Cathie Wood's CRASH Warning.

Kathy Wood on the AI bubble.

>> Let's talk about some big investments in

tech as Kathy Wood's ARC ETFs made

significant changes to their portfolios

last week. According to daily trading

disclosures, selling AMD and Shopify and

buying BYU the China interest is part of

a trend this year with Woodying Alibaba

stock for the first time in four years

last month. In fact, I was just looking

at some of the performance in AMD and

you can see that stock up more than

100%. Is the rally done or is it just

beginning as a challenger to Nvidia?

Let's get out to Dan. He joins us live

from Riad. Dan, we're meant to be

talking about investments in

>> Yeah, it is interesting because you did

just see like a rocket on AMD. You know,

the 232 line was quite bullish for for

AMD. All right, let's get to the start.

Where is Kathy? All right, let's get to

the first question here.

>> AMD, your thesis is innovation. Do you

welcome that pop? Is it just getting

started? Where is it going from here?

>> Yes, I know a lot of people are worried

about all AI hype. Uh but uh as we're

looking uh to the future uh especially

with embodied AI which is all about robo

taxis and transforming the world of

transportation completely uh and then

healthcare which is probably one of the

most profound applications of AI. Uh, we

think that this investment will uh will

pay off and I think the chaser is going

to be humanoid robots. Uh, and I think

>> humanoid robots as the chaser. So, we're

going to have a party and then we're

going to chase it with a sweet sweet

Kathy drink of humanoid robots

>> is going to be the biggest of all the

embodied AI opportunities.

>> Well, Kathy, the concern in them. I

asked Jack yesterday, my 10-year-old,

"Hey, how many years until we get

humanoid robots?" He said, "50." And

they're like, "What?" So then I showed

him the Optimus doing kung fu and he's

like,

"So?" And I'm like, "Does that change

your thesis?" He's like, "No, 50." I'm

like, "Oh, okay."

>> Market right now is

>> bear.

Show me your shorts. is that the pace of

innovation doesn't necessarily justify

the premiums that we're seeing for some

of these names. How would you respond to

that?

>> Yes. Well, if we're right and uh the

growth continues to accelerate in this

space, uh we think that the uh growth

will that the valuations will um make

sense longer term. So, you really do

have to have a

>> It's always a scary thing is like h the

valuations suck right now, but it'll all

make sense in the long term. Trust us,

bro.

>> Longer term time horizon, which we do.

We have a 5year

>> and just extend the time horizon. 5

years and and if we're wrong about those

five years, like you know, from maybe

2020 to 2025,

just give us another five

>> time horizon. I'm not saying there will

never be any corrections. Of course

there will. As many people worry, okay,

is this too much, too soon. But if our

expectations for AI, especially embodied

AI in the way that I just described are

correct, uh, we are at the very

beginning of, you know, a technology

revolution.

>> Is AI in a bubble right now?

>> I do not believe AI is in a bubble. What

I do think is on the enterprise side, it

is going to take a while for large

corporations to prepare themselves to

transform. It's going to take a company

like Palunteer going into the largest

enterprises and and really restructuring

them uh in order to really capitalize on

the productivity gains.

>> Yeah. I mean, this is something that's

been talked about a lot. this idea that

well are companies even AI ready? Like

how much of their data is actually ready

to be, you know, interpreted? Because a

lot of data companies have is just so

unorganized. You actually have to sit

there and clean it all up first before

you can actually start gleaning uh uh

insights from it. You know, there's this

famous line in accounting. I mean, it's

famous in basically anything, but it's

garbage in, garbage out. And if you have

poorly structured data that you're going

to get poor AI results because remember

AI is all about various forms of pattern

recognition. Now people get mad when I

say this but the reality is when you

study AI you see it's all pattern

recognition to where even generative AI

is essentially pattern recognition of

based on what you've seen on and studied

on world models or images previously.

