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

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 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 the stock can rise more than 1,000%.  

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

Wood believes that the gross profit margin of the self-driving taxi business is between 80% and 85%. This business is like software as a service. The current gross profit margin of the electric vehicle business is between 15% and 17%. We think the gross profit 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 - such as Ford and GM - are moving away from electric vehicles, which is a big mistake because the only way they can make money is to scale electric vehicles. Therefore, they are ceding the market to Tesla, which will become obsolete as Tesla's prices are expected to be in the $20,000 to $25,000 range in five years (currently the average price is $30,000 to $45,000)." 

I asked Wood if he was buying Tesla shares now.  

She said, “Yes, we disclose our holdings and our trades at the end of every trading day.”

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

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

Wood said: "Oh, no, he is no different from the past. To be honest, we have seen him many times, and I think he is highly focused on the 'barriers to entry' of his companies and how to push technology forward. We are learning more about what he is going to do. I think he is changing our world, and saving mankind is an extremely important thing for him. We should look at what he does, not what he says." 

Wood may have some truth in what he said. Perhaps people are too focused on the big and small storms that Musk has set off after 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 talks about Nvidia

Nvidia is another well-known company that Wood pays close attention to. She bought Nvidia stock very early, but sold it before the recent stock price surge. I asked her why she sold it.  

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 this stock during the period when Nvidia's stock price rose from $4 to $400. It has risen 100 times, which is not bad. The stock price is now $900." 

Wood believes that Nvidia's "current stock price digests the expectation that 100% of the promises of all artificial intelligence projects will be fulfilled." She thinks this is a bit too optimistic. "All related projects take time. Nvidia is still the most important artificial intelligence chip company, far ahead, 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 this out to her, and she acknowledged that this was true.  

Wood said: "Since its inception, the flagship fund ARK Innovation has a compound annual return of 11%. Yes, we have experienced booms and busts. In 2021, our flagship fund rose nearly 400% in 11 months."

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

"Now investors are flocking to benchmark indices, such as the S&P 500 and the Nasdaq. The Nasdaq today is not the same Nasdaq that I saw in the 1980s and 1990s. The index has become a fairly mature index. I often say our holdings are the ‘new Nasdaq,’ and I actually like the psychology of that because I prefer to invest when people are skeptical, scared, and unwilling to believe, and that’s where we are.” Wood’s largest holding is Coinbase, not Tesla, which may not be what some people think, and she is a big believer in cryptocurrency, with more than 25% of her net worth in Bitcoin. “We gave clients exposure to Bitcoin when it was $250, and now it’s around $66,000, and we think the run is just beginning. Why do I say that? The global monetary system is usually divided by country, and Bitcoin is global, digital, decentralized, and private, which takes governments and humans out of that system. My mentor (economist) Art Laffer is very excited about the possibility of returning to the era of private money, to the era before the Federal Reserve was established. You have one person right now — Fed Chairman Powell — who is moving the market in his own way, and I think it’s crazy, and it’s been that way since Paul Volcker.

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

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

“When disruptive innovation comes along, that’s the first reason people say we’re not going to embrace it, and that was 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 or emitting them.” Wood on faith I also talked to Wood about her faith. Her company is named after the Ark of the Covenant, a wooden box that is said to contain the Ten Commandments. A lot of Wood’s investments are based on technology and science. For her, are religious beliefs and science separate or do they influence each other? “After the bursting of the tech and telecom bubble in 2000 and the financial crisis in 2008-2009, the investment world went into risk-off mode, which is one of the reasons I had to start my own company. People are investing more in the past than in the future, and if innovation platforms - robotics, energy storage, artificial intelligence, blockchain technology and gene sequencing - disrupt the traditional world order, then the companies they invest in will be in danger. " 

"Going back to your question about faith, we are investing in innovation. We have never seen such a rich period of innovation. All innovation platforms are coming together. We will see huge changes. In another 5 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 loaned Ark Investments money in late 2020 to prevent a private equity-controlled firm 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 Boehly,” Wood said.