From around the corner to across the world, these are the insights, experts, and ideas that matter for your money, live and on demand on OSBiz. This is Switzer.
Welcome to the program. I'm Peter Switzer. We have a special episode for you this week featuring one of the world's most influential investors, Kathy Wood. Kathy is the founder and chief investment officer of ARK Invest, a US-based investment firm focused on disruptive innovation and investing in companies that will change the way the world works. Now Kathy and ARK are bringing the ARK Venture Fund to Australia, giving Australian investors access to innovative private companies including OpenAI, Kalshi, and Anthropic. Kathy joined me from Florida late last week and here she is.
Kathy Wood is arguably one of the best known fund managers in the USA. She is a fearless believer and investor in tech stocks and is always looking for the companies that will define our business future. She's flown the flag for Elon Musk, Bitcoin, and many other groundbreaking businesses. And she's now bringing her ARK Venture Fund to Australia. I want to understand what kind of companies will be in this fund and why Kathy will be selecting certain companies but rejecting others. In her very well-known ARK Innovation ETF, her major holdings are companies like Tesla, SpaceX, Coinbase, Shopify, Robinhood, Palantir, Amazon, and even Block, which actually bought out the Aussie business Afterpay where the founder Anthony Eisen was taught by yours truly, me. Welcome, Kathy, to the Switzer show.
I didn't know that, Peter. Thank you very much. I'm very happy to be here with you.
Great. Great. I'm really happy to be talking to you as well, Kathy. I want people to understand, and I use the word fearless because you know, you've flown the flag for companies that people didn't understand or they may well have been out of favor with the market, and you effectively said you thought the market was wrong. And on many occasions you've been proven right, and me being a person in the markets, I'm sometimes right and sometimes wrong. We all understand that.
That's right. But let's go to another area that you've been very keen on, namely Tesla. And we know Tesla's had a few challenges of late, but I was fascinated when you said this is the ultimate AI company that will realize its true huge value when driverless taxis soon will become commonplace. So talk this to people who will be staggered that you said that. So explain what you see in your crystal ball with Tesla.
Well, actually it's not a crystal ball. I have a Tesla with FSD. It's a very new one. I wanted to test out the latest software. And here in St. Petersburg, Florida, where we are, I don't have to use the steering wheel or accelerator or brake, and I don't have to park or parallel park. The car does it for me. Now it's not perfect yet, but it's getting to the point where anyone here in the United States who has been in a robo taxi or an autonomous vehicle is beginning to understand first of all how delightful the experience is going to be. It already is in many ways. But when we can sit in the back seat and have no driver, I believe you have Uber in Australia. Yes. And so a lot of people don't really like getting into a car with another person or don't like getting into a car that might smell a certain way or something. And they definitely don't like talking to that person when they're trying to do work. I don't know if you've ever had that experience. So yes, so we believe that the uptake of robo taxis will be slowly, slowly, then all at once. And I believe in the United States in certain cities, San Francisco being one of them, people, and especially women, are willing to pay more than they would pay an Uber and they're willing to wait longer just to get an autonomous vehicle. And I think that attitude will prevail throughout the country, certainly throughout the United States, within the next couple of years.
Okay. You made me laugh, and you were very serious about it, but you still made me laugh when you said that you would take your car to work and then go off and work for the day and earn money and come back and pick you up. Talk us through that one.
Yes. Well, for people who want to do this, you could send your car out. It's part of Tesla's platform and you could say, why don't you take the next few hours and give people rides. If you did that for just, I think, an hour a day, you would pay off your car. We did this arithmetic a while ago, but you would pay off your car in two to three years. So, and we do think that's going to happen. Now, will I put my car out there? Really, my new one? Maybe my old one, but not my new one. But Tesla will be arranging and supporting fleets.
So let's just talk about the future of Tesla. And you're a great supporter of Elon Musk. You clearly have to look past some of his unusual activities, particularly in Europe and things like that, and that probably hasn't helped Tesla's sales. But my feeling was you're not just saying Tesla's not going to just rely on selling EVs. There's more to this business. And so why don't you talk to that?
Sure. And in fact the market is already beginning to value the robo taxi opportunity because a year ago in June Tesla launched its robo taxis in Austin and we're beginning to see an acceleration in the rollout across cities. And in fact I think for the first time, Tesla in Tampa, which is right across the bridge from us here in Florida, is going to launch its robo taxi service before Waymo. That's a first and I think they're sending a strong message that we're going to see a lot more cities sooner than many analysts expect. According to our research, the robo taxi opportunity alone will account for 90% of Tesla's value in five years. Now we are in print with a price target at 2600 but we've gotten a lot more data since that model was done and we're preparing a new model which should come out in September, a financial model of course, and in that model you will be able to manipulate the variables that we think are important to the long-term valuation of Tesla. If you think we're too aggressive on the robo taxi rollout, you can dial it down and see what kind of number will come out. We think that even if you cut our expectations for robo taxi in half, that Tesla would still deliver a very nice compound annual rate of return over the next five years.
Okay. Let's also talk about something which I've never heard of before but I was fascinated to hear about, which is vibe coding. Vibe coding. And it seems to me that there's going to be so many entrepreneurs who will love the idea of this. So why don't you explain what vibe coding is and maybe what companies you think will benefit from it?
