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so I want to start right there because this was a record fundraising round we know there was a lot attached to this fundraising round including uh promise of a conversion to a for-profit entity why did you feel it was compelling to invest now and at this valuation well we've been doing work on AI for for 10 years and we've been waiting for the companies that were uh really that Nvidia was going to hand the Baton to not that nvidia's story is over at all but as you know Nvidia is has basically been commun communicating and investors have been buying a very big idea and for uh Nvidia uh to continue to work we think there are going to be other winners we think that the foundation model uh players are going to be very big Winners uh 15 to 20 trillion dollars in uh market cap in the next 5 to 10 years um we put out a piece in our Sunday newsletter you can find on ark-invest docomo xai so uh Elon Musk and team and even Elon I think is saying those three and uh and Google with Gemini are the big four and you know unlike the railroad era well many people are comparing this to the railroad era uh I think the the four winners are showing themselves very quickly whereas in the railroad era which by the way accounted for 63% of the stock market in in its Heyday in the early 1900s uh unlike the railroads there were hundreds I think there were hundreds uh we can we can focus on the big Winners this space is moving so quickly and is going to become so big because it's effectively substituting software for labor not that this is not that this is going to kill jobs at all it's going to make people much more productive and they're already seeing it with uh chat gbt just as a starter and of course the four companies you just mentioned are all companies that you are invested in through your funds I you mentioned xai it's been interesting because Elon Musk co-founder of open AI has been very vocal very critical of where open AI is headed and the direction in which Sam ultman is taking it do you disagree I I think I think what he's talking about is more about the history of the company and uh and we're looking at the future and uh I was happy to hear that he did mention of course open AI as one of the leaders of course it is uh so you know we're just looking to the future I know there's a history there and uh you know what's done is done and uh we're just looking forward trying to figure out who are going to be the big winners in this space Microsoft has just unveiled a gamechanging investment that is sending ripples across the tech industry the software giant announced its plan to spend a staggering $80 billion this year on data centers aimed at boosting artificial intelligence models and cloud-based applications globally this move positions Microsoft alongside key players like Nvidia setting the stage for a potential paradigm shift in AI infrastructure the investment surpasses the GDP of several entire countries marking a bold strategic gamble that has left the financial World buzzing with speculation and anticipation welcome back to invest ocracy uh Kathy want to look back at the Innovation fund for a moment uh over some periods of time that see the S&P is up 34% over a year beating Arc Innovation by 14 points 4% over 5 years beating that fund by 84 points 191% over 10 years that's for the SNP beating the Innovation fund by 64 points pretty much since Inception what do you say to investors who look at that performance and and doubt that you're making the right calls yes uh I would say first of all um our compound annual rate of return since Inception has been nearly 10% uh we went through a boom uh in 2020 during covid uh where we were up 360% and uh and we had valuation and interest rates and concentration in the markets working against us uh we are a diversified exposure to Innovation truly disruptive innovation I would focus people on the fact and looking at your chart there that if you take away that boom and bust uh what we have now is three forces working for us and a long base uh again you take away you can say we have a base after that period you can look uh since 2018 we've been basing and I remember saying this with Tesla at the time the longer the base the bigger the breakout and and we certainly were right there um the three forces that I think are going to become Tailwinds now they have been headwinds uh interest rates uh they're coming down and I think they're go despite what we saw in the employment report today I do think that they will come down uh more than people think during during the months ahead uh the second is the concentration in the market towards the mag 6 that is starting to dissipate uh and I think that will work in our favor and then the third is valuation during August when the market got hit uh our valuation as measured by Enterprise Value to iida uh dropped to nearly a market multiple we were basically sitting on a market multiple at 21 times ia uh Enterprise Value relative to EA do now we do adjust it for stock-based compensation which is really important when it comes to Innovation alignment with shareholders as well as normalize R&D uh but that valuation typically is twice the markets uh and we hit the market so now I'm looking at what were headwinds turning around and becoming Tailwinds the news of Microsoft's massive $80 billion commitment to building data centers is more than just a headline it's a defining moment in the tech landscape delving into the details it's clear that this move will reinforce Microsoft's dominance in AI with approximately half of the investment allocated to the us alone effectively