Mentioned in Video:
- ARK Invest's Big Ideas 2021: https://ark-invest.com/big-ideas-2021/
- Big Ideas 2020
- Launch article: https://ark-invest.com/articles/analyst-research/big-ideas-2020-report/
- Presentation (direct download link): https://research.ark-invest.com/hubfs/1_Download_Files_ARK-Invest/White_Papers/Big%20Ideas%202020-Final_011020.pdf
- Big Ideas 2019: https://ark-invest.com/white-papers/
- Big Ideas 2017
- Launch article: https://ark-invest.com/articles/market-commentary/disruptive-innovation-investment/
- Presentation (third-party source): https://www.slideshare.net/ARKInvest/disruptive-innovation-big-ideas-2017
- ARK Invest Overshadowed by GameStop Drama: https://www.bloombergquint.com/markets/ark-mania-finally-fading-after-gamestop-fever-sweeps-wall-street
- Support the channel and get extra member-only benefits by joining us on Patreon: https://www.patreon.com/tickersymbolyou
#ARKInvest released #BigIdeas2021 this January and #CathieWood gave a great presentation to ETF Trends that was completely overshadowed by the #GameStop (#GME) short squeeze initiated by #WallStreetBets through #Robinhood and other retail investing platforms. Investors shouldn't let such an amazing report get lost in the noise. This video covers big ideas concerning ARKW, ARK Invest's Next Generation Internet ETF. At the time of publication, ARK Invest ETF ARKW's top 10 holdings are #Tesla (#TSLA), Teladoc (TDOC), Square (SQ), Grayscale Bitcoin Trust (GBTC), ROKU, Tencent (TCEHY), Spotify (SPOT), Agora Inc. (API), Netflix (NFLX), and Pure Storage Inc. (PSTG). Why is Tesla the top holding in an internet fund, you ask? Watch and find out! 🙂
This looks like a move by an outfit called Robinhood, which is supposed to be taken from the rich and giving to the poor and doing exactly the opposite.
The reason the market is doing what is doing is people are sitting at home getting the checks in the government. And this fair share is a bull**** concept.
The lack of integrity in the system is the precursor that caused GameStop to be sold short 136 percent and for people to try to pile on and destroy a company in front of our eyes. That, to me, feels wrong. That feels pretty un-American if you ask me.
Sometimes it's hard not to get distracted. But something else happened in January that we should put some focus on. ARK Invest released their Big Ideas for 2021, and we shouldn't let that get lost in the noise.
For investors, we believe a big idea needs to be long term, but with more innovation evolving than ever before, how are investors supposed to identify the technologies that could deliver future growth? ARK began publishing Big Ideas in 2017 to showcase the latest developments across innovation. We aim to keep up with the accelerating pace of change so you don't miss out on potential long term investment opportunities. 2021 marks the fifth year ARK has published Big Ideas as a result of extensive and iterative research, we quantify multi-year value chain transformations and market opportunities.
We model cost curves. And calculate elasticity of demand to identify entry points for tech enabled disruption so that investors can stay on the right side of change.
If you didn't know ARK Invest, our thematic investors, they create funds themed around technology platforms they think will change the world in big ways and obviously make a lot of money in the process as they replace whatever came before them. Big Ideas is a publication that ARK Invest releases every year to talk about the groups of technologies they think are going to change the world soon. Like starting now, soon. Here's how I think these funds map onto these big ideas. One important note I want to mention every time is that these big ideas are not independent.
They all touch. For example, you can't do autonomous ride hailing without deep learning and innovations and battery chemistries will help electric vehicles, delivery drones and certain things we do in space. Just as an example. I'll focus more on that in the second half of this video. This year, there are so many big ideas that I've decided to break the coverage up over multiple videos. This is part one, deep learning. New architectures for data computation and data centers and virtual worlds are core to ARKW, ARK Invest's Fund themed around the next generation Internet applications and connectivity.
That's what this video will cover, including how ARKW itself has changed in January 2021 while we were all distracted.
So it's a heavy lift, but it's good for a year or so and is very important piece for us to help educate our clients, our prospective clients and actually anyone out there about how their lives are going to change during the next five years. OK, terrific. And we pass quickly by the chart that showed the 15 big ideas.
