WEBVTT - Ark's Cathie Wood on OpenAI, Jobs Data and Software Opportunities

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news.

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<v Speaker 2>This is Bloomberg Business Week with Carol Messer and Tim

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<v Speaker 2>Stenebek on Bloomberg Radio.

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<v Speaker 3>All right, well some guests need no introduction and joining

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<v Speaker 3>us right now on Bloomberg Radio and also on Bloomberg Television.

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<v Speaker 3>We're delighted to have back with us. Of course, our

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<v Speaker 3>co invest founder, CEO and CIO, Kathy would We wanted

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<v Speaker 3>to actually talk to her because there's so much going on,

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<v Speaker 3>certainly this week, whether it's today when it comes to

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<v Speaker 3>the jobs report, but it's also what's been going on

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<v Speaker 3>with Open AI. So Kathy, great to have you here

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<v Speaker 3>with us. How are you.

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<v Speaker 1>I'm great, Carol, thank you so much for inviting me.

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<v Speaker 3>Well, it's good to have you here. There is a

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<v Speaker 3>lot going on, and we were saying, obviously we want

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<v Speaker 3>to kind of start macro, which we often do with you.

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<v Speaker 3>And first up the upbeat labor market, the Fed finally

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<v Speaker 3>now cutting interest rates. You've been beating the drum for

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<v Speaker 3>some time about the Fed to cut race. At the

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<v Speaker 3>same time, we had Treasury Secretary former Treasury Secretary Larry

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<v Speaker 3>Summers out saying the half a point cut was a mistake.

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<v Speaker 3>Stanley Druckenmiller, the hedge fund billionaire. He believes the FED

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<v Speaker 3>shin of cut rates at the most most recent meeting.

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<v Speaker 3>He thinks that the central Bank has boxed itself into

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<v Speaker 3>a corner by guiding for even more at rate cuts ahead.

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<v Speaker 3>Do you think the FED rate cut was a mistake.

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<v Speaker 1>Absolutely not, not at all. It's been very interesting to

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<v Speaker 1>watch the revisions in economic activity. Until this report, their

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<v Speaker 1>revisions in the employment numbers had been down, and they

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<v Speaker 1>were much weaker than had originally been reported. You know,

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<v Speaker 1>we look at earnings reports and look at their revenues,

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<v Speaker 1>and we're seeing a lot of companies showing negative revenues.

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<v Speaker 1>So you know, the headline numbers are heavily influenced recently,

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<v Speaker 1>certainly in in terms of some of the upward revisions

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<v Speaker 1>in personal income by transfer payments. That's government stimulus and

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<v Speaker 1>interestingly dividends. But if you look at the economy, the

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<v Speaker 1>cyclical part of the economy is sick. It's sick. If

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<v Speaker 1>you look at the sectors in the economy, one by one,

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<v Speaker 1>they've been falling into a recession no matter what the

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<v Speaker 1>headline numbers say. Housing went down immediately when the FED

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<v Speaker 1>started raising rates, we're down twenty to forty percent. Still,

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<v Speaker 1>that's a recession. You've got non residential construction in recession

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<v Speaker 1>autos very.

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<v Speaker 2>Week, Kathy. I know it's a backward looking number, but

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<v Speaker 2>then what do you make of today's payrolls report? Two

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<v Speaker 2>hundred and fifty four thousand jobs added to the economy

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<v Speaker 2>for the month of September and doesn't sat recessionary.

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<v Speaker 1>So if you just let me finished him up, I'll

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<v Speaker 1>get to that in one minute. So we've got those sectors,

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<v Speaker 1>and then you've got the small and medium business sector.

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<v Speaker 1>Their confidence is at eight to nine levels, and we've

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<v Speaker 1>got certain pricing measures, certainly the cyclical ones that have

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<v Speaker 1>been deflationary. Actually, So one thing that I do think

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<v Speaker 1>is going on that is helping is as prices are

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<v Speaker 1>coming down and the consumers getting better and better deals

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<v Speaker 1>and they're spending, So I think that is sustaining. You

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<v Speaker 1>know a lot of people say real growth causes inflation

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<v Speaker 1>in this case, and actually in history most times, if

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<v Speaker 1>you cut prices, you'll get more activity the consumer as

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<v Speaker 1>long as the labor market hangs in here and yes,

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<v Speaker 1>today was very reassuring that way. As long as the

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<v Speaker 1>labor market hangs in here and companies like Walmart and

