Cathie Wood on How AI Can Double GDP, Bull Case for Bitcoin $1M, Elon’s Trillion-Dollar Pay Package

One of the most disruptive and innovative forces in the ETF world today, the best acquaint, Kathy Wood, the Arc Innovation ETF trading now near a 52-week high, returned an astounding 148%.

Returning more than 170% last year, now has $17 billion under management.

My conviction is so high because of what I do on a day-to-day basis.

We are doing original research, trying to figure out these companies that are going to transform the world.

Ladies and gentlemen, please welcome ArctInvest's Kathy Wood.

Well, greetings.

I'm so delighted to be here, my maiden voyage.

And I am here to talk about how the world's going to transform during the next five to ten years

and how much more rapidly we will see real GDP grow

and how low inflation is going to be and why.

So here we go.

Here is a timeline of innovation.

And you can see it goes into the 1700s.

And our chief futurist Brett Winton in conjunction with academics pulled this together and what you're seeing here is the impact of innovation on productivity.

And you can see in this time we've had two great eras.

The first one was in the late 1800s, early 1900s.

Telephone, electricity, internal combustion engine, huge boost in GDP growth.

And in fact, prior to that, for the 400 years prior to that, real GDP growth had been averaging about 0.6%

per year, very slow.

After that,

we went into a 125-year period of 3%

real GDP growth.

So a five-fold increase from 0.6 to 3%.

You have to move forward to today to see multiple innovation platforms evolving at the same time.

So for the first time in 125 years.

This time there are five platforms, not three major platforms, and they involve 15 different technologies.

This is very important in terms of how to research and analyze the world.

It's not going to be by sector or industry anymore.

It is going to be by technology because technology is permeating every sector, every industry, and blurring the lines between them.

So you can see five here.

We believe that the productivity uplift here is going to be so strong during the next five to ten years, and I think President Trump's tax package is going to turbocharge this, that real GDP growth will accelerate from that 3% where it has been for the last 125 years towards 7%

And we think that could be conservative.

That's a little more than two times as opposed to the five-fold uplift before.

So get ready.

But the other thing that we think is going to happen is that inflation is going to surprise significantly on the low side of expectations.

We would not be surprised to see 0%

inflation or less as we exit the tariffs here and the way they're getting through the indexes and move forward into this new age of technological explosion.

One of the reasons for this explosion is not just the five platforms, so I should have named them robotics, energy storage, artificial intelligence, blockchain technology, and multiomic sequencing.

Five major platforms involving 15 different technologies.

And here you can see why we think we're going to see explosive growth.

It is the convergence between and among these technologies.

So just to give you two examples of convergence, in the autonomous mobility space, that is the convergence of robotics, energy storage, and artificial intelligence.

Now each one of those technologies or platforms is following its own S curve

and we are moving into the sweet spot of the S curve now that autonomous taxis are debuting in the case of Tesla in Austin and San Francisco.

Waymo's been there for a while.

Just think about that.

One S curve feeding another S curve, feeding another S curve.

That's why we're going to see explosive growth.

Another example is in the healthcare space.

While the autonomous mobility space might be the biggest revenue generator in the short term, we believe that the most profound application of AI is in healthcare.

And that's the convergence of sequencing technologies and artificial intelligence.

and technologies like CRISPR gene editing.

And I think this is the sleeper.

It's the most inefficiently priced part of the market.

So you can see why it's going to be so important to set up research departments by technology, not by sector or industry.

And on this last page here, here is what we think is going to happen to the equity market in terms of valuations.

So you can see in the turquoise there, that's the Mag 6.

The Mag 6, it used to be called the Mag 7, but they threw Tesla out when it wasn't behaving like the rest of the Mag 6.

So you can see from 2019 to 2024, the Mag 6 tripled.

They tripled in valuation in the market cap.

Whereas truly disruptive innovation in the purple at the bottom there went up only 30%.

And that's because investors were playing it safe.

And

they were investing only in the largest, most cash-rich stocks in the market.

That was a very difficult time for innovation, for venture capital generally.

And you can see what we expect to happen between, well, really the next five years.

The Mag 6, some of them will do well.

