Morgan Stanley
  • Wealth Management
  • June 17, 2022

Comparisons to 2000 are misguided – Cathie Wood on disruptive innovation

Many of those who are comparing current markets to the 2000 tech bubble are drawing the wrong conclusions according to Cathie Wood, CEO of ARK Invest.

Speaking at Morgan Stanley’s 4th Annual Australia Summit, Cathie predicted disruptive innovation that is at the core of ARK’s flagship fund will resume its exponential growth faster than critics anticipate. 

A different perspective on the past

While many commentators vividly remember the carnage of the tech and telecoms crash in 2000, it’s often forgotten that the dreams associated with that bubble are turning into reality today. Valuations of innovative technology stocks are once again being crushed, seemingly due to fears of another bust. Cathie believes the comparisons between 2000 and today are not justified by the facts and that investors should be more focused on the incredible potential of today’s innovators – potential she believes will be realised relatively rapidly. 

Faster rebound

Critics are suggesting that the rebound from this bear market will be muted and will take many years. In contrast, Cathie points to research on genomics, adaptive robotics, energy storage, artificial intelligence, and blockchain technology that suggests exponential growth will propel the companies associated with those platforms forward at astonishing speed during the next five years. She believes the price recovery of equities focused on disruptive innovation will be far more rapid than the 15+ years it took the Nasdaq 100 to recover after the tech and telecom bust.

Stronger starting point

Back in 2000, the technologies that would lead to cloud computing, artificial intelligence, energy storage, industrial robotics, genomic sequencing, and digital cash were not ready for mass-market adoption.

Today, many of those technologies are already integrated into the economy and being adopted by consumers and businesses alike.

Simultaneously, the companies that are leading the charge in each of these areas have far stronger fundamentals than their counterparts in 2000.

Last year, companies in the ARK Innovation ETF (ARKK) increased revenues at more than a 60% rate. That’s very different to the revenue growth of Nasdaq companies as the 2000 bubble burst.

During the 2000-2003 bust, roughly 25% of the companies in the Nasdaq 100 suffered declines in revenue on a year-over-year basis, some by more than 70%. Thus far, among ARKK’s 35 names, only one has seen its revenues decline.

Betting against the consensus

Cathie explained that, in her view, benchmark-sensitive active asset managers are missing a number of critical points.

  • They are over-estimating the role low fiscal and monetary policy played in the growth of innovative companies – believing the innovations themselves to have been the bigger driver. 
  • They are overlooking the long-term growth prospects of the companies who are sacrificing short-term profitability to invest aggressively and capitalise on some of the most profound innovation platforms in history.
  • They are shorting innovation – pushing equities associated with disruptive innovation into what Cathie believes is deep value territory.

Cathie believes this reversion to benchmark will prove to be a massive misallocation of capital and she has very high conviction in ARK’s bets against consensus thinking, stemming from its first-principles research.