According to its Q3 Commentary report, ARK Investment Management believes that technological innovation, particularly in artificial intelligence and blockchain technology, could play a vital role in revitalizing the global economy.
As inflation shifts towards deflation in several sectors, ARK believes that its five innovation platforms, robotics, energy storage, AI, blockchain and multi-OMIC (biological analysis) sequencing, could have a significant impact on macroeconomic measures over the next five to ten years.
Catherine Wood, CEO and CIO of the company, highlighted that the convergence of these technologies is expected to generate substantial growth. Wood said,
“Interest rates will likely surprise on the low side of expectations, broadening the equity rally from a narrow subset of stocks and reinforcing the need for diversified AI investments.”
Wood suggests that the most promising AI investment opportunities lie in disruptive innovation, which could potentially lead to a more diverse set of market leaders as current stock concentration declines.
ARK’s research indicates that the economy has been experiencing continued recessions since the Federal Reserve began raising interest rates in early 2022. In response to these economic challenges, the company highlights the importance of AI technologies and of blockchain to drive productivity growth and create new products and services. . Companies that exploit these innovations could alleviate margin pressures caused by declining pricing power and inflationary trends.
The ARK Next Generation Internet ETF outperformed global stock indexes during the third quarter, benefiting from holdings in companies like Tesla and Palantir Technologies. Palantir shares contributed positively after the company reported strong second-quarter earnings, with U.S. commerce revenue growth accelerating from 40% to 55% year-over-year. Palantir’s AI platform bootcamps demonstrated significant value for customers, prompting the company to raise its full-year guidance.
Conversely, some companies have faced difficulties. Shares of PagerDuty detracted from performance after management lowered its full-year revenue forecast due to longer sales cycles. However, the company remains on track to achieve its annual recurring revenue growth target, supported by increased adoption of AI-driven operations and customer service products.
ARK points out that inflation, initially triggered by supply shocks, has evolved into disinflation and could ultimately lead to deflation. The company believes that technological advancements in AI and blockchain will be instrumental in this transition. As companies lose pricing power and face pressure on profit margins, those that aggressively adopt AI technologies can improve productivity and innovate new solutions, potentially offsetting economic downturns .
The bond market has signaled potential economic weaknesses, with indicators like an inverted yield curve suggesting a possible slowdown. In this context, ARK highlights the strategic importance of investing in AI and blockchain technologies. The company says these innovations could drive economic recovery and reshape market forces by introducing new industry leaders.
