"Sister Wood" bets on the technological revolution, and the compound growth rate of stock prices is expected to exceed 40% in the next 7 years

It is expected that the compound growth rate of the market value of stocks related to "disruptive innovation" will exceed 40% in the next 7 years.

The shine of technology stocks has also reinvigorated Cathie Wood, a star Wall Street fund manager and CEO of Ark Investment Management, in 2023, with the company's flagship fund, ARK Innovation ETF (ARKK), rising 68% for the year, ranking in the top 1% of similar funds.

After coming out of the "lost two years", recently, "Sister Wood" led her ARK research team to release a report called "Big Ideas 2024" as scheduled.

In the 163-page report, Sister Wood continues to focus on "disruptive innovations" and expects technology convergence, AI, digital wallets, precision therapy, and 3D printing to transform every aspect of the world, with technology accelerating the world economy to 7% by 2030:

Key highlights include:

1. The five major technology platforms of artificial intelligence, public blockchain, multi-group sequencing, energy storage and robotics are intertwining to form a synergy, so that the global economic growth rate may accelerate from an average of 3% in the past 125 years to more than 7% in the next seven years.

2. The market value of stocks related to disruptive innovation will grow at a rate of 40% per year, from 16% of the total global stock market today to more than 60% by 2030, and the market value will grow from about $19 trillion today to about $220 trillion in 2030.

3. By 2030, the convergence of hardware and software can reduce the cost of AI training by 75% per year. The global software market is likely to grow tenfold by 2030.

4. It is estimated that by 2040, the scale of investment in hardware in the field of AI will reach 1.3 trillion US dollars, and this huge investment will promote the sales of AI software to 13 trillion US dollars, so that the gross profit margin of the software industry will be maintained at the level of 75%.

5. The robo-taxi platform will redefine personal mobility and create $28 trillion in enterprise value in the next 5-10 years, with about 74 million robo-taxis sold each year, accounting for the majority of the automotive market.

6. With the consolidation of the manufacturing industry, the cost of batteries is falling, driving down the price of automobiles. Batteries account for 20% of the value of EVs, and battery manufacturers generate $30 billion in annual revenue for EV OEMs.

7. Thanks to 3D printing technology, automobile production has entered an unprecedented field, which is expected to reduce the development time of automobiles by 50% and the cost of mold design verification by 97%.

8. Precision therapies account for 25% of newly marketed drugs, and by 2030, drug revenues will increase by 15%, or about $300 billion.

9. With the full penetration of AI-enhanced multi-omics technology, the R&D efficiency related to drug development will be doubled. Increase the real rate of return on R&D by 10% by 2035.

10. Blood tests for early detection of a variety of cancers have become the standard of care, reducing cancer mortality by 25% at certain ages. In developed markets, 30% of patients benefit from the new diagnostic regime.

11. Digital leisure spending should gain a larger market share from the real economy and grow at a CAGR of 19% annually over the next seven years, from $7 trillion in 2023 to $23 trillion in 2030.

12. By 2030, the revenue of smart devices, entertainment and social platforms will reach $5.4 trillion, of which advertising and commerce revenue will account for 80%.

01 Disruptive technology innovation platform

According to ARK's research, the convergence of disruptive technologies will define the next decade, with five major technology platforms – AI, public blockchain, multiomic sequencing, energy storage, and robotics – converging to transform global economic activity, with growth likely to accelerate from an average of 3% over the past 125 years to 7% over the next seven years:

In our view, technological convergence is likely to bring about more impactful macroeconomic structural shifts than the first and second industrial revolutions. Globally, real economic growth will accelerate with the advent of robots reviving manufacturing, robo-taxis transforming transportation, and AI increasing the productivity of knowledge workers.

Driven by breakthroughs in AI technology, the value of the global stock market associated with disruptive innovation could increase from 16% to more than 60% of total market capitalization by 2030. As a result, the annualized stock return associated with disruptive innovation could exceed 40% in 2030. Over the next seven years, its market capitalization will increase from about $19 trillion today to about $220 trillion by 2030.

