Cathie Wood breaks the news: Bitcoin accounts for more than 25% of net assets

Cathie Wood isn’t the pushy or bombastic type, but she does have strong opinions and is happy to share them, convincing people that her investment thesis — that technologies like artificial intelligence, robotics, energy storage, DNA sequencing and blockchain will change our world — is her passion, even her mission.

I spoke with Wood, founder, CEO and chief investment officer of the $30 billion ARK Invest, at the Global Sports Leadership Conference in Kiva, South Carolina, this week.

Wood talked about Tesla, Musk and X, cryptocurrency, Nvidia and artificial intelligence, her faith, and the lifeline a billionaire investor once threw her.

Wood on Tesla and Musk

Earlier this week, the electric car maker Tesla reported lower-than-expected delivery numbers, and its stock price subsequently fell sharply. I pointed out to Wood that some analysts believe Tesla's best days are over, and Wood said she doesn't think so. Wood is a big Tesla investor and believes Tesla's stock price can rise more than 1,000%.

"We totally disagree with that view," Wood said. She then talked about her views on Tesla's robotaxi business. "I heard someone say this morning, 'Tesla has the ability to launch robotaxi, but it will take years to do so.' We don't think so. Given the breakthroughs in artificial intelligence, we think the opportunity for robotaxi is coming soon."

Wood believes that the self-driving taxi business has a "gross margin of between 80% and 85%, which is like software as a service. The current gross margin of the electric vehicle business is between 15% and 17%, and we think the gross margin of this business can reach 25% to 30%."

Wood continued: “Most analysts classify Tesla as a car company, but it is not a car company at all, it is a robotics, energy storage and artificial intelligence company, and that will be reflected in its profit margins.”

"The auto industry - Ford and GM, for example - are moving away from electric vehicles, which is a big mistake because the only way they can make money is to scale electric vehicles, so they are conceding the market to Tesla, which will make other auto companies obsolete as Tesla's cars are expected to be priced in the $20,000 to $25,000 range in five years (the average price is currently $30,000 to $45,000)."

I asked Wood if he was buying Tesla shares now.

“Yes, we disclose our positions and transactions at the end of each trading day,” she said.

Wood later told me that she sold some Tesla shares when the stock was near its peak a few years ago, but she was buying now. “Buy low, sell high, right?” she said.

I asked Wood if he was concerned about Musk’s behavior and how he had changed.

"Oh no, he's not any different than he was in the past," Wood said. "Honestly, we've seen him a lot, and I think he's hyper-focused on barriers to entry for his companies and how to move technology forward. We're learning more about what he's trying to do, and I think he's changing our world, and saving humanity is a huge priority for him. We should look at what he does, not what he says."

What Wood said may have some truth. Perhaps people are too focused on the big and small storms that Musk has set off since taking over X, and forget that he is still passionate about building Tesla.

Wood's view on X is different from others. She said: "Social media is constantly evolving and changing. X is the most important platform for us. I think it is becoming a platform for knowledge workers. We are integrating into all these innovation communities. They like our research and support us, unlike some people in the financial market who think we are completely crazy."

Wood on Nvidia

Nvidia is another well-known company that Wood follows closely. She bought Nvidia stock early on but sold the shares before the recent surge in the stock price. I asked her why.

Wood said: "People say we sold too early, and I find it interesting every time I see someone say that. When Ark Investment was founded 10 years ago, Nvidia's stock price was $4. At that time, Nvidia was just a PC gaming chip company. After our initial research on the company, we believed that GPUs would become the brains of robots and self-driving cars, so we classified it as an artificial intelligence chip company very early. Ark Flagship Fund has held Nvidia's stock from $4 to $400, which is a 100-fold increase. It's pretty good. The stock price is now $900."

Wood believes that Nvidia's "current stock price digests the expectation that 100% of the promises of all AI projects will be fulfilled." She thinks this is a bit too optimistic. "All related projects take time. Nvidia is still the most important AI chip company by a long way, but I think Nvidia will face inventory problems and will face a lot of competition in the future."

Wood's largest holding is Coinbase

I pointed out to her that Wood's "comeback" has been met with mixed reviews, and she acknowledged that this is true.

“Since inception, ARK Innovation, our flagship fund, has had a compound annual return of 11% and, yes, we’ve had booms and busts, and in 2021 our flagship fund is up nearly 400% in 11 months,” Wood said.

Wood said investors have become more conservative after the flagship fund fell sharply along with many high-flying stocks and funds.

"Investors are flocking to benchmark indices like the S&P 500 and the Nasdaq. The Nasdaq today is not the same Nasdaq I saw in the 1980s and 1990s. It has become a fairly mature index. I often say our holdings are the 'new Nasdaq,' and I actually like the psychology of it because I prefer to invest when people are skeptical, fearful, and unwilling to believe, and that's where we are."

Wood's largest holding is Coinbase, not Tesla, which may be contrary to what some people think. She is a staunch believer in cryptocurrency, with Bitcoin accounting for more than 25% of her net worth.

“We provided Bitcoin exposure to clients when the price was $250. Now the price is around $66,000. We think the rise of Bitcoin has just begun. Why do we say that? The global monetary system is usually divided by country. Bitcoin has the properties of global, digital, decentralized and private, which allows governments and humans to be out of this system.

My mentor, economist Art Laffer, is very excited about the possibility that we could go back to the era of private money, back to the era before the Fed. I think it’s crazy that there’s one person right now — Fed Chairman Powell — who is moving the market in his own way, and it’s been that way since Paul Volcker.

I think Bitcoin will become an alternative currency and will be very useful in countries like Nigeria and Egypt, where the currencies have depreciated by 60% and 40% respectively. I just read that the Indian rupee has lost half its value in the last 10 years.”

I asked Wood what he thought about the fact that cryptocurrencies are used by drug dealers and criminals.

“When disruptive innovation comes along, that’s the number one reason people say we’re not willing to embrace it, and that was also the case with the internet.

As for the environmental issues raised by cryptocurrency, you can go back to the early days of the internet and people were saying, ‘Did you know that the internet uses as much electricity as this or that country?’ Now that half of bitcoin mining is done with renewable energy, bitcoin mining can actually enter the utility ecosystem and put bitcoin mining machines in natural gas fields instead of burning it or emitting it.”

Wood on Faith

I also talked to Wood about her faith. Her company's name comes from the Ark of the Covenant, a wooden box that is said to contain the Ten Commandments. Many of Wood's investments are based on technology and science. For her, are religious beliefs and science separate, or do they influence each other?

“One of the reasons I felt compelled to start my own firm was because the investment community went into risk-off mode after the tech and telecom bubble burst in 2000 and the financial crisis of 2008-2009. People are investing more in the past than in the future, and if innovative platforms — robotics, energy storage, artificial intelligence, blockchain technology, and gene sequencing — disrupt the traditional world order, then those companies they invest in will be at risk.”

"Going back to your question about faith, we are investing in innovation, we have never seen such a period of innovation abundance, all the innovation platforms are coming together, we are going to see huge changes, in another five to 10 years you will not recognize the world."

Wood closed the interview by thanking billionaire Todd Boehly, founder and CEO of Eldridge Industries, whose company first lent money to Ark Invest in late 2020 to prevent a private equity-controlled company from exercising an option to acquire controlling stake in Wood's company, and then bought out the private equity firm's initial investment the following year.

"We are so grateful to Todd Boley," Wood said. "If it wasn't for him, we would be dead."