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In terms of the most profound application of AI, it is health care. Autonomous mobility might be the biggest revenue generator during the next 5 to 10 years, but uh we think health care will be the most profound application uh of AI because of the convergence among AI sequencing technologies and gene editing and other gene therapies.
uh and this is not this is not when it is now it is happening now all three of those are happening now and I think uh as more and more uh analysts begin to do work on some of the names that are not in broad-based benchmarks and therefore not very well covered uh they're going to they're going to find some gems and we think we own them in ARKG G.
Hey guys, welcome to Everyday Finance. A very optimistic prediction for 2026 has been given by Kathy Wood of Arc Invest, who projects significant market gains in the next months. She thinks that all sectors will experience a change in inflation dynamics after the Federal Reserve decreases interest rates and that gloomy feeling will eventually give way to positive emotion as important data points start to match historical trends.
Wood anticipates that just in 2026, investors may experience enormous returns would discussed what she believes to be one of the most under reportported economic changes of 2025 at ARK's December update. She highlights a significant shift in US tax policy. While markets concentrate on tariffs, flation, and a weak dollar, by allowing businesses to write off the majority of their investments, new depreciation laws effectively reduce corporate taxes to between 10% and 12%.
She contends that this action might change the narrative from one of a rolling recession to one of a rolling recovery in places. The United States as the leading economy with the lowest taxes in the world reduced effective taxes, improve productivity, draw in foreign investment, and raise returns on investment without rekindling inflation.
What links this change to the acceleration of invention as well. Rapid growth is made possible by the deregulation of cryptocurrency and artificial intelligence as well as the expansion of capital availability. She says that institutions are discreetly preparing for the next crypto bull market and that she is still quite enthusiastic on Bitcoin and digital assets.
Wood feels that the next stage of the cryptocurrency cycle is crucial and that rapid growth is on the horizon because she expanded her exposure during the most recent weak market. She exhorts investors to see market declines as chances, believing that the long-awaited recovery in technology and cryptocurrency is imminent.
I'll start with monetary. Um I think if we were going to if the Fed were going to be populated uh by individuals who believe that growth is inflationary and uh and and there was a lot of dissension on the Fed. I think that would be an issue. Um, I think if Kevin Hasset or Governor Waller uh either one of them is at the helm next year, I don't think that will be a problem.
Though the voters uh could disscent uh and and cause a lot of uncertainty in the market. Um, I'm already hearing the administration, including Howard Lutnik, uh, very recently on CNBC talk about growth not being inflationary and quite in fact quite the opposite. uh in the 80s and 90s as uh real GDP growth was picking up uh inflation did come down consistently and uh I think we're going to see that again as the supply shock associated with COVID and tariffs to some extent as they pass through the system and uh and we move to the other side of um all of that confusion um in terms of fiscal policy.
Um, I think if if the Trump administration uh is not enjoying a a strong growth environment with inflation and interest rates falling, uh, President Trump could become more of a lame duck uh, sooner than we expect, meaning uh, he'll probably be challenged from a tax policy point of you we love the tax policies the corporate tax rate coming down to 10%.
Uh and uh individuals uh enjoying big refunds this year because of no tax on tips uh uh overtime uh large parts of social security, the doubling of the the salt deduction and and uh uh child care tax credits. Um but if if we're in a weak economy, uh we're going to get a a lot of angst around the midterm elections and you know uh we we could see flailing around with you know new temporary spending measures which is the last thing we need.
Uh we really need to grow out of the deficit and I do believe this administration has put in place policies to do just that. But if for some reason we're wrong on that, um the deficit will become a problem for for the bond markets. And I'll add a bit. I uh want to echo what Frank uh said about uh investors being very very concerned about an AI bubble.
I think the reason that's happening is the most seasoned investors in our business probably experienced the tech and telecom bubble. Uh they've been there, done that, and they don't want to get trapped again. Uh and that they're telegraphing that. Uh those who were in the bubble though also should understand how different this is.
And I'm going to call out Brad Gersonner from Altimter who uh describes the difference between then and now. Back then uh we were pouring money into broadband dark fiber. It ultimately became it. It never lit up or let's put it this way, it took a decade or more to light that uh that fiber up. Today we have a shortage of GPUs and every GPU uh being produced is in use.
Sure there may be some uh hoarding uh but even that world is moving so quickly it wouldn't make sense to hoard uh because of the leapfrogs in technology we're seeing um in such short periods of time. Another difference between then and now. That's right. And just one one yeah one interesting comparison I remember very well Amazon uh in the bubble uh Jeff Bezos who used to do the calls at the time uh uh would proudly say this opportunity is so big that we're going to increase our investment even more than we told you last quarter and we are going to lose so much money and that's good news and the stock would fly that would not happen today.
According to Kathy Wood, the current system is similar to regonomics in the modern era, but much larger. She thinks we are about to enter a similar cycle driven by AI, robotics, and blockchain to the previous one in which capital poured into the US and drove the dollar higher. Wood is already preparing for the next big boom, indicating that Q42025 may be a crucial turning moment that few anticipate.
