disappointed on profitability, despite record revenue, as price cuts and the wind-down of the Model S and Model X pressured margins. The stock recovered some losses as Tesla launched Cybercab publicly in Austin and surpassed 1 million unsupervised robotaxi miles, up from 380,000 just six weeks earlier. Tesla also began semi-truck volume production, secured a 2,500-unit order, and expanded full self-driving (FSD) to eight European countries. Shares of Rocket Lab detracted from performance amid continued selling pressure in the weeks following the SpaceX initial public offering (IPO) and second-quarter results that narrowed the launch window for the maiden flight of Neutron, its new rocket designed to carry larger payloads. The stock recovered some losses late in the quarter thanks to several contract awards, including a 20-launch agreement for Electron, its operational rocket designed to launch smaller satellites – the vehicle’s largest-ever commercial deal.

Among the top contributors were Palantir (PLTR) and NVIDIA (NVDA). Shares of Palantir Technologies traded up after the company reported better-than-expected second-quarter earnings and raised 2026 guidance. Revenue increased a better-than-expected 93% year-over-year, led by a 149% surge in US commercial revenue and a 90% increase in US government revenue. Adjusted earnings per share also topped expectations, as the company's Rule of 40 reached 155%. Management raised full-year revenue guidance to ~82% growth and lifted its US commercial target growth rate to at least 134%, signaling that enterprise adoption of its Artificial Intelligence Platform (AIP) platform is still inflecting rather than maturing. Shares of NVIDIA contributed to fund performance following strong second-quarter results, including revenue growth of 106% year-over-year and data center revenue growth of 117%. The company also projected third-quarter revenue of approximately $108 billion, implying year-over-year growth of ~89%, thanks to continued demand for accelerated computing and the expansion of AI infrastructure.

ARK Next Generation Technology ETF (ARKW)

The ARK Next Generation Technology ETF increased 10.56% during the quarter, outperforming the S&P 500 and MSCI World index, which rose 2.30% and 1.96%, respectively.

Among the top contributors were ARK 21Shares Bitcoin ETF (ARKB) and Palantir (PLTR), with Palantir benefitting from the factors discussed above. Shares of ARK 21Shares Bitcoin ETF trended higher following Treasury Secretary Scott Bessent's expansion of long-dated bond buybacks, which the market interpreted as liquidity support similar to yield curve control, triggering a broad crypto rally as risk appetite surged. The resulting price spike forced large-scale short coverings that amplified bitcoin's upward momentum throughout the period.

Among the top detractors were Tesla, for the reasons discussed above, and Roblox (RBLX). Shares of Roblox traded down after the company reported second-quarter earnings, including bookings growth of 8% year-over-year, which missed Wall Street estimates. The company also guided to a 14-18% year-over-year decline in third-quarter bookings and withdrew its prior full-year guidance, citing changes to its discovery algorithm that now prioritize long-term user retention at the expense of near-term monetization.

ARK Genomic Revolution ETF (ARKG)

The ARK Genomic Revolution ETF increased 28.92% during the quarter, outperforming the S&P 500 and MSCI World Index, which rose 2.30% and 1.96%, respectively.

Among the top contributors were 10x Genomics (TXG) and Twist Bioscience (TWST). Shares of 10X Genomics rallied thanks to growing interest in the role single cell sequencing and spatial analysis will play in generating data to support the training of AI drug discovery models. Additionally, the company announced a strong launch of the new Atera spatial system, noting that orders were already in place for the 40 shipments anticipated in 2026. Shares of Twist Bioscience appreciated as it became recognized as a prime beneficiary of AI based drug discovery, which was further stimulated by the announcement that Twist has been providing protein characterization services to Anthropic as part of their AI drug discovery efforts.

Among the fund’s weakest performers were Beam Therapeutics (BEAM) and Intellia Therapeutics (NTLA). Shares of Beam Therapeutics detracted from fund performance this quarter following the release of mixed data from its Phase 1/2 trial of BEAM-302 in AATD, showing long-term durability in correcting a disease-causing mutation. Total AAT levels declined modestly from 16.1 μM at 9 months to 14.1 μM at 12 months, within normal biological variability, and the first single-dose Gr3 liver enzyme event emerged, resolving spontaneously. Moreover, in July, Beam received an arbitration decision in favor of Prime Medicine indicating that PM647 is within Prime Medicine’s “Field,” confirming both Prime Medicine’s right to develop and commercialize PM647 in AATD and that Prime Medicine owes no monetary damages to Beam Therapeutics. Shares of Intellia Therapeutics traded down following an announcement by Ionis and AstraZeneca that the CARDIO-TTRansform Phase 3 trial for eplontersen (an RNA targeted silencer) in patients with transthyretin-mediated amyloid cardiomyopathy (ATTR-CM) did not meet the primary efficacy endpoint, raising doubts about whether Intellia's gene editing based silencer for the same indication would face similar challenges.