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<v Speaker 1>Costco and auto companies either increase their discounts or cut

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<v Speaker 1>their prices. I think the activity will come and the

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<v Speaker 1>labor market will continue to hang in, but if they

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<v Speaker 1>try and jack prices back up. It was very interesting

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<v Speaker 1>to see FedEx, after turning positive in revenues and then

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<v Speaker 1>turning negative year over year on revenues, basically saying they're

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<v Speaker 1>going to use prices to make it up. I think

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<v Speaker 1>that's going to backfire, and I'll think I think during

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<v Speaker 1>the next year you'll under that many people will understand

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<v Speaker 1>how deflationary the undercurrents are in the economy. Now, deflation

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<v Speaker 1>is not always bad. Part of it is because of innovation,

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<v Speaker 1>technologically enabled innovation. The car prices EV prices are coming down,

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<v Speaker 1>their costs are coming down too. So I think there's

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<v Speaker 1>a lot of confusion in terms of what's going on

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<v Speaker 1>out there because pro productivity is stronger than expected, giving

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<v Speaker 1>companies the latitude to cut prices and salvage margins, so

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<v Speaker 1>that if that sustains.

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<v Speaker 3>Great Kathy, when we talked with you earlier this year,

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<v Speaker 3>let's go back to March for a moment. You mentioned

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<v Speaker 3>the possibility of inflation going negative this year. You also

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<v Speaker 3>talked about unemployment going above five percent. Are those still

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<v Speaker 3>your calls?

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<v Speaker 1>Yeah, we would this year. I mean, we're going to

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<v Speaker 1>have to push it out because inflation did levitate as

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<v Speaker 1>companies tried to price to make up for shortfalls and

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<v Speaker 1>unit growth. It levitated in the three and a half

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<v Speaker 1>to four percent range. Now it's broken below three and

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<v Speaker 1>we're hearing more and more companies, you know, basically trying

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<v Speaker 1>to attract consumer attention with lower prices. So yes, if

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<v Speaker 1>you look at money growth on a year over year basis,

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<v Speaker 1>it was negative for I think about a year and

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<v Speaker 1>a half. Maybe more money is a leading indicator for inflation,

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<v Speaker 1>and we do believe that inflation will go much lower

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<v Speaker 1>than people expect right now. Wouldn't be surprised to see

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<v Speaker 1>it go negative, especially especially if the consumer is worried

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<v Speaker 1>about job loss, whether because of AI and automation generally

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<v Speaker 1>or what have you. So the saving rate tends to

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<v Speaker 1>go up during those periods, and that will mean we

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<v Speaker 1>believe that companies will have to price even more aggressively

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<v Speaker 1>in terms of over five percent unemployment rate, we could

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<v Speaker 1>see it. We could see it, I will say today

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<v Speaker 1>gave me pause in terms of this productivity dynamic and

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<v Speaker 1>sort of the Okay, companies may not if they get

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<v Speaker 1>the productivity growth from existing employees, they may not feel

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<v Speaker 1>like laying them off. They can lower prices to keep

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<v Speaker 1>consumer demand going.

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<v Speaker 2>Hey, Kathy, election front and center. We're just a month

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<v Speaker 2>and change out from the election here in the US,

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<v Speaker 2>and I'm wondering how this dynamic, in your view changes

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<v Speaker 2>whether President Trump is re elected or we see a

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<v Speaker 2>Harris administration.

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<v Speaker 3>And I wonder who you would support to in terms

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<v Speaker 3>of what you think is good for the US economy

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<v Speaker 3>and America.

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<v Speaker 1>Okay, So our focus is on innovation, and something very

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<v Speaker 1>important happened this past year. We were very concerned that

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<v Speaker 1>excessive regulation was driving innovation off our shores, particularly when

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<v Speaker 1>it came to crypto or digital assets. We've had a

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<v Speaker 1>very hostile regulator, and the same I would say is

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<v Speaker 1>true of the FTC in terms of denying M and A,

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<v Speaker 1>because that has prevented a lot of innovative company from

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<v Speaker 1>enjoying liquidity events by selling out to bigger companies. I

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<v Speaker 1>think we're hearing from both both candidates that those two

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<v Speaker 1>jobs are on the line. Maybe for that reason, and

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<v Speaker 1>we're seeing more alignment that innovation solves problems and so

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<v Speaker 1>we should not discourage it. So from that point of view,

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<v Speaker 1>you know, I'm happy to see the bipartisan movement here.