strengthening its Azure Cloud offerings however Microsoft isn't alone in reaping the benefits of this ambitious infrastructure expansion Nvidia stands to gain immensely with Microsoft being its largest customer responsible for purchasing an astounding for 485,000 gpus in 2024 alone it's expected that 2025 will witness even greater investments in nvidia's offerings as the insatiable demand for computing power persis greetings everyone well we have more clarity now uh in terms of the investment landscape after the election and I wanted to uh talk a little bit about um Deja Vu for me I started my career uh really in the early 80s and uh at the time we had the me Reagan administration uh and a lot of controversy about everything much of which we're hearing today the same kinds of controversy so I wanted to take you a little bit through the macros uh What uh the Trump Administration says it wants uh versus what might likely happen uh given uh that backdrop as well as how this clar it is going to impact the world of innovation uh the world of transformative Innovation and uh we believe the world is transforming and in uh miraculous ways so we want to take you through some of that and how this Administration it its policies are probably going to accelerate these changes so let's uh talk about macros first in uh the early days of the Reagan Administration uh there was there were back-to-back recessions and interest rates hit 15% uh and that was a very difficult environment for investing um well president Trump is coming into office when uh that part of the equivalent in the Reagan Administration has been done and uh I remember the 0 after that the 80s and 90s were the Golden Age of active Equity investing and I think we're going back there uh first of all in terms of the controversy uh a deficit back then after back-to-back recessions five and a half% the bond market was apoplectic about that investors were as well and what they didn't understand is that the Reagan policies uh of tax cuts along with low lower interest rates uh uh caused by uh vulker moving from double digigit interest rates uh to something much lower uh that those were going to be very positive for economic growth and that we were going to grow our way out of the deficit that uh growth out of the deficit started in the 80s with the Reagan Administration and finished in the 90s with the Clinton Administration taking us into a Sur surus uh we think we're going to experience somewhat of the same thing this time around um the tax cuts We Believe are critically important especially if Trump makes good on uh on his tariff uh promise now I'm not a big fan of tariffs myself but if we're going to pair tariffs uh not on our free trade Partners uh but on those countries that really are not giving American goods and services a Level Playing Field uh but we counter them at home with lower tax rates for uh for consumers and businesses that's a tradeoff that's a good tradeoff uh and so um I don't think uh the the criticism about tariffs is going to is going to play out uh in terms of 100% across the board that's not what we're talking about here um I think president Trump is very PR growth and he's not going to do anything to impede growth uh in that way he wants the dollar down he thinks that will make us more competitive what I think will happen is the uh Returns on invested capital in the United States relative to those elsewhere in the world they're going to increase and that is going to attract more Capital which will actually boost the dollar now in terms of interest rates the dollar going up is anti-inflationary um a as is the productivity growth associated with a burst in activity caused by lower tax rates and other incentives for investing so if inflation is going to surprise on the low side of expectations uh that's going to be very good for Innovation driven strategies the ultimate question remains should you dive head first into Nvidia stock with Microsoft's substantial investment there's a high probability that Nvidia will see unprecedented growth in 2025 the stock currently trades with an enticing forward price to earnings ratio promising considerable returns that few stocks can boast moreover the price earnings to growth ratio suggest Nvidia is undervalued representing a unique opportunity in a market that often aligns with the adage of the early bird catches the worm We Believe tax rates are going to come down uh we're probably going to wait uh if we're businesses and consumers this is classic it even happened during the Reagan Administration when he phased in F tax cuts over three years most people just waited until the tax rates were uh at the point he had promised uh so we we probably will see some holding back of activity in the in the next year in anticipation of even lower tax rates so uh I think interest rates will be biased to the down side thereafter I think we're going to see uh an explosion in productivity growth that's what the convergence uh among the major Innovation platforms around which we've centered our research so robotics energy storage artificial intelligence uh blockchain technology and multiomic sequencing in the healthc care space uh those platforms are converging and we believe are going to unlock explosiv productivity growth explosive GDP growth and much lower than expected inflation because all of these platforms are deflationary they're technologically enabled we eagerly pose the question to you how do you interpret this staggering investment and the potential Ripple effects throughout the industry share your thoughts and let the debate begi
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