The chart below shows the economic impact on the economy of technologies such as the steam engine, railways and telegraphs, and general technologies such as electricity and telephones and radios, according to the report. Today, the convergence of disruptive technologies such as AI and robotics will have a greater impact on the economy than previous general-purpose technologies:

The degree to which these disruptive technologies converge and influence each other varies, ranging from very high levels of convergence (e.g., AI) to low levels (e.g., precision therapy). The degree of integration of AI can show the status and role of core technology catalysts.

According to the report, AI is also developing faster than the market expects. In 2019, the market generally expected that the emergence of general-purpose AI would take 80 years, and in 2020 it will decrease from 80 years to 50 years, and in 2021 to 34 years. After the advent of GPT-4, the expected time was even shortened to 8 years. Ark expects general-purpose AI to appear as early as 2026 and as late as 2030:

Ark believes that the convergence of individual disruptive technology advancements can lead to huge new market opportunities, such as the general robotics market and the robotaxi market:

Neural network + battery technology can facilitate the scale of autonomous mobile devices, such as self-driving taxis. In addition to batteries and AI, general-purpose robots also need motors, sensors, and other components. With the scale of self-driving taxis, the cost of these technologies will also decrease, and the general robot market will usher in rapid development.

Compared with technologies such as industrial robots, Internet information technology, and steam engines, the impact of disruptive technologies (especially AI) on the economy will be huge.

We expect disruptive technological innovations to dominate global equity market capitalization. In 2023, non-disruptive innovative technologies (the grey ring) are still dominating global stock market capitalization. By 2030, disruptive technologies will not only triple the total market capitalization, but will also be the dominant force in the market capitalization (color component).

According to the report, the scale of investment in AI hardware will reach 1.3 trillion US dollars, driving AI software sales to reach 13 trillion US dollars, and the gross profit margin will remain at the level of 75%.

02 Artificial Intelligence: Redefining Work

In 2023, ChatGPT will set off a wave of AI "wave after wave", and AI will quickly integrate into all aspects of people's lives.

ARK noted that the emergence of ChatGPT has wowd businesses and satisfied users, and has greatly improved productivity:

Programming assistants such as GitHub, Copilot, and Replit AI have yielded some results, and their emergence has increased the productivity and work status of software developers.

The rapid development of large models has also reshaped graphic design, and the output effect of image models has been comparable to that of professional graphic designers.

The cost of writing is also falling sharply, and the cost of writing written content has been relatively stable in real terms over the past century. But over the past two years, as the quality of large language model writing has improved, so has the cost.

Employees who have previously performed poorly have benefited from the advent of AI more than those who have performed well.

ARK noted that as the field of AI adoption expands, researchers are innovating in AI training and inference, hardware and model design to improve performance and reduce costs, and inference costs appear to be declining at a rate of about 86% per year. The convergence of hardware and software is expected to reduce the cost of AI training by 75% per year by 2030:

Based on enterprise-scale use cases, the cost of inference appears to be decreasing at a rate of about 86% per year, even faster than the cost of training. Today, the inference costs associated with GPT-4 Turbo are lower than GPT-3 a year ago.

As Wright's law states, improvements in accelerated computing hardware should reduce the production cost of AI-related computing units (RCUs) by 53% per year, while improvements in algorithmic models further reduce training costs by 47% per year. In other words, the convergence of hardware and software could reduce the cost of AI training by 75% per year through 2030.

(Note: The core of Wright's law is that for every doubling of the cumulative production of a product, the cost decreases by a constant percentage.) For example, for every cumulative doubling of production in the automotive sector, the cost price will drop by 15%. ）

The report notes that open-source models are competing with closed-source models, and in general, the performance of open-source models is improving faster than that of closed-source models:

In the field of open source models, led by Meta, a leading company, is challenging OpenAI and Google's closed-source models step by step.

In 2023, the open-source model made rapid progress in performance benchmarking, earning continued support from large enterprises, startups, and academic institution developers. We're also very eager to see what the open source community accomplishes in 2024.

In response to current investor concerns, will the big language Moxun training data run out of data, limiting its performance?Ark pointed out in the report that more training data is needed for model optimization, and high-quality language/data sources such as Epoch AI estimates, books, and scientific papers may be exhausted by 2024, while there is still a lot of untapped visual data.

