Ark Invest calls blockchain and AI the key to revitalizing economy with deflation coming

Cathie Wood of ARK Investment foresees low interest rates broadening market rallies and reinforcing diversified AI investments.

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According to its Q3 Commentary report, ARK Investment Management believes technological innovation, particularly in artificial intelligence and blockchain technology, could be pivotal in revitalizing the global economy.

As inflation transitions to deflation in several sectors, ARK believes that its five innovation platforms, robotics, energy storage, AI, blockchain, and multi-OMIC (biological analysis) sequencing, may significantly impact macroeconomic metrics over the next five to ten years.

The firm’s CEO and CIO, Catherine Wood, noted that the convergence of these technologies is expected to drive substantial growth. Wood stated,

“Interest rates are likely to 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 equity concentration diminishes.

ARK’s research indicates that the economy has been experiencing rolling recessions since the Federal Reserve began hiking interest rates in early 2022. In response to these economic challenges, the firm emphasizes the importance of AI and blockchain technologies in driving productivity growth and creating new products and services. Companies harnessing these innovations may mitigate margin pressures caused by declining pricing power and inflationary trends.

The ARK Next Generation Internet ETF outperformed broad-based global equity indices during the third quarter, benefiting from holdings in companies like Tesla and Palantir Technologies. Palantir’s shares contributed positively after the company reported strong second-quarter earnings, with US commercial revenue growth accelerating from 40% to 55% year-over-year. Palantir’s Artificial Intelligence Platform bootcamps have demonstrated significant value to customers, prompting the company to raise its full-year guidance.

Conversely, some companies faced challenges. Shares of PagerDuty detracted from performance after management lowered full-year revenue guidance due to longer sales cycles. However, the company remains on track to achieve its targeted annual recurring revenue growth, bolstered by increased adoption of AI-driven operations and customer service products.

ARK highlights that inflation, initially triggered by supply shocks, has evolved into disinflation and may ultimately lead to deflation. The firm believes technological advancements in AI and blockchain will be instrumental in this transition. As companies lose pricing power and face profit margin pressures, those that adopt AI technologies aggressively may enhance productivity and innovate new solutions, potentially offsetting economic downturns.

The bond market has been signaling potential economic weaknesses, with indicators like an inverted yield curve suggesting a possible downturn. In this context, ARK emphasizes the strategic importance of investing in AI and blockchain technologies. The firm asserts that these innovations could drive economic recovery and reshape market forces by introducing new sector leaders.

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