WHEN: Today, Thursday, February 17, 2022
WHERE: CNBC's "Fast Money Halftime Report"
Following are excerpts from a CNBC exclusive interview with ARK Invest Founder, CEO & CIO Cathie Wood on CNBC's "Fast Money Halftime Report" (M-F, 12PM-1PM ET) airing today, Thursday, February 17th. Following are links to video on CNBC.com: https://www.cnbc.com/video/2022/02/17/i-think-a-lot-of-inflation-is-supply-chain-related-says-cathie-wood.html, https://www.cnbc.com/video/2022/02/17/our-companies-are-investing-aggressively-because-they-see-enormous-opportunities-says-cathie-wood.html, https://www.cnbc.com/video/2022/02/17/our-technology-stocks-are-way-undervalued-relative-to-their-potential-says-ark-invests-cathie-wood.html and https://www.cnbc.com/video/2022/02/17/people-betting-against-us-are-shorting-innovation-says-cathie-wood.html.
All references must be sourced to CNBC.
WOOD ON ARK INVEST RESEARCH
CATHIE WOOD: I'd much prefer to be with you and holding our clients' hands and explaining what we think is going on at this point in time rather than at the highs and I think our biggest concern is that our investors turn what we believe are temporary losses into permanent losses. Now, what's interesting from a flow point of view just before we get to the answer to your question, last year, we did inflow a lot of that was front end loaded it was $17 billion. And in the last 30 days, we are inflowing again, net inflowing a little less than a half a billion dollars. So, what we believe is happening is because we give our research away, because we are so transparent about what we're doing and because our research is so good, I think it is the best in the financial world when it comes to disruptive innovation. I believe that there are individuals who are reading our research and saying, hey, this makes a lot of sense. I didn't know this. I did not know that there are, you know, five platforms involving 14 different technologies that if we're right are going to move from being valued in the equity markets, public equity markets, at $10 trillion to roughly $210 trillion within the next eight years. That's a 46% compound annual rate of return. There is one market that is getting this right it's the private market. Last year and you're right, we have had a significant decline. If you look at the, if you look at our peak, which was February 12th of last year, so roughly a year ago, we and you look to the trough, which we believe was January 27th, that was a 57% drop. But if you looked at our appreciation from the depths of the Coronavirus to February 12th, that was a 358% increase. And so, we're seeing a lot of analysis of our performance out there, which is cherry picking, you know, dates and I've just given to you what has happened.
WOOD ON INNOVATION IN BARGAIN BASEMENT TERRITORY
WOOD: We've just been through a significant downturn or correction relative to the peak and we do believe that innovation is in bargain basement territory. And there's just one other thing I'd like to add here. I went through the tech and telecom bubble and know very well what that feels like. And what we learned was that there was way too much capital, chasing too few opportunities too soon. The internet was, you know, had been brought to life and the dreams that investors had and the valuations based on potential eyeballs maybe 10 years out, caused investors to fall all over themselves to try and raise their technology positions to north of their benchmark and the benchmark had gone to 35%. That was a mistake. Too soon the technologies were not ready, the costs of those technologies were prohibitively high.
WOOD ON BENCHMARKS BEING THE RISK
WOOD: Today, we have investors doing the opposite of what they did during the late 90s. They are running for the hills. It's risk off because of inflation, interest rates and the hills are their benchmarks. So, they're running to the past. And if we're right, and the disruptive innovation that is evolving is going to disintermediate, disrupt the traditional world order, those benchmarks are where the risk is, not, not our portfolios.
WOOD ON A FIVE-YEAR INVESTMENT TIME HORIZON
WOOD: As I just mentioned, you've got investors running back to their benchmarks. Our stocks are not in benchmarks. Our stocks are not in benchmarks so in a risk off period, that is going to happen. We believe our portfolios are extremely undervalued, you have to have a five-year investment time horizon and if an investor is looking for returns over the next quarter, the next two quarters, you know, we can't promise them nobody can promise them that's a macro call these days. However, if you give us five years, I will tell you we are running a deep value portfolio.