What do you think a tiger sitting on

Mars would look like? Right? and we

utilize uh previous patterns to come up

with an expectation for well it would

probably look like this. I mean in your

head you could say well I've I've seen

pictures of tigers and I've seen

pictures of Mars so I'll just put a

tiger on Mars. I you're utilizing

previous pattern recognition to apply

that to a generative idea. It's the same

thing with artificial intelligence.

problem is and if your core data sucks

then

you ain't going to do anything with

Palanteer and so there there she's right

there's going to be a latency with how

long it takes a lot of these large

corporations to actually implement AI

and I think that's where you know that's

where the layoffs are coming from people

people are saying things like I saw some

folks in the comments yesterday not many

but there were a few comments in the

comments yesterday where people were

saying Kevin you know you're talking

about these these layoffs at Amazon but

they they like AI doesn't just lay off

people. You're right. Like, you can't

100% replace something that somebody's

doing with artificial intelligence. But

what you could do is you could take

another human and load them up with all

of the work of maybe one or two other

humans. So, you have one human with AI

that does the work of three humans

previously. So, you still have human in

the loop, but you just need fewer of

them. That's why we're getting these up

to 30,000 layoffs at Amazon. That's why

Target's laying off headcount from the

corporate staff. That's why Walmart

won't hire for the next three years.

This is all bad for the labor market in

the short term. In the long term, we

will generate new jobs. Like I like

there are also some people who are like,

you know, I don't want to have kids cuz,

you know, robots are going to take over

the world. What are my kids going to do?

Like, no, no, don't have those fears.

Like long term, you got to be optimistic

on technological revolution. So, I agree

with Kathy Wood there. Uh but yeah,

short term some of these valuations are

a little cooped up

>> uh that we think are going to be

unleashed by AI in the consumer space.

The

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we're all looking forward to our

personal assistants doing our shopping

for us. Well, I am. As I talk to people

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shopping. Uh so

>> that it's called Dior Dash, the

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Dior dash.

>> But I am uh really excited about not

just shopping but h how much my

productivity as an individual is going

to increase with AI. It already has in

terms of research.

>> Let's just stress test this point. In

terms of research, that always scares me

when people start like if you use AI

only to research, your knowledge will be

so baseline. Cuz if everybody uses AI,

then everybody's got the same knowledge.

You have no alpha. [laughter]

No alpha. Like sometimes I feel like

I'll purposefully leave spelling errors

in like my daily wealth or my alpha

reports because I want you to know

there's no AI going into it because

that's the baseline, right? Like there's

no alpha then if it's baseline. Somebody

here in the chat says um Gustaf writes

exactly I work in a large pharmaceutical

company and has been collecting has been

working on data collection. It is all

Excel sheets and talking to people who

have been there for 20 years, right? I

mean it's it's like this is a heavy lift

to get all this stuff AI ready, right?

>> Because you said that AI is not in a

bubble, but you also flagged that there

could be a correction risk. What's the

timeline on that correction then? If you

were to gaze into your crystal ball,

>> I think uh we're going to reach a moment

in the next year where the conversation

will shift from

lower interest rates to uh rising rates.

But it will be for a good reason. We

think that the uh economy, the US and uh

the rest of the world of course will

participate is going to move into a

productivity driven boom just in time

for our midterm election. So I think

when interest rates reverse uh there

will be a shutter because there are a

lot of people out there and we saw this

during COVID and its aftermath who think

that uh innovation and interest rates

are inversely correlated. uh that is not

true over history even in 2017 when

interest rates went up uh we had uh

phenomenal performance uh so uh I want

to disabuse people of that notion but

nonetheless the way algorithms work

these days uh we think that there will

be a uh a reality check shall we say

>> a reality check part of me wonders if to

some extent she feels like she has to

hedge that like, oh, there'll be a

reality check. Like, prices are going to

come down. There'll be a correction

because of what happened in like 22. And

in fairness, she said, hey, like, it

might make sense in 2021. I remember her

saying, you might make sense to have a

little bit of money, you know, on the

side, like a little cash. I remember her

saying that. Uh, and uh, and it's it's

very interesting because it's easy to

forget when the market's running at

all-time highs. Like, yeah, it is a good

idea to keep some cash on the side. But

it is interest like I'm not sure to

actually think of this as a bellweather

or think of this as just sort of Kathy

Woodian hedging that oh there's going to

be a you know reality check and there's

going to be a correction or whatever. I

I I don't know yet. Maybe she has a

thesis for it.

>> Okay. So if we do come into this higher

rate environment as you're suggesting

then how should investors be thinking

about allocating in the innovation

space? Of course we look at ARC up more

than 50% YTD. talk to me about some of

the allocations you're making right now

and this big bet on the future

ultimately what's going to pay off.