Some are facing headwinds.

Apples in the AI space are well documented.

And now we think it is truly disruptive innovations time to shine in the market.

I feel as though a rubber band has been stretching for the last four years.

And it let go with the election of Donald Trump.

That's when truly disruptive innovation started to shine.

And the stock market started to broaden out from the very concentrated max six strategies into

much more widespread disruptive innovation.

In other words, risk appetite and time horizon is starting to extend here.

And I think the tax package, especially the corporate tax cuts, which most people haven't focused on, full depreciation of structures first year they're put in service, full expensing of equipment, R ⁇ D domestic, and software in year one.

These are huge, huge incentives to invest now.

And I think that's exactly what's going to happen.

When you can see the difference here, the truly disruptive innovation we would expect, now we did this chart at the end of last year, during the next five years to deliver a compound annual rate of return of roughly 50%.

Now, we've had some of that, so maybe it's 40 to 45 percent compound annual rate of change.

And this is in the public equity world.

In the private world,

just wait until you see.

With that,

disclosures, of course.

They know the disclosures.

Ladies and gentlemen, Kathy Wood.

Kathy, joining.

Thank you.

Thanks for watching, Seth.

Thank you so much for coming.

I know you're very busy.

My pleasure.

You're projecting in five years Bitcoin hits 3.8 million per coin.

That's five times the market cap of gold, which is hit an all-time high.

Walk us through the math here.

So I'm going to just correct that a bit.

Okay.

Our official bull case is 1.5 million.

Now,

what got us to that 3.8

is using modern portfolio theory,

if we were to include Bitcoin in portfolios at its optimal weight,

so maximizing the Sharp ratio, that would have provided that increment to 3.8 million.

Now, believe it or not, that position size when we did that analysis was 19%

of a diversified portfolio.

That's a lot.

That's a lot.

Yeah.

I have more in mine.

Well, you swing for the fences.

When your cousins,

when civilians ask you, hey, how much Bitcoin should I own?

What's the number you would say in private to a family member?

To a family member?

Yeah, you want to protect them.

You're not like, hey,

we're swinging for the fences.

This needs to be our home run.

I'll tell you what I've told my children for a long time now: is average in.

I mean, you know, average you know, every month, just average in,

and then I would leave it to them in terms of their comfort factor.

Got it.

Kathy, can I ask you about

this ability to be a vehicle for a lot of folks that are just living their normal day-to-day lives and they want the answer to what is going to do well in the future.

And they can go and they can buy your ETFs and then they can participate in that future.

There's a lot of people that are frustrated, palpably frustrated, with an inability to sort of get ahead and break through, build wealth.

First, what is economically happening in America that prevents so many people?

What do you see?

Number one.

And then number two,

what characteristics and responsibility do retail investors have?

If they're going to YOLO this and if they're going to buy this other thing and they're going to try to go further out on the risk spectrum, what is their responsibility so that there's no crying in the casino?

There are ways to access innovation, and one of the questions, many ways, of course.

We have packaged it up.

We don't look anything like a traditional benchmark.

So, if they're diversifying, we're a very good source of diversification, especially in trying to get exposure to innovation.

We also have a venture fund.

One of the questions I get regularly from retail investors used to be: why can't we access the private markets?

We know more about those technologies than most of the institutions who are buying them.

They have no idea.

We're passionate about it.

And so we've gotten more vocal, and this administration is certainly becoming more vocal and

more focused on this particular idea because it is un-American, right?

You have to meet this particular

day but you can't buy open AI exactly but you can buy a lottery ticket or you can bet on sports and it makes no sense right and I do think it's going to change and I think this administration how should it change should we just have and I've advocated for this before on the pod and I believe you've talked about it six percent of the country five six percent are accredited you got a small number who are QPs

Should we just have a test?

You know, you get a license to own a gun or drive a car, cut hair in this country.

Why not just just have a simple accreditation test?

You understand diversification, you understand private versus public assets, how to read a balance sheet.

Wouldn't that just solve the problem right quick?

I mean, I used to say, you know, it would be, what we're doing in the investment world right now would be the equivalent of saying you can't drive because you don't make enough money or you do not have enough net worth.