Sure. This is exciting because it's capitalizing on a big breakthrough in AI, meaning the programming language now can be natural language, our language, the languages we all speak, and so we are all going to become coders if we want to be. And you can go to a site like, well, you can go to OpenAI and Anthropic, with Claude Code and Codex, you can also go to Replit and find out what vibe coding is. If you give a prompt to any of those and say, I would like to program. I would like to create my own company. I want to solve this problem. And I would like you to help me. Here is the idea. Here's the problem we're trying to solve. Here is where I would like to start. Let's work on this together. That would be vibe coding. You'd be astonished how much non-professional developers can do. Replit, which is in our venture fund, started as a vibe coding company. Others are beginning to compete with it, including OpenAI and Claude, but it alone has somewhere between 25 and 30 million users now. In the entire world today, I think there are roughly 20 to 25 million professional developers, and they're not using Replit. This is much more for people like you and me who want to get the job done and we don't want to wait for our technology department to put us in a queue and finish our project. We want to start now. And it's very powerful. In fact, we had a hackathon at our own offsite about a year ago with Replit. And some people within our organization, both the research part and the business part, have become passionate about using Replit to make our lives simpler here. So it's really empowering.
Yeah. Okay. So I've sort of set the scene for people who don't know much about Cathy Wood and they realize that you are analyzing the businesses out there that you think are going to be game changers. And so I think it's appropriate to say, well, tell us about the ARK Venture Fund. You know, when it comes to Australia, well, it is in Australia already, what kind of companies will be in the venture fund.
Sure. I'd like to set it up though by talking about how we have organized our research. So typically, if you go into an asset management firm, you'll find that research is organized by sector or industry or subindustry. And many firms have five healthcare analysts and that's wonderful. They can do all kinds of research with five healthcare analysts. We think the world is changing though, and in order to understand how this technology revolution, and we are in a technology revolution, is going to transform the world, the right way to organize research will be not by sector or industry but by technology. So there are five major innovation platforms evolving today: robotics, energy storage, AI, very importantly AI, blockchain technology, and multiomics sequencing in the life science space. Those five platforms involve 15 technologies. So we have 15 analysts focused on each of those technologies because we believe that tech specialists are going to be necessary to help us understand how these technologies are going to scale across sectors or across industries. So I am standing on their shoulders. And we do a tremendous amount of original research, really focused on Wright's law, which is a relative of Moore's law. We don't have to get into it but it's a wonderful way to measure the learning curves associated with each new technology and those learning curves are expressed through cost declines. And when costs fall, the access to new technologies increases. So I wanted to set it up that way because our analysts started in the public markets. But with time we understood, given the proliferation of new technologies and given that they start in the private world, that our analysts needed to focus as much and maybe even more on the private world as the public world when it comes to new technologies in this technology revolution. So your question was what are the kinds of companies in the portfolios?
Well, until recently, and even now, SpaceX is the largest position because we're locked up. It just went public. The first unlock is August 12th. Now, so at that time, we can't say what we're going to do. But now that SpaceX is public and access is possible for a much lower cost than a venture fund, it makes sense for us over time to sell that and feed it into our public funds, which we have done already, and move other private companies into the venture fund. We were very early in OpenAI and Anthropic and xAI, which is now a part of SpaceX.
And we've been very focused on new markets, whole new markets like prediction markets. So anytime we see a new technology or a new service enabled by the technologies that are evolving today or enabled by the deregulation that is taking place certainly in the United States today finally, we are all over it and it becomes a prime candidate for our portfolios. Kalshi in the prediction markets is one of our larger holdings once we adjust for, if the rumors are right, the new funding round at the new price. And I mentioned Replit is in there. Gaming company Epic is in there. We have companies like Caruso, neocloud companies. We're in, in terms of the AI ecosystem, we want to be everywhere in every industry. So in the defense space we have Shield AI, and in the space space, now that SpaceX is leaving, we have two companies whose founders came from SpaceX or Tesla so they have the right kind of DNA.
So, are you going to be putting new companies into this fund that Australians potentially can invest in, or will they be adding to the existing group of companies that aren't listed, that are private, and you'll either take a bigger share in those companies or add new companies to the fund.
Yes. Well, what's happening today is that more and more companies are going public. This is a big change from the last four years. And that's a very good thing. It's a virtuous cycle. So they go public and they're typically, certainly in the case of SpaceX, going public because they know they're going to need so much more capital than they would like to raise in the private markets, which is a very tedious way to do it. Founders just want to build. So now going into the public markets they won't have to worry about fundraising every six to 12 months. The public markets will take care of that much more readily. So we are going to see, and I think already we've had six graduations. Some of them are still locked up. Kodiak in the autonomous trucking industry is one of them. But as they go, as they are unlocked and we move them into our public portfolios, that will leave room for new names to enter. We don't want many more than 50 private names. And that is fairly concentrated. But we want to have enough names so that the venture fund touches all of the technologies that I mentioned, the 15 technologies that I mentioned earlier.
So Cathy, how does the fund actually realize ultimately profits that then are distributed to the investors? Is it when they go public or are you picking up distributions along the way as the companies become, now clearly a company like Anthropic which is not public yet but is making a lot of money. Are you able to get a distribution out of the profits of Anthropic or are they continually investing and you're not seeing any distributions but the value of the company is clearly going up?
Well, Anthropic and OpenAI and most of the companies in the venture portfolio are investing aggressively now because, especially in the AI world, we are in more and more winner-take-most opportunities. Certainly in the large language model world it is becoming very clear that there are only a few very big leaders. Now of course open source might challenge that, but so far the closed models have remained at the frontier and the open models are mostly from China and most businesses do not want to share their data with China. So, so far so good. But they are investing aggressively. In fact, most of the companies in our portfolios are not in a profit mode right now. The venture world is used to that. The public markets not so much. And so, you know, we're very comfortable in the venture world. We have a five-year investment time horizon. Many investors in the public world have a one-quarter investment time horizon. They cannot take this kind of company. But we also think that's what sets us apart in the public markets. Our funds are the closest you'll find in the public markets to venture capital funds.