Oh, yeah. Let me quickly mention how I'm going to do this. Cathie Wood gave a presentation to ETF trends discussing these big ideas with fund managers right before ARK Invest released Big Ideas publicly. The full presentation is a whopping one hundred and twelve slides long, but she only had around twenty for this ETF trends talk. And as you just heard, she wasn't the one controlling the slides while she was talking. Since I'm sure you'd rather hear Cathie Wood talk than me,
what I did instead was gather all of the big ideas slides from the past five years, read them all and pick the best ones to show you, based on what Cathie thought was important enough to share during her limited time talking to these fund managers. So if you see slides you don't recognize, check the description below for links to all of the previous Big Ideas. OK, back to Cathie.
Six of them are new and the others are continuations. These are big ideas. They're multi year in length. And in fact, the five innovation platforms around which we focus our research involve fourteen technologies and these platforms are launching pads for more innovation. So that's why we have six more big ideas. So, here is the first one. Deep learning could create more economic value than the Internet did. So I want to illustrate a few things here.
The reason deep learning has happened is because we've taken the human programmer out of the equation. We've got data training machines and we've got big data and iterative algorithms, super computing power. And the power has reached a point where now the machines are training themselves and human beings cannot possibly conceive of all the possible permutations out there when they're saying when they're trying to program, let's say, an autonomous vehicle, it's not possible, but machines can train themselves. And deep learning is is the way to do that.
And what's interesting about deep learning is training costs like for autonomous vehicles, autonomous taxi networks or for Alexa or for Tik Tok. Those training costs are dropping thirty seven percent per year. And the models, the artificial intelligence models built around deep learning are growing tenfold per year. So the computing power that we're going to need in the years ahead is enormous. So we think that the market will scale to thirty trillion dollars an opportunity in the AI space from two trillion now.
That works out to a 17 percent CAGR or compound annual rate of return. You look at the green part of the bars, that's the Internet and you can see it will go, it will increase from 13 trillion to 20 trillion, but AI is going to be taking over in terms of growth trajectories. In fact, by the time 2037 the Internet will be very mature and the growth rate from 13 trillion to 20 trillion over that 17 year period actually equates to only three percent.
So the real growth is in deep learning and it is the next big wave. Server processors will transform the next decade. OK, Intel has dominated, Intel's X86 has dominated the data center, the servers and data centers, 92 percent of them have an Intel X86 processor that is going to change dramatically by the year 2030. We believe Intel's share of the data center will drop to to 27 percent, 92 percent to 27 percent. Intel has really lost its way.
And we do believe that ARM and RISC5 are going to displace Intel. They together will grow at a forty five percent annualized rate over the next 10 years. Now, as you know, perhaps Nvidia is in the process of trying to acquire ARM from Softbank. And so we shall see. We shall see. Virtual worlds, this has been a long time evolving, you remember the Google Glasses: premature. The technology was not ready and the costs were not low enough.
And believe it or not, that is still the case. But we are beginning to see breakthroughs now that could really impact the gaming market first. So you can see here the gaming market and this is the gaming market, as you and I know it, which includes both the premium sixty dollar games plus in-game purchases. You can see that we expect a 16 percent compound annual rate of growth during the next five years. Now, you'll see that's coming
much more from in-game purchases. So that world continues to transform. What's been really interesting about following the gaming sector over the last 25 years is that every time a new technology has evolved, the gaming sector has seen incremental growth. That is unlike video and music. With each new technology they got hit. Gaming is the only area we've seen that has been able to migrate from one technology to another and the space gets bigger. We believe this is about to happen once again with artificial reality.
I mean, yes, artificial reality and virtual reality. So we are looking at a fifty nine percent compound annual rate of growth. We do think that technology is almost there. We know that Facebook with Oculus has been seeing some good success. It's been sold out of its latest model. We believe COVID-19 helped to accelerate that as it accelerated so much in innovation. And so pay attention to this space. It could be very exciting.
Slight correction. This space is very exciting. ARKW was filled with some of the coolest, most innovative digital companies in the world, companies like Netflix, Spotify, Tencent, Roku, Square, Teladoc and Tesla. Right. Let me show you why Tesla is a digital leader and then we'll dive into the holdings of ARKW itself.
The world is changing. New innovations are being delivered faster than ever before. The lines between the physical world and the digital one are boring, and so too are the lines between advanced technologies where one robot ends and where another begins is no longer so obvious. Where one innovation ends and the next begins is no longer obvious either.
The most disruptive companies are no longer delivering single products or services. They are delivering change. And one day, where technology ends and where we begin may not be so obvious either.
As fun and important as it was to cover Wall Street Bets and the Game Stop short squeeze, this is what Ticker Symbol: You is really all about, getting people excited about investing in disruptive innovation and connecting dots that may not be obvious if you're used to grouping companies by sector, geography or market cap instead of by underlying technologies.