>> Well, one of the things uh we have

focused on consistently is really this

is going to sound um uh is going to

sound almost silly but uh we're focused

on the future and pure plays uh in the

uh innovation space around robotics,

energy storage, AI, blockchain

technology and especially multiomic

sequencing in the health health care

space. I think that's the most

underestimated and underappreciated. So

those are our five main areas. Uh they

involve 15 technologies and we think

they're converging uh to create really

explosive growth opportunities.

>> What do we have heard that same exact

line for 5 years and I'm not saying

she's wrong. I just think five years has

already shown us it's a wrong time

horizon. It's probably like 20 years. I

hate to say it. And I'm a big fan of

genomic research, but I've also seen

these genomic testing companies go

bankrupt because there's just not money

in it. And it's sad because there are

some really great companies that were

doing great work that just go bankrupt.

>> You think has changed in the market that

is rewarding your strategy again?

Because I also think it's fair to say

since our last conversation in Abu Dhabi

a couple of years ago, you've been

through a pretty rough patch, right?

>> Yes, we went through a very rough patch.

And in fact, uh during

>> I was just thinking of the name. It was

Invite. We actually when we were doing

fertility work, we had some invite tests

and that was uh uh you know something

that that I know Kathy was very excited

about. I was excited about the company

as well. I never invested in the

company, but the company ended up going

bankrupt. 23 andMe uh was another sort

of data play around genomics, right? Uh

and NASDAQ actually interviewed me on

the 23 andMe spack and I said like I'm

bearish. This is a this is an insane

like cooped up valuation. Uh and what's

crazy is that was October of 2021.

Uh that's not my article cuz that's like

of course that was a Modly Fool article.

Oh, it could be a great deal, you know.

No. Oh, here it is. 2021 uh with Meet

Kevin. Analyzing the deal with Meet

Kevin. Blah blah blah. Meet Kevin is a

little amusing. Oh, thank you.

[laughter]

Uh and uh uh yeah, basically if you

actually go through this uh points out

that uh you know, the valuation is a

little cooped up. Uh, so kind of cool,

but you know, these genomic companies,

that's that's the risk is if it's a

20-year play instead of a 5-year play,

they've run out of money.

Uh, the the the four years prior to this

administration, we were facing

increasing regulation, a massive

increase in interest rates, supply chain

shocks, all of which impacted unit

growth. And unit growth really drives

innovation. and the the faster units

grow, uh, the faster costs decline. Uh,

and so we're through that. And more

important, uh, in in this

administration, we have with OB3, the

one big beautiful bill, uh, massive tax

changes that, uh, are going to, uh, take

the effective corporate tax rate in the

United States uh, down to what we

believe is 10%. statutory will still be

21, but with the excel.

>> Okay, now that's a crazy uh idea. And

maybe she's right, but for corporate

taxes to go down to 10%, you'd really

have to imply that companies are blowing

money on R&D to pick up those R&D tax

credits. uh because I mean like

not only R&D tax credits but like I I

suppose 100% expensing or accelerated

expensing on investments but that's

short term because you can't spend

forever at 100% write off every single

year on your equipment or accelerate

depreciation like eventually that

catches up. So maybe a short-term STEMI

there, but I I don't see a long-term

corp tax rate that low.

>> Accelerated depreciation, massive

accelerated depreciation in

manufacturing structures. It

>> Yeah. Again, that that works up front.

It's kind of like like think about this,

okay? You buy a plane, okay? Let's say

you're you're JP Morgan, okay, and you

bring back 100% bonus depreciation for

Gulfream Jets. So you buy 10 of them,

okay? Do you know how much of a tax

saving that is? If you buy 10 slightly

used Gulfream jets, that's going to be

half a billion dollars that you just get

to write off poof. No income taxes on

half a billion dollar. And then you're a

bank. So what are you going to do?

You're going to finance those Gulfream

jets, right? So like look at JP Morgan

for example. So you go to JP Morgan. Uh

let's go see here. JP Morgan, we've got

net income.

Net income is uh for I mean they've got

a lot of money uh that they make. Look

at this net income ah that's cash from

let's go to the income statement. So for

actual income net income after taxes eh

14 bill. So they have to buy a few more

planes. But the point is they could

easily then pay no taxes on half a

billion dollars of aircraft just by

buying 10 that they could finance you

know with 20% down which is kind of

wild. So the tax benefits are wild, but

then the question is, do you need to buy

those 10 aircraft every single year? You

know, it's great one year, but are you

going to do that again next year, next

year, next year? Probably not. It works

now while we're building out data

centers, but it doesn't go on forever.