Microsoft CEO Nadella first mentioned Microsoft's readiness in AI monetization in Microsoft's earnings report. In this year's report, Ark mentioned that customized AI products should have more pricing power:

With the advent of open-source alternatives and the decline in costs, it should be easier for vendors to monetize AI software that develops and customizes AI software for enterprises, and conversely, for those AI applications with simple functions, they are quickly commoditized, reducing profitability in the face of fierce competition.

As a result, Ark argues in the report that the global software market could grow 10-fold in terms of the trillions of dollars in potential opportunities for AI software vendors from the point of view of continuously improving the productivity of knowledge workers:

We believe that by 2030, AI has the potential to automate most tasks in knowledge-driven occupations, thereby significantly improving employee productivity.

Software solution providers that automate and accelerate knowledge work tasks should be the main beneficiaries. If a new wave of AI application innovators had similar pricing power as it does today, and the AI productivity boost made as much sense as we imagined, the global software market could grow tenfold by 2030.

03 Digital consumers are moving further towards digital entertainment

According to ARK's research, digital leisure spending should gain a larger share of the real economy and grow at a CAGR of 19% annually over the next seven years, from $7 trillion in 2023 to $23 trillion in 2030. According to the report, there will be five trends driving its growth:

1. Advertising in Smart TVs (CTVs) is growing at a compound annual growth rate of 17%, from $25 billion in 2023 to $73 billion in 2030.

2. E-commerce revenue from social platforms is expected to grow at a compound annual growth rate of 32%, from $730 billion in 2023 to over $5 trillion in 2030.

3. Consumer demand for sports betting remains strong and will continue to grow at a high rate.

4.AI-assisted game creation is set to become the next wave in the gaming world, with the potential for an explosion of gaming content on user-generated content (UGC) platforms such as Roblox, which has delivered more than 470 million experiences worldwide, 52 times more than all PC, console, and mobile app games combined.

The 5.AI+ hardware era has begun, which may redefine wearables in the future, and if virtual reality (VR) devices continue to face adjustments, new AI hardware devices are bound to appear.

In the report, Ark noted that the advent of AI will further reduce average working hours and stimulate digital entertainment consumption:

Generative AI could reduce working hours per person by an average of 1.3%, from 5.0 hours per day in 2022 to 4.5 hours in 2030. As a result, consumers are likely to spend more time on online entertainment, with the share of online time in their daily lives increasing from 40% in 2023 to 49% in 2030.

04 Robotics

Ark believes that the convergence of AI and hardware may promote the use of robots in a wider range of fields, and it is expected that general-purpose robots will usher in new market opportunities, with annual revenue of more than $24 trillion.

Ark notes that rapid advances in robot performance and significant cost reductions are spurring increased adoption of robots in factories:

The improvement in robot performance is further stimulating the demand for industrial robots in factories. Advances in computer vision and deep learning have improved robot performance by a factor of 33 in seven years, and robots are already outperforming humans by more than twice as much, and it's unclear where the upper limit is.

With AI and computer vision, robots should be able to operate cost-effectively in unstructured environments, and lower prices have spurred demand for industrial robots, which can reduce the cost of industrial robots by 50% for every doubling of robot production.

Ark emphasized that robots working in tandem with humans are reaching a critical stage of development, known as the "S-curve tipping point", and are about to enter a phase of rapid development:

The S-curve is a graph commonly used to describe the growth of market adoption of a new technology or product over time, which starts slowly at first, then increases rapidly, and finally slows down again to form an S-shape. When a new technology's market share approaches 10 to 20 percent, it usually indicates that it is about to enter a phase of rapid growth.

Taking the number of robots deployed by Amazon as an example, it can be seen that Amazon has significantly increased the use of robots in 2023, reaching an all-time high, which is similar to the number of human employees.

The use of robots has also had a huge impact on production capacity, and from the efficiency of Amazon's warehouses, the time between the time when a customer clicks on an order and when the product is shipped is reduced by 78% in minutes.

Therefore, Ark believes that in the future, general robots will include manufacturing robots in addition to household robots, and it is expected that the global manufacturing GDP will benefit from the use of robots in 2030, soaring to 28.5 trillion US dollars.

