Cathie Wood: Spotting growth stocks before they hit the tipping point

The last week has seen an uptick in so-called AI doomerism, kicked off when an ex-Anthropic employee revealed internal concerns that AI could lead to human extinction. Anthropic CEO Dario Amodei then penned an essay pushing for a slowdown in the pace of AI advancement and greater regulation, which was quickly backed by Sam Altman and Elon Musk.

Considering these are the very people that can control whether or not AI advancement slows down, it might seem like a no-brainer that the handbrake will be pulled. But is it actually going to happen?

ARK Invest founder and CEO Cathie Wood isn’t so sure, but she is in favour of these AI leaders airing their concerns.

“I'm actually happy that they are expressing these concerns, because all technologies can be used for nefarious or criminal purposes,” Wood says.

“Half of the solution is understanding the problem, and I think what is happening because of the fears is that cybersecurity companies are going to play a bigger role. Actually the model companies themselves, they have been amazing at figuring out where software vulnerabilities are in the world today.”

However, her scepticism around the fresh wave of AI doomerism goes even further, arguing that the inciting incident may not have been organic.

“This young man coming out of Anthropic after six weeks to three months, we're not quite sure, and engaging with his dormant X account … saying that there's a 10% chance that humanity will be wiped out in the next five years. I believe that was orchestrated,” Wood says.

“I'm not saying by Anthropic, I have no idea, but there are political groups in the United States who want to stop AI for whatever reason. We would disagree with fighting progress; that usually doesn't work, especially now that so many people have tried ChatGPT, Claude, Gemini, Grok in my own case, and are just blown away about how much our productivity is increasing.”

In the wide-ranging interview above, I spoke with Wood about where innovation investing stands today, the private AI giants preparing to go public, and why she believes multiomics "the most inefficiently priced and misunderstood opportunity out there."

Spotting winners early

One of the major risks of innovation investing is that it can take years to really know if you have gotten in early on a genuine breakthrough or simply caught up in early investor hype. According to Wood, the most important question is whether a company is exploiting the learning curve.

“In the public markets, we have quarterly earnings calls, quarterly earnings reports, and so metrics, data, very important. Are they hitting their milestones? If not, why are they not hitting their milestones? Is it a competitive problem? Is it a technology problem? In the private markets, it is less easy to do that,” she says.

“In the early days of a new technology, costs increase as the R&D is taking place and then there's a tipping point where enough units have been produced that costs actually start falling as the learning curve comes into focus. So we want to make sure we're on the right side of that curve. That's the most important thing in terms of being right, wrong, not being too early.”

The wave of AI companies going public

Businesses staying private longer is a phenomenon that goes far beyond just the massive AI companies and has led to much of the growth happening before most have a chance to invest. SpaceX was the first to move into the public markets, but both Anthropic and OpenAI are expected to follow suit. So, why now?

“I think the reason a lot of these companies are thinking about going public, and we do own Anthropic and OpenAI in our private fund, they see that to scale into this new world is going to take a lot of capital,” Wood explains.

“One of the negatives about being in a private world is a founder who just wants to build has to every three or six months, again, because of the voracious capital needs, they have to go out there and try and sell the company to an existing and new group of investors. That's not the most productive use of their time.”

Wood adds that she “never thought SpaceX would go public” thanks to its Starlink arm generating massive amounts of cashflow, but Musk’s pivot to orbital data centres will require an even larger amount of capital.

“He's had good luck with the terrestrial data centres, they're hugely profitable, and he believes orbital data centres where the cost will be much lower, power will be free, the sun, fusion at its source. But in order to get from here to there, he needs so much capital. He needs the scaling that the public equity markets will provide.”

Multiomics: AI’s most misunderstood application

Multiomics is not an area of innovation that most investors will be familiar with, but according to Wood it is the “most inefficiently priced and misunderstood opportunity out there involving AI”.

This biological research approach combines multiple molecular layers to study health and disease as a single connected system. The opportunities within the multiomics space include drastically cheaper and faster drug development, far earlier disease diagnosis and curing diseases through the convergence of sequencing, AI and CRISPR gene editing.

“Analysts have struggled with this. Their first thought is, wait a minute, this is just bad business because you're taking away the chronic pill every day or infusion every month or whatever,” Wood says.

“Of course that's absolutely the wrong answer, both for humanity's sake, but also from a financial point of view. Insurers are very willing to pay a lot of money to save trips to the hospital that will happen without this cure.”

Pointing to sickle cell disease as an example, people with the illness are in hospital 10 to 20 times a year for blood transfusions. Beyond the impact on the patient, Wood notes that this is a “very expensive way to deal with the problem”.

“[Insurers are] willing to pay $2.2 million per cure because it saves the system so much money. That's a glimpse into what is going to happen to healthcare. Sick care dominates budgets right now. Doctors and individuals wait until they get sick and then they take care of it. Usually it's a very expensive way to deal with this.

“This is going to save a lot of sick care dollars and will enable funds to shift away from that kind of care to cures of existing diseases, prevention through these molecular diagnostic tests and just wellbeing generally, just an emphasis on long healthy human lives.

“I'm probably more hopeful about healthcare in terms of applications of AI and investors and people generally not understanding how profound this application of AI is going to be.”