That's more my point with that. So the

actual realized, you know, tax benefits

might be great for the short term, but I

I don't think so for the very long term

like she's describing here.

>> Equipment, domestic R&D, and software.

uh we think that uh that is going to ch

turbocharge innovation in a way that

people do not appreciate right now. And

that is one of the reasons we do believe

we're moving into next year we'll see uh

uh this idea of a a productivity

boom in activity.

>> Not to get political here, but do you

think the Trump administration deserves

some credit for that as well?

>> Yes, I do. I absolutely do. They're very

focused on deregulation, massive

deregulation. Uh we have a crypto and

AISAR. Never have had that before. Uh

and they are focused on businessfriendly

policies inviting more foreign direct

investment into the United States

especially in the manufacturing realm.

Uh so the depreciation uh uh the the

depreciation acceleration applies to

manufacturing structures. This has never

happened before. for the next three

years. If a manufacturing structure is

uh is un underway, its first year in

service, during its first year in

service, uh a company will be able to

depreciate it 100% in day one in year

one as opposed to over 30 to 40 years.

That's a massive tax cut.

>> Yeah. I mean, it's not untrue. She's

right. These are big tax cuts. Great for

the short term. So it's sort of like I

think the way to look at the Trump

administration is as corporate stimulus

you know it is a a corporate stimulus

president uh which is very much the

opposite of what we had during co and

that's not to be anti-biden because

Donald Trump also instituted the first

uh you know car's act was president when

when the first bill came out uh of of

stimulus. So, uh, what's fascinating

about that is you really think that yes,

Kathy's right, corporations are going to

win more on net with tax benefits for

the short term, the next 3, five years.

I agree with that. But I also think that

corporations look and recognize there

are headwinds to their topline revenues.

So, what do they do? They cut staff. And

that's the biggest risk factor. That's

it. We know that labor is the biggest

risk factor. But I don't actually think

that Kathy is bearish. You know, they're

running this headline that Kathy Wood

thinks there's going to be, you know, a

reality check. Uh is is the headline

that they're using here and uh or at

least the thumbnail. And that's

provocative. Oh no, AI is going to have

a reality check. There's going to be a

you know, big crash or whatever. But I

don't actually think

she believes that. I think she thinks I

mean she said it herself the valuations

will make sense as this all gets built

out. She's bullish on humanoids. She's

bullish on the tax benefits. She's

bullish uh crypto. Uh she's bullish the

chip sector. Uh I mean good for her. So

that's that's exciting and it's a great

place to be. I'm looking at um ARC

flows. They've been pretty stable. You

know they've been stable somewhere

around looks like uh if I averaged out

the last inflows here were about 54

million bucks. Uh but you've got sort of

ups and downs above and below the zero

line. So uh it seems like stable flows

back into ARC. So good for her. Uh it

does make me wonder is is there a

potential correlation between when we

start getting more toppy with the actual

ARC stock itself like the RK, you know,

sort of the flagship one. Uh and so if

we look at the week chart, RK has

absolutely been smoking it. Now, if we

zoom out even more though, that's when

we could see the COVID levels and that

we're really just retracing, right? So,

we've come off the lows here, we've

really since liberation had a really

nice retracement. So, if we look on a

fib basis, it looks like this euphoric

market maybe isn't quite euphoric yet.

Maybe we still have some room to go.

Remember, look how high ARC got. 160 uh

back then. Pretty pretty remarkable. If

we now jump over to

let's go take a look at some of the ARC

holdings. So we could go to Kathy's ARC

and see what the holdings are for our K.

Let's see what we've got. So we've got,

look at that. Tesla number one at 12.5%.

That's done very well. Uh we've got Roku

at number two, Coinbase 3, Roblox,

Tempest, Crisper, Shopify, Robin Hood.

Robin Hood smashed although down from

some of its highs. Palanteer AMD is in

here as well. Oh, interesting. She also

picked up the uh Ethereum uh treasury

play. Uh Bit mine, Circle, Beam, Archer,

Pterodine. Hey, we've got Amazon in here

as well. Yeah, I mean these are great

in in a bull market. So, I'm very uh you

know, I'm I'm glad to see her optimism,

but uh I don't actually think she sees a

correctionist coming. So, I think it's

it's worth having a note about that.

>> Why not advertise these [music] things

that you told us here? I feel like

nobody else knows about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Pra there, financial analyst and

YouTuber. Meet Kevin. Always great to

get your [music] take.