So let's get back to that bubble chart of ARK Invest's clusters of major innovation platforms and disruptive technologies that I showed you at the beginning of this video and start connecting those dots. This video is about ARKW, which contains companies that heavily leveraged artificial intelligence, cloud computing and advances in connectivity between devices and people. I know I'm repeating myself. I get it. Just hear me out. There's something else that I need to bring up. It's an idea that's fundamental to my investment thesis and I suspect, ARK Invest's as well.
While the graphic on the left shows these innovation pillars as separate, the one on the right shows that they are beginning to overlap more and more. This increasing overlap is what Cathie Wood was talking about when she says that these disruptive technologies are converging with each other to spawn new innovation.
And importantly, they are converging with each other to spawn new innovation.
Artificial intelligence actually sits at the center of this convergence and touches the other four. In the future, I expect this artificial intelligence bubble to get bigger and bigger as companies working with every other innovation platform learn to use A.I. in new and exciting ways. The reason this matters is because a breakthrough in artificial intelligence can affect all other innovation platforms. In my video on Deep Learning, I talk about Google DeepMind's breakthrough in protein folding and mapping and how lessons learned from that might bleed into the state of the art in other seemingly unrelated areas.
Artificial intelligence, which acts as a bridge between things like online finance and energy storage and industrial robots and genome sequencing makes that possible. Whenever I'm researching a company, one thing I like to do is map it onto these charts and ask myself if I could see ARK Invest holding it, which funds it would go in and how much ARK Invest might hold. Since Tesla is ARK Invest's largest holding by far, let's see how it would map onto these clusters. Here's how I would weigh it on here.
In my opinion, Tesla is a world leader in energy storage, industrial robotics and various fields within artificial intelligence, all three of which are necessary to unlock full self-driving capabilities, launch their autonomous ride hailing network and provide the world with mobility as a service. Tesla is also the biggest holding in ARKQ, ARK Invest's Fund themed around the autonomous revolution. In my video on ARKQ, I talk about falling costs of industrial robotics, which drives the production costs and capabilities of Tesla Gigafactories, the physical machines that build the machines.
Because Tesla builds computers on wheels and not cars, their products and services are mobile connected devices that are part of the Internet of Things. The Tesla Dojo program, which will offer machine learning training as a Web service, makes Tesla a serious player in the cloud computing space, at least for some important use cases. We've now come full circle. Hopefully you appreciate that Tesla sits at the top of this fund because it's leading this convergence, the center of which is artificial intelligence.
Every stock in this fund is using A.I. to do at least one of the following: take something that was traditionally physical, like banking, shopping, doctors visits and entertainment, and make it digital; two take something traditionally digital video games, for example, and bring in some physical innovation through virtual or augmented reality; or three, take something traditionally centralized like computing, banking, transacting or storing information and decentralizing it, if not cutting out all middlemen completely. Great.
Now let's dive into the companies. The top ten holdings are Tesla, Teladoc Square, Grayscale Bitcoin Trust, Roku, Tencent, Spotify, Agora Inc, Netflix and Pure Storage. We spent a lot of time covering Tesla since it's almost 10 percent of the fund and you probably have a good understanding of most of these other stocks, so let me briefly go over the less recognizable ones. Roku is on here because its machine learning algorithms do a great job of matching people to content and ads.
Roku users are twice as likely to watch an entire ad without skipping and twice as likely to engage with that ad as on any other platform. Roku has figured out how to content match so well that it owns sixty percent of all revenue from programmatic display ads, which is three times more than its next biggest competitor, Amazon Fire. When it comes to that piece of artificial intelligence, Roku has some secret sauce that gives it a huge advantage. You may have heard of Agora, the real time engagement platform that focuses on providing apps with the power to handle voice and video. Communication apps like Clubhouse,
the app where Elon Musk interviewed the CEO of Robinhood are powered by Agora. Pure Storage is a company that stores, transforms, secures and helps other companies make sense of mountains of data with artificial intelligence. It allows for cool architectures like multi cloud storage and real time storage scaling as you need it, instead of making you buy more storage in chunks. Basically, it enables businesses to store, secure and interact with their data using one great set of tools instead of shopping around for independent solutions to each of these problems and then figuring out how to make them work together.