WOOD ON MANUFACTURING EARNINGS
WOOD: So, we are always going to have a high valuation in the short term because our companies are doing the right thing. They're not trying to manufacture earnings like a lot of other companies out there who are buying back their shares so they can boost their earnings per share. Our companies are investing aggressively now because they see enormous opportunities whether it's in the genomic space, the robotic space, energy storage, artificial intelligence, blockchain technology. And when you think about artificial intelligence, I think for us and all we do is focus on innovation, the biggest surprise to us in the last three years are is the amazing set of breakthroughs in artificial intelligence.
WOOD ON TESLA-LIKE STOCKS
WOOD: You'll notice what we do during, during risk off periods, and this one has been particularly long, one year which has taken our stocks into bargain basement pricing, I'll say again, but the, the names you read have migrated into our top 10 because we have concentrated our holdings towards our highest conviction names and most of the names you read are in our top 10. I think many of them are platform companies, many of them are going to harness artificial intelligence in a way that others cannot. I mean, Tesla has been the best case in point that I think we have a lot of Teslas, Tesla-like stocks in our portfolio, we're really looking for companies that are going to use artificial intelligence and create competitive advantages that no one will be able to will be able to catch.
WOOD ON ANALYSIS AROUND TRANSFORMATIONAL TECHNOLOGY
WOOD: We're seeing a lot of analysts out there just, you know, their analysis is all around comps. Our analysis is around transformational technology and how it's going to scale and why it's going to scale and in Zoom's case, okay, we'll get over the tough comp issue, we'll go down to 185% revenue growth and in the next quarter as a comparison, and that will probably mean they, they accelerate their growth rates. Why is this happening? I just want to go to something very fundamental. Please, many people said Zoom. Zoom, of course we used it during the Coronavirus. We had we had to be home we had to figure out a way to communicate with our colleagues and friends and so forth. Zoom was that. But what they don't understand is we are now in the first rip and replace cycle since the early 90s when the internet was evolving in the communications the enterprise communications space. Enterprise communications is the largest part of the, the enterprise technology stack. It accounts for $1.5 billion dollars in revenues around the world and we believe that Microsoft and Zoom are in the process of helping companies and to individuals transform their lives and rearrange the communication stack this time in the cloud.
WOOD ON MASSIVE UPSIDE SURPRISES
WOOD: It's the names in the mature growth categories that tend to be hit. If you, if we, if we're right and the growth rate in our portfolios is closing in on 50% at an annualized rate over the next five years and I'm talking about revenue growth opportunities, the, the interest rates and inflation will, will, are not going to be a problem for that kind of stock. First of all, nobody believes it. Nobody believes that you can see from the way that our stocks have been treated over here. Nobody believes it. So if anything, there are going to be massive upside surprises from our company. I think have you given the correction we've been through, we'll see the other side of this.
WOOD ON CRITICISM AND SHORTING INNOVATION
WOOD: Well, I find that very interesting, especially the last, when you think about it, it's simply a call well, it's a, they're shorting innovation, and that seems to me overtime that's not going to be a business if you ask if you could ask me, consider the source. But they're also not doing any research. They're simply shorting innovation. If, if they were doing research and could point us to reasons why what you know what we have included in our portfolio is not going to participate in in the new world order, then we might have a conversation about it. But the idea of shorting innovation is in America is ridiculous I think. So but here's what I do, you know, here's what I do know. When I see and this is investor psychology, when I see people so sure that we are wrong, that they are willing to set up companies simply to short innovation and to set up funds to short innovation you know that investor psychology, the pendulum has swung so far in one direction in that if we're right, if we're right, if right, then the rewards are going to be enormous.
WOOD ON ROKU
WOOD: Roku is number one in the connected TV space and I think what's going on with both Apple and Google and how they are sort of changing the rules of the game on, on their advertisers, for different reasons, algorithms in the case of Google and IDFA privacy in the case of Apple that Roku is, is going to become an advertiser of choice especially because it is becoming the operating system of the television. So, we think it's a very big idea and I know there's a lot of wringing hands over supply chain and, and so forth, but the migration of advertising to digital is accelerating, has accelerated.