Even while markets are still preoccupied with tariffs and deficits, the fastest growing investable asset in history, according to her, is cryptocurrency. She projects that there will be over 1.1 billion active cryptocurrency wallets by the end of 2025, indicating an unheard before rate of expansion and wealth creation.
Wood claims that this opinion is supported by decades of research with all significant data points pointing to the same conclusion. Markets are driven by liquidity and cryptocurrency is positioned to be the best performing asset. According to her, the circumstances are presently favorable for a time when the cryptocurrency market would see rapid parabolic price fluctuations.
Uh well uh I'll start with an observation that this is the if you take out the boom bust around COVID uh this is the longest base that has that I've seen uh building meaning trading range for any uh ETF or stock for that matter um except for some of the multiomic stocks. Uh, and you know, as I've said before, you know, when you're in a trading range for a very long period of time, what's going on is a fierce debate between the bears and the bulls.
Uh, and it it is going to be resolved at some point. And so, a long base means either one of the biggest breakouts ever or one of the biggest breakdowns. Now I think that what was happening in the aftermath of COVID and uh and the supply shock, the inflation uh all of the uncertainties that evolved at that time uh cash flow became paramount, cash cushion as well and these companies did not they did not uh look from a relative point of view very good at all.
It was a market where it was just going to be very difficult for them uh to outperform. What's happened uh since then is first of all in the new administration deregulation, massive deregulation. We're seeing uh the uh elimination for rare diseases of uh double blind placebocont controlled uh trials uh because they were impossible to populate.
uh except for over a very long period of time uh the elimination of much of animal testing um and that's because we can get uh now at human data much more easily with all of the sequencing technologies and AI and so forth. Uh so we're seeing dramatic deregulation that um most most people because they're not focused as much as we are on deregulation and the space um uh I think they'd be pretty shocked to see.
Uh and the other thing that's happening is uh for the four years during the Biden administration under that FTC um there was no M&A effectively and this base was hurt disproportionately uh by the lack of M&A because there was no strategic price discovery. What does that mean? It means we had no idea how valuable larger companies uh would find the smaller multiomics companies.
And the reason that that's important is large pharma is facing and and biotech uh is facing a 200 to300 billion dollar revenue hole during the next five years as uh as their patents expire and they face revenue revenue cliffs. Uh they're going to need our companies for uh uh not not only to fill the the revenue hole uh but also for research and discovery and uh diagnostic tools, companion diagnostic tools uh which are going to collapse the cost for research and discovery.
We think from uh $2.4 $4 billion for just one drug uh right now including trial failures to roughly $600 million. It's going to be very important to their cost structures and also using blood tests to to diagnose uh disease is is going to become a very important space. diagnosing disease in uh in its earliest months uh uh well before the years we often need to diagnose some diseases and then curing disease.
I think many analysts we've been interested to learn uh have really not thought that curing disease would be a good business. uh it is going to be an unbelievably good business as uh as you can read from some of our reports um surfacing about uh gene editing. uh so I think uh we're in terms of the most profound application of AI it is healthcare autonomous mobility might be the biggest revenue generator during the next 5 to 10 years but uh we think health care will be the most profound application uh of AI because of the convergence among AI sequencing technologies and gene editing and other gene therapies uh and This is not this is not when it is now.
It is happening now. All three of those are happening now. And I think uh as more and more uh analysts begin to do work on some of the names that are not in broad-based benchmarks and therefore not very well covered. Uh they're going to they're going to find some gems and we think we own them in ARKG.
Yes. Uh so personalis uh we've known John West the the founder uh since he was CEO at Selexa a company that Illuminina bought and that really unleashed uh this multiomics revolution uh in terms of sequencing technology. He understood that the convergence between sequencing and AI uh that the most valuable companies would have proprietary data, data that no one else has.
And uh the validation of that we held tenaciously to Personalis. The validation of that was Tempest AI, one of our top 10 companies, uh, taking a position in Personalis for exactly that reason. Kathy Wood is pointing to a structural change that might reshape long-term growth, innovation, and capital flows rather than just forecasting a market recovery.
Like the internet boom in the 1990s, she thinks recent changes, too. US depreciation regulations could be the legislative catalyst that rekindles American productivity. Corporations are now motivated to make aggressive investments in automation. Artificial intelligence, biotech, and energy innovation due to larger tax incentives, which accelerate profits and scale breakthroughs more quickly than previously.
What prioritizes incentives above news stories? She envisions the United States becoming the most capital efficient economy in the industrialized world. A development she says is not yet priced in. Even as markets debate gentle landings and temporary rebounds, a new productivity super cycle when innovation becomes crucial for profitability and industry leadership might subtly begin in Q42025 if history repeats itself.
She also identifies cryptocurrency as one of the main advantages of this change. Wood anticipates that Bitcoin will continue to rise strongly, possibly parabolically, as institutional capital now dominates the market, enhancing its use as an asset and a hedge against currency devaluation. She cites rising adoption in emerging nations and increased engagement in cryptocurrency law as indicators that decentralized finance may eventually overtake traditional financial services.
Long-term technological innovation which would believes offers a multi- trillion dollar potential in international equities markets continues to be the core emphasis of her approach.
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