The top 10 holdings account for just under 40 percent of the fund. So here's the rest as a bar chart. ARKW is filled with household names Facebook, PayPal, Zoom, Shopify, Lending Tree, Pinterest, DocuSign, Opendoor, Snapchat, Nvidia, Alibaba, Salesforce, Peloton, Twitter, Nintendo, Apple. I'm not a financial adviser, but if I had to give this fund a nickname, it would be the fund that just gets it.
Every company in here sees the writing on the wall for a digital future and they're becoming a leader of their own space in a digitally native way. They just get it. Likewise, when you hear names like Facebook, Shopify, Snapchat, Twitter, Nintendo and Netflix, you already know what the whole fund is about. You just get it. Here's a table of all the stocks in the fund and how they've grown or shrunk since the start of 2021.
It appears that ARK Invest has taken Splunk entirely out of ARKW. Now, let me explain the rest of this table. Each row is a company held in ARKW. The table is sorted by the rightmost column, which is its change in rank in the fund. For example, if you look almost all the way down, you'll see that Tesla is in position one and its rank has not changed. Because ARK Invest's funds are conviction weighted, a change in rank can be seen as a change in ARK's relative conviction in that company compared to others in this fund, which is what the ETF rank and change in rank columns try to show you.
Likewise, because ARK Invest's funds are all managed by Cathie Wood, we can combine them all. ARKK, ARKG, ARKW, ARKQ, ARKF and, when it comes out, ARKX, and see where each company lands if we were to treat them all as one giant fund. That's what this ARK rank and change in ARK rank columns try to show you. What position this company is in out of all of ARK's holdings combined. For example, Tesla is ARK's number one holding when you combine these funds and that rank has changed zero. When a company's rank goes down, meaning the number moves closer to one,
I am claiming that ARK Invest's conviction in that company is getting higher, because they're holding more money in that company relative to its peers, not shares, dollars. That's meaningful because when a stock goes on a huge rally and ARK chooses not to sell, that's just as important to the fund's weights as adding more shares. The ARK rank is making that statement overall and the ETF rank is just making that statement within this one fund. For example, Fastly has actually gone down two ranks since the start of 2021 overall, even though it gained ten ranks in ARKW specifically.
So, the higher a company is on this table, the more ARK Invest has gained conviction in it. Sorry Splunk, not you. The three non green stocks at the bottom are just new positions that have been added since the start of the quarter. ARK Invest trades stocks in and out of funds regularly, so don't read too much into that. I'll leave this table up for a few more seconds so you can screenshot it and look back on it later.
OK, I'm switching to the other half of this table now. Here is the other half of this table, but now Tesla is on top. Its rank has changed zero. Every company on this table has seen their rank move away from position one, which in my opinion means ARK Invest has lost some amount of conviction in these companies relative to other holdings. I'm not saying these are bad companies, by the way. Just look at the list. Spotify, Roku, Zillow, Facebook, Shopify, Apple, Nintendo.
These are awesome companies. I'm just saying that ARK has chosen to grow other positions at the cost of letting these companies grow less and become smaller positions in the fund as a result. Each row is colored by its percentage change in shares. And you can see that most of these companies are still in the green, meaning ARK has picked up shares in January. The ones in red are actively being sold for one reason or another. Companies at the bottom of this table, Pinterest, HubSpot, Unity and Snapchat have fallen by ten or more ranks in the fund in the last month.
I'm about to switch the slide again, so take a screenshot now if you want to. One thing that may not be obvious is that few of these companies could show up in ARKX, ARK Invest's upcoming fund themed around space exploration, enabling technologies including artificial intelligence and aerospace beneficiaries like those that will benefit from new parts of the world gaining Internet access are going to be a part of ARKX. That's companies like Tencent, Netflix and Facebook. So don't be surprised when you see some overlap between ARKW and ARKX.
I've covered this fund specifically, and artificial intelligence in general, a ton on this channel, and I also did a three hour live stream last week on Big Ideas, the first hour of which I spent focusing mostly on deep learning and artificial intelligence. You can find that live stream on Ticker Symbol: Live. That's where I'll put all the recordings of my live streams so they don't mess with the more curated content that I keep on this main channel. The next videos covering Big Ideas will also all follow the same format, which you can see using the timestamps below.
Each video will have an introduction to the overall idea, Cathie Wood's discussion of that idea on her recent ETF trends call with me fixing up and adding slides as necessary and then briefly going over the stocks that connect this big idea and how. Before pointing you to my videos that cover these concepts in way more detail, videos like this, bam, look at all these thumbnails. I love my job. This is Ticker Symbol: You. My name is Alex, reminding you that the best investment you can make is in you.
If you want to comment on this, please do so on the YouTube Video Here