05 Digital wallet: the two-sided market creates a closed-loop consumption system

Ark pointed out in the report that the leading vertical software platform creates a closed-loop consumption system through the two-sided market, and promotes closed-loop transactions from consumers to merchants, merchants to employees, and employees to merchants. Digital wallets on these platforms will enable a fully closed payment ecosystem, and total C2B digital wallet payments will grow at a rate of 20% per year to about $7 trillion by 2030:

In addition to supporting core business operations, vertical software providers like Block, Shopify, and Toast are also integrating financial services for merchants. With digital wallets at its core, partner with banks and fintechs (or have their own banking licenses) to eliminate inefficient interactions between merchants and traditional financial institutions.

Over the next seven years, total C2B digital wallet payments will grow at an annual rate of 20%, from about $2 trillion in 2023 to about $7 trillion in 2030. The share of closed-loop payments will increase from 4% to 25%, and Block's Square, Shopify, and Toast's payment revenue is forecast to increase from $3.5 billion to $21 billion, with an annualized growth rate of 29%.

Ark believes that a two-sided market can close the financial cycle between consumers and merchants, and that the closed-loop payments ecosystem does so through internal transfers in three ways:

From consumer to merchant, merchant to employee, and from employee (who is also a consumer) to a merchant. To build these payments ecosystems, platforms must have: 1) a large and engaging bilateral network, 2) end-to-end visibility into merchants' operations and finances, and 3) vertical industry expertise.

Digital wallets have the potential to replace the consumer-to-business (C2B) payment ecosystem, using digital wallets for transactions to bypass bank and card networks, saving payment institutions, merchants, and consumers on interchange fees. We believe that vertical software platforms with scaled consumer and merchant ecosystems will leverage digital wallets to facilitate closed-loop transactions.

Vertical software platforms provide financial services to merchants. With digital wallets, these platforms not only improve convenience, but also monetize deposits, reducing the number of steps from payment authorization to merchant settlement from 16 to 5, more than doubling platform yields.

06 Precision therapy & multi-group sequencing development

Ark noted that over the past two decades, new models of precision therapy, CRISPR gene editing, RNA therapy, and targeted protein degradation have proliferated, and innovative therapies have increased the return on R&D, driven by artificial intelligence (AI), CRISPR gene editing, and new sequencing technologies, and some diseases that were previously thought to be untreatable with targeted drugs can now be treated with newly developed drugs, providing new possibilities for certain diseases:

Companies in the precision therapy space are expected to experience significant growth. Precision medicine is a medical approach that tailors treatment based on patient-specific genetic information, involving in-depth research and application at multiple biomolecular levels, such as DNA, RNA, and protein.

From 2023 to 2030, the enterprise value of companies focused on precision therapy will grow at a rate of 28% per year, increasing from about $820 billion to about $4.5 trillion, according to ARK Investment Research:

Over the past three decades, there has been a proliferation of treatments with entirely new mechanisms of action. Not only do they expand the number of treatable diseases, but they also improve efficacy and safety. In 2023, more than 25% of clinical trials are utilizing new treatment modalities.

According to our research, new treatment models and R&D approaches, coupled with regulatory approvals for "precision" therapies, will reverse the trend of declining ROI in the pharmaceutical industry in the future.

More and more precision therapies are becoming multi-omics and curative, with mechanisms of action spanning DNA, RNA, proteins, and more. According to ARK research, the enterprise value of companies focused on precision therapy will grow at an annual rate of 28% over the next seven years, from $820 billion in 2023 to $4.5 trillion in 2030.

Precision therapeutics, including RNA-based drugs and "targeted protein degraders" (TPDs), have expanded not only the number of druggable proteins in the human genome, but also the number of tissue types that can be treated.

07 Multiomics Tools and Techniques: Biological Insights Translated into Healthcare and Economic Value

Ark noted that over the past decade, biological tools and techniques have continued to evolve and improve, among which high-throughput proteomics, Advances in artificial intelligence (AI) and single-cell sequencing have become key forces driving biological research and medical technology, with drug R&D spending expected to decrease by more than 25% and enterprise value in precision therapeutics increasing at a CAGR of 26% over the next seven years, from about $820 billion in 2023 to about $4.5 trillion in 2030:

Combined, these technologies increase the productivity and efficiency of research and development efforts, as well as the precision of medical applications, such as disease diagnosis, treatment personalization, and new drug development.