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<v Speaker 1>You know, we'll favor lower regulations every day when it

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<v Speaker 1>comes to innovation. I don't think tariffs are a great

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<v Speaker 1>a great thing at all for innovation and for economic activity.

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<v Speaker 1>So there's something on both sides that will give us pause.

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<v Speaker 1>But the most important thing is the biggest impedimence to innovation.

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<v Speaker 1>We think that that we're developing clarity around what's going

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<v Speaker 1>to it at the SEC and the FTC.

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<v Speaker 3>So do you think one thing is better than one

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<v Speaker 3>of the candidates I should say is better for the

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<v Speaker 3>investment environment for companies versus the other.

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<v Speaker 1>So here I'm going to revert to being the CEO

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<v Speaker 1>of a company where you know I'm representing both sides,

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<v Speaker 1>and I'm focusing therefore on innovation, which is of primary

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<v Speaker 1>concern to us. And I've given you a sense of

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<v Speaker 1>where we think both sides are on innovation regulations. That

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<v Speaker 1>the one the one that will lower more regulations, because

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<v Speaker 1>regulations are strangling this economy, strangling small business, strangling big business.

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<v Speaker 1>That's a very important one. Wells would be as well.

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<v Speaker 3>So fair enough, fair enough, Well, let's talk innovation. Which

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<v Speaker 3>is your world? AI? Big news this week Open Aiyes,

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<v Speaker 3>raising six and a half billion a new funding, one

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<v Speaker 3>hundred and fifty seven billion dollar valuation. Are put in

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<v Speaker 3>two hundred and fifty million dollars, the Wall Street Journal

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<v Speaker 3>reminding us that that's the minimum amount required to open

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<v Speaker 3>up their financial document. So why this investment, Why are

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<v Speaker 3>you interested? And what did you learn about the company

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<v Speaker 3>and its growth trajectory or about the business to be

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<v Speaker 3>quite fair looking at those financial documents.

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<v Speaker 1>Well, we've been doing research on AI for ten years now.

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<v Speaker 1>That's why we were so early into in VIDIAU and

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<v Speaker 1>you know, we've obviously taken it down in most of

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<v Speaker 1>our portfolios out of the flagship. One of the things

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<v Speaker 1>that we've been looking for is the next big play.

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<v Speaker 1>And you know, we think Nvidia is still a fine stock,

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<v Speaker 1>but in terms of the unexpected out there, we do

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<v Speaker 1>think it's going to be in the software layers. And

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<v Speaker 1>as you know, Palenteer has been a big position for

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<v Speaker 1>us in the top ten UiPath as well. It had

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<v Speaker 1>a stumble, but it's coming back now. And I think

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<v Speaker 1>as more and more people understand how well positioned it is,

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<v Speaker 1>it will do very well. But a lot of the

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<v Speaker 1>software companies that we think are going to benefit are

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<v Speaker 1>in the private sector. And I'm thrilled that we have

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<v Speaker 1>a venture fund. That is really our purpose here is

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<v Speaker 1>to democratize venture capital, so that for five hundred dollars,

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<v Speaker 1>you know, anyone can get access to open ai, which

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<v Speaker 1>is the third largest position, or SpaceX, which is the

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<v Speaker 1>largest position. But if you look at software, many people say, well,

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<v Speaker 1>we have so many software companies in the public markets,

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<v Speaker 1>what do you mean? And what we mean by that

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<v Speaker 1>is we think that the software world's going to change

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<v Speaker 1>fairly dramatically, and we're going to see a shift, maybe

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<v Speaker 1>a share shift, away from software as a service towards

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<v Speaker 1>platform as a service, so so think about Palenteer and

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<v Speaker 1>Foundation mods an infrastructure as a service so cloud. And

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<v Speaker 1>the reason for that is because engineers are going to

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<v Speaker 1>be made so much more productive, developers so much more

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<v Speaker 1>productive by open ai and Anthropic and xai and and

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<v Speaker 1>and Google and Meta Meta's Lama three. We're going to

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<v Speaker 1>see companies uh customizing their own software, customizing software for

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<v Speaker 1>their own companies as opposed to just going automatically to

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<v Speaker 1>you know, one size fits all software as a service.