ARK Blockchain & Fintech Innovation ETF (ARKF)

The ARK Blockchain & Fintech Innovation ETF returned -8.35% during the quarter, underperforming the S&P 500 and MSCI World Index, which rose 2.30% and 1.96%, respectively.

Among the top detractors were Roblox (RBLX), for the reasons discussed above, and Klarna (KLAR). Shares of Klarna fell after the company released second-quarter earnings, which surpassed expectations but were overshadowed by a significant drop in guidance for full-year 2026 revenue and third-quarter revenue/gross merchandise value (GMV). Management cited weaker German retail conditions and foreign exchange headwinds. Meanwhile, planned CFO and CMO departures added to the uncertain outlook. Klarna provides buy-now-pay-later (BNPL) and digital banking services for consumers.

Among the top contributors were Shopify (SHOP) and Palantir, for the reasons discussed above. Shares of Shopify traded higher after the company reported strong second-quarter earnings, highlighted by 34% year-over-year growth in both Gross Merchandise Value (GMV) and revenues. Shopify also reported encouraging early traction in agentic commerce, with AI-driven traffic to merchant storefronts and orders from AI search each tripling year-over-year, and AI searches powered by the Shopify Catalog converting at twice the rate of those using scraped data.

ARK Space & Defense Innovation ETF (ARKX)

The ARK Space & Defense ETF returned -6.52% during the quarter, underperforming the S&P 500 and MSCI World Index, which rose 2.30% and 1.96%, respectively.

Among the top detractors were Rocket Lab (RKLB), for the reasons discussed above, and L3Harris (LHX). Shares of L3Harris continued lower after the company postponed the IPO of its solid rocket motor division to mid-2027 and announced a leadership change, appointing Sam Mehta as President and CEO, after Christopher Kubasik stepped down for conduct inconsistent with company values. L3Harris also secured more than $10 billion in seven-year contracts to expand US missile production.

Among the top contributors were Palantir (PLTR), for the reasons discussed above, and Komatsu (6301 JP). Shares of Komatsu appreciated after the company announced better-than-expected fiscal first-quarter results and raised full-year sales and profit guidance, despite US tariffs and Middle East shipping headwinds, supported by a lower-than-expected tariff impact.

ARK Innovation ETF (ARKK)

Invested in the highest conviction names in the Funds discussed above, the ARK Innovation ETF increased 10.39% during the quarter, outperforming the S&P 500 and MSCI World Index, which rose 2.30% and 1.96%, respectively.

Among the top contributors were 10x Genomics (TXG) and Twist Bioscience (TWST), for the reasons discussed above.

Among the top detractors were Tesla (TSLA) and Roblox (RBLX), for the reasons discussed above.

ARK Israel Innovation Technology ETF (IZRL) and The 3D Printing ETF (PRNT)

Among ARK’s self-indexed ETFs, the ARK Israel Innovation Technology ETF returned -5.55%, and The 3D Printing ETF increased 1.02% during the quarter, underperforming the S&P 500 and MSCI World Index, which rose 2.30% and 1.96%, respectively.¹

Shares of Riskified were the largest contributor to IZRL’s performance following the release of the company’s second-quarter earnings, which included 13% and 22% year-over-year growth in Gross Merchandise Volume (GMV) and revenue, respectively. Management also raised its full-year revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) guidance. Riskified also reported encouraging traction beyond card payments, with the dollar value of automated clearing house (ACH) transactions processed increasing approximately nineteen fold year-over-year, while competitive win rates remained above 75%. Shares of Saverone 2014 were the largest detractor from IZRL’s performance, despite a proposed military drone investment and an expanded heavy-truck fleet deployment. First-half revenue declined 63% year-over-year, and the company continued to warn of substantial doubt about its ability to remain a going concern.Shares of HP were the largest contributor to PRNT’s performance amid a broad PC hardware rally. The company beat fiscal third-quarter earnings estimates and raised full-year guidance on stronger premium PC sales, improved memory availability, and tariff refunds. Shares of Velo3D were the largest detractor from PRNT’s performance as the stock retreated from a second-quarter rally linked in part to investor interest in its ties to SpaceX around SpaceX’s IPO. Velo3D reported better-than-expected second-quarter revenue and raised its full-year revenue guidance, citing first-half performance, backlog and its sales pipeline.

IZRL underperformed its benchmark, The ARK Israel Innovation Index. PRNT underperformed its benchmark, The Total 3-D Printing Index.

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ARK’s statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. 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 of the statements contained 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.