According to ARK's research, AI and automation are providing greater support for drug development, and technological advancements should enable significant reductions in the cost of development for each drug:

Over the past decade, advances in mass spectrometry and bioinformatics have dramatically improved proteomic analysis, increasing resolution, accuracy, and the ability to analyze multiple samples simultaneously.

Wright's law predicts a decline in the cost of proteomics, enabling not only detailed exploration of the proteome in health and disease, but also accelerating the discovery of cancer biomarkers and the development of targeted therapies. We believe that single-cell RNA sequencing is revolutionizing our understanding of cancer.

We believe that the development of artificial intelligence and automation will reduce the cost of drugs and lead to a reduction in the approval process. At the same time, advances in basic biology, artificial intelligence, automation, and trial design should dramatically reduce the cost of preclinical drug development. Eliminate drugs with low potential early in the drug development process, prevent misallocation of downstream R&D funds, and create more space early in the discovery phase.

Over the next decade, companies that take full advantage of these technologies can reduce the cost per approval by nearly 50 percent, in part because the chances of success for drug candidates entering clinical trials have more than doubled.

08 Electric vehicles are becoming more popular due to lower battery costs

The report notes that after battery costs rose due to supply chain disruptions, battery costs are now declining with Wright's law and will drive electric vehicle (EV) prices down, with EVs expected to account for 95-100% of total vehicles in 2030 and EV sales to grow at an annual rate of 33% over the next seven years, from 10 million in 2023 to 74 million in 2030

In our view, electric vehicles continue to take market share away from internal combustion engine vehicles. If EVs continue to take the share of ICE vehicles, then ICE vehicle manufacturers may be forced to restructure and consolidate.

According to Wright's law, every doubling of kWh production will reduce the cost of batteries by 28%. Lithium iron phosphate batteries are grabbing market share for nickel-rich batteries, which shows that predicting commodity prices is very difficult as battery chemistry continues to change.

Wright's law also points to faster EV charging speeds, which seem to be a good proxy for overall performance, including efficiency, range, and power.

Charging speeds for 200 miles have nearly tripled over the past five years, from 40 minutes to 12 minutes, and could triple to 4 minutes in the next five years. As EV charging speeds reach acceptable levels, manufacturers are likely to optimize other features, including autonomous driving, safety, and entertainment.

09 Self-driving taxis: transforming urban mobility

Breakthroughs in artificial intelligence will drive robotaxis to revolutionize urban mobility and will dramatically alter or reduce the need for individuals to purchase cars, impacting the auto loan market, which relies on the sale of personal cars. According to ARK's research, robo-taxi platforms will redefine personal mobility and create $28 trillion in enterprise value over the next five to ten years:

We estimate that scaled robotaxis can cost as little as $0.25 per mile, which could drive widespread adoption of robotaxis.

According to the report, self-driving cars are safer than human-driven cars, and the application of large language models and generative AI can accelerate the development of autonomous driving technology:

We believe that the accident rate of self-driving cars will be 80% lower than that of human drivers, thereby reducing the approximately 40,000 automobile-related fatalities per year in the U.S. and the approximately 1.35 million automobile-related fatalities worldwide.

In Full Self-Driving (FSD) mode, Tesla is 5 times safer on the ground than in manual mode and 16 times safer than the national average. Waymo's self-driving cars are about 2-3 times safer than the national average.

Neural networks trained by GPT-4 to perform robotic tasks outperformed human expert programmers on 83% of tasks, with a 52% improvement. Large language models support text-based training, validation, and self-interpretation, which should help facilitate regulatory approval.

Multimodal models can train autonomous vehicles with images and text, which may improve system performance. Generative AI can train and validate the safety of autonomous vehicles through simulation.

In the report, Sister Wood emphasized that the increased market share of robotaxis will disrupt the U.S. auto loan industry, and that by 2030, the enterprise value of autonomous driving platform providers could reach $28 trillion, equivalent to nine times the market value of all automakers in 2023:

Over the past three years, interest rate increases have increased monthly auto loan payouts for new cars by about 27%, from $581 to $739. This has also led to a recent record number of car loans delinquent for more than 60 days.

As the price of electric vehicles continues to fall, more users are turning to robotaxi technology and reducing the value of gasoline vehicles.