Take a test.

Take a test.

And we have this big question in the country about polarization of wealth.

60% of the country has some exposure to equities, but the people who don't, they tend to trend towards socialism or handouts.

Maybe they don't feel they're part of what we experience, which is we meet great founders and you get to do public and private and we get to say, yeah, you know, I drove in a FSD car when Tesla was private or whatever it is, or I looked at Coinbase when it was private or Uber.

Yeah, I got the sense I want to put one or 2% into that.

Yes.

Yeah, it does feel profoundly unfair, doesn't it?

Yes.

Yes.

Kathy, there's a lot of market signals right now that are flashing green.

There's a lot of market signals that are flashing red.

Do you feel that you have to position actively to all of those things or do you say, you know what, I can't control this.

I need to look five years out.

So how do you manage the risk and how do you view the markets today?

Yes.

So the risk question,

obviously we get a lot because our portfolios are volatile.

They don't look like the benchmarks.

And when markets get

into

a bearish period, investors tend to hug their benchmarks, and we're moving in the opposite direction.

So I just want to say, we do what we do, and

that's what our advisors expect.

They don't expect us to raise cash or do anything.

That's their decision, right?

In terms of what we do to control risk, during bear markets, we will concentrate towards our highest conviction names.

We have a scoring system based on management, execution, moat or barriers to entry, product service, leadership, valuation importantly, and thesis risk.

So, with those scores, we concentrate.

During bull markets, which I do believe we are in a bull market that is broadening out, we tend to diversify because the IPOs start appearing again, and we have more information on some of the companies we've sold during the bear market.

Give us the read on Elon's trillion dollar pay package.

You know what's so interesting about it

and this happened with the first model we put out.

We put out a model once a year of Tesla and with our price target five years out.

We looked at his first package and we said, that looks like our model.

And we looked at this one and we said, that looks like our model and our our model is.

Your 10-year forecast has Tesla at $8.50, $9 trillion.

Well, right.

And we put out there five years.

Five years.

Yeah, yeah.

So,

and I think if he delivers on humanoid robots the way he thinks he is, we don't have enough in there.

So our price target is $2,600.

I think it's at $3.30 today, something like that.

Exactly.

Yeah, $2,600.

And we have very little for humanoid in.

But what Elon is is capitalizing on is this convergence that I mentioned.

Robotics, energy storage, and AI.

That convergence in the robo-taxi space is pretty much the same convergence in the humanoid-robot space.

Do you underwrite compensation as part of your model, meaning like when you look at a package like that, if you compare it to other CEOs, Zuck or whomever, different styles of compensation, Bezos famously took no compensation post-the IPO.

How do you think about that as a motivating factor or a necessary condition in 2025 to get results?

I think it's huge.

I mean, I wish more CEOs would do this.

Elon's not going to be paid unless he reaches these milestones either.

So I think it's very motivating to him.

I think it also,

you know, it's kind of an incentive to,

you know,

shoot for the stars, but do it in a very first principles way.

You know, everything's physics-based and everything's milestone-based.

And he's very disciplined.

If people do not know that, they should.

And when a milestone misses,

he's in there on the floor.

Final quick question.

As a stock picker, do you care where the companies are incorporated?

Like, do you look at Delaware now and say there's fundamental business risk?

I need to sort of,

and or do you cajole these folks now to maybe reincorporate in different places?

We're not an activist investor.

I have to be very careful and say that.

We are moving out of Delaware.

You as your own business.

Why?

You don't trust them to be predictable.

Is that the issue?

They're not predictable now, and they're activist.

Activist.

Activist.

In a bizarre way.

What business do they have overriding the shareholders of Tesla when it comes to a pay package?

And all those shareholders who did that drive-by lawsuit.

Twice.

They did it twice.

Yes.

I mean, it's unbelievable.

That guy owned 10 shares.

He did a 20-bagger, and then he's got the right to take away.

It's like J.

Cal Suing Uber, Kathy.

It's kind of

Kathy Wood.

Kathy Wood.

Thank you.

Thank you so much for sharing so much knowledge.

You're amazing.

Thank you so much for taking the time.

Thank you so much.

Thank you.