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<v Speaker 2>Hey, Kathy, forgive me. We only have a couple of

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<v Speaker 2>minutes left, so I want to get in a few

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<v Speaker 2>more questions here. I don't mean to keep interrupting you,

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<v Speaker 2>but you mentioned closing out your stake in vidio. You

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<v Speaker 2>did that in the Flagship Ar Innovation Fund last year,

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<v Speaker 2>but you also told us back in March that you

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<v Speaker 2>used some of that to buy into Coinbase. Since February

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<v Speaker 2>of twenty twenty three, Coinbase is up a bit more

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<v Speaker 2>than one hundred and fifty percent, no question, a great return,

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<v Speaker 2>But in Vidia up nearly five hundred percent since that time.

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<v Speaker 2>Do you regret that move last year?

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<v Speaker 1>If you had look if I, if I had bought

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<v Speaker 1>both Coinbase and in Vidia and sold something else, would

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<v Speaker 1>I have been happier about that decision? Sure, I would

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<v Speaker 1>have been happier. Actually, from the time we bought Coinbase

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<v Speaker 1>to the time maybe we were talking to you, or

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<v Speaker 1>whenever we measured it, Coinbase actually had done better than

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<v Speaker 1>in Nvidia. It has come back in in Vidia's had

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<v Speaker 1>another big run. But we're now really focused on the future,

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<v Speaker 1>and so software to us is going to be a

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<v Speaker 1>huge opportunity. Foundation models we think will deliver fifteen trillion

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<v Speaker 1>dollars around that in the next five to ten years

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<v Speaker 1>in market cap. That's from a standing start, So and

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<v Speaker 1>we'll see what happens to video over that time. You know,

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<v Speaker 1>I think, is there something.

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<v Speaker 3>That could make you buy into end video at this

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<v Speaker 3>point or added to your flag jat, I mean, I

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<v Speaker 3>know you owe some but yeah, yeah.

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<v Speaker 1>Yeah, if the if the price came down. You know, again,

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<v Speaker 1>I think I must say one of perhaps my weaknesses

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<v Speaker 1>in a momentum market is watching, you know, watching a

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<v Speaker 1>lot of momentum drive the stock and realizing that a

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<v Speaker 1>lot of people who never owned it are getting in

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<v Speaker 1>and my week holders, so you know that that factored

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<v Speaker 1>into my thinking. But you know, we enjoyed if you

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<v Speaker 1>if we got into Nvidia forty cents based on this

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<v Speaker 1>stock in twenty fourteen, so you know, wherever we got out,

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<v Speaker 1>we were extremely happy with what It's been the third

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<v Speaker 1>largest contributor to our flagship fund. So you know, tactically,

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<v Speaker 1>sure we would have loved to still have it, you know,

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<v Speaker 1>at you know, a bigger position in the portfolios. But again,

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<v Speaker 1>we're all about the future, and our research is focusing

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<v Speaker 1>us on this software layer that has has huge amounts

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<v Speaker 1>of appreciation.

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<v Speaker 3>Ahead, let's go to Tesla, number one holding in your

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<v Speaker 3>flagship our innovation ETF. It's down about forty percent. It's

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<v Speaker 3>an all time high back in November of twenty twenty one.

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<v Speaker 3>Little change here to date. You know, when when do

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<v Speaker 3>you decide? You know, in terms of Tesla, you know

0:15:43.600 --> 0:15:46.560
<v Speaker 3>it's a different marketed EV market You understand, you know

0:15:46.600 --> 0:15:49.360
<v Speaker 3>what's going on in that marketplace more than ever. You know,

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<v Speaker 3>what is your thinking about Tesla today? You've got an

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<v Speaker 3>estimate of twenty six hundred dollars a share for twenty

0:15:56.040 --> 0:15:58.400
<v Speaker 3>twenty nine. What gets us there? And just quickly sorry,

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<v Speaker 3>we've only got about thirty seconds.

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<v Speaker 1>Autonomous mobility think ten ten October tenth. Here that is

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<v Speaker 1>going to focus analysts not just on avs, but on

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<v Speaker 1>the autonomous opportunity. Tesla is the largest AI project in

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<v Speaker 1>the world. Talk about shifting resources from Nvidia into Tesla.

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<v Speaker 1>We think longer term that is going to prove to

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<v Speaker 1>be a very good year.

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<v Speaker 3>We know you have to run, so appreciate your time.

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<v Speaker 3>Be well. Kathy Wood, of course, of ARC invests joining

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<v Speaker 3>us right here on Bloomberg BusinessWeek, on radio and TV,