ARK Invest’s Cathie Wood: why we’re betting big on Tesla

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The famed ‘innovation’ investor talks about her biggest bets, the themes at play in Ark’s portfolios, and what she expects from its new space and defence fund

She also discusses some of the key trends occupying investor attention from the last year - from trade wars to the touted demise of US exceptionalism.

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Dave Baxter, senior fund content specialist at interactive investor: Hello, and welcome back to our Insider Interview series. I’m Dave Baxter and joining me today from the US is a very special guest in the form of ARK Invest’s Cathie Wood.

So, let’s kick off. Ark now has a handful of funds available to UK investors focusing on some specialist areas. The, I suppose, broadest fund – and perhaps the flagship fund – is the ARK Innovation ETF A USD Acc GBP (LSE:ARCK).

So, for those who don’t know it, let’s just cover some of the big themes that are going on in the portfolio both now and maybe how you see them changing in future.

Cathie Wood, founder of ARK Invest: Sure. So, our flagship portfolio is exposed to the five major platforms that we think are evolving today. They are robotics, energy storage, artificial intelligence (AI), blockchain technology, and what we call multiomic sequencing in the life science space.

So, not only is it exposed to all of them, but it really focuses on the idea of convergence among the platforms. So, autonomous taxis involve the convergence of robotics. Autonomous vehicles are robots. Energy storage - they will be electric - and artificial intelligence.

Dave Baxter: Let’s look more closely at the innovation fund. An interesting characteristic of it is the presence of Tesla Inc (NASDAQ:TSLA). Tesla often represents something like a tenth of the portfolio or so.

Interestingly, that does set you apart from many of the global funds available to UK investors. Many of those managers have actually stayed away from Tesla for a while. What do you see as the big opportunities, but also the risks that a Tesla shareholder would need to be aware of?

Cathie Wood: Yes. Well, I think a lot of managers have stayed away from Tesla because they have defined it or characterised it, classified it, as an auto company, an electric vehicle (EV) company. We believe that it is not that, but that it is a robotaxi company; an autonomous taxi network, involving those three innovation platforms.

In our five-year forecast, we assume that 90% of the valuation is the robotaxi opportunity. The robotaxi opportunity is very high margin, whereas EVs are very low margin – so, 15% versus 80%-plus – and they are really the largest embodied AI opportunity out there. We think Tesla will lead the space in the platform part of the opportunity.

Dave Baxter: Let’s turn more broadly to markets. It’s been really interesting in 2025. At the start of the year, we saw a lot of talk about US exceptionalism and then that narrative pivoted fairly early in the year to people calling the end of said exceptionalism. The fund is pretty US-heavy. What is your take on this narrative?

Cathie Wood: Well, our fund is focused exclusively on technologically-enabled disruptive innovation, and we do think the US still is exceptional when it comes to innovation. That said, we do have a very large competitor, which is rising in ranks of all sorts when it comes to technology, and that is China. Its open-source, or open-weight, large-language models are giving our models a run for their money. That said, the US is a great competitor and competition makes us better.

The other thing I will say about exceptionalism when it comes to innovation is the cost of innovation is collapsing. AI training costs are dropping 75% per year, and therefore an AI inference costs are dropping 85% and, in some cases, 98% per year.

So, we do believe that start-ups around the world are going to harness these new technologies. And we’re looking forward to investing in them with time. So again, our research is our screen, and we are looking out for innovation wherever it is around the world.

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Dave Baxter: So, another related talking point this year in 2025 has been tariffs, trade wars and so on. That’s thrown up so much uncertainty for investors, and I imagine no global investor can really escape it. So, how is it shaping your process at the minute? Is it throwing up any interesting opportunities and, equally, what kind of risks do you have in mind when it comes to that?

Cathie Wood: Well, I’ll start with the risks. The risk has been inflation here in the United States. Inflation higher than the Federal Reserve wants it to be, higher than that 2% target. And what we’ve seen is inflation stuck in the 2.5% to 3% range, and the Fed obviously has been making a lot of noise about it, which does upset the market.

So, that’s the short-term risk. We think, however, when tariffs are through the system next year that inflation is going to come down dramatically, probably well below 2%. Oil prices are down 20% on a year-over-year basis. Housing prices, new home prices have been falling for more than a year. Existing home prices, the price inflation is down to 1.5%, and those are going to get into the indices slowly over time.

The other thing that’s happening, and that is very deflationary, is technologically-enabled disruptive innovation. I just mentioned how rapidly AI training costs are dropping and those cost declines are going to start moving the needle more and more as these technologies permeate every sector, every industry, every company.

Now, all of that said about tariffs and inflation, there’s something else very important that tariffs have distracted the world from. And, that is OB3, the so-called One Big Beautiful Bill. In it, were tax cuts that – having just made a trip throughout Europe, and the US as a matter of fact – most people don’t understand.

In that tax package, while everyone is talking about tariffs, there were depreciation schedules that will take the effective corporate tax rate in the United States down to 10% for the next three years. We believe that that is going to increase the return on invested capital in the US relative to that in the rest of the world. Just that one move.

So, we think that’s very positive: the distraction has been tariffs but the tax bill, we think, is more important – it is a bigger tax cut than the tariff increases.

Dave Baxter: So, let’s turn back to the portfolio itself. We’ve talked about Tesla, but a couple of other very prominent holdings are Robinhood Markets Inc Class A (NASDAQ:HOOD) and Coinbase Global Inc Ordinary Shares - Class A (NASDAQ:COIN, which perhaps DIY investors would find them to be quite sexy, interesting businesses. What is the rationale there at the minute, and how does that fit in with what you’ve already said about innovation?

Cathie Wood: We are looking for the digital wallet; who’s going to win in that game? You know, in the early days of credit cards, the right thing to do was trying to figure out who were going to be the big winners, because there are just going to be a few. We’re thinking the same way now in terms of digital wallets because of the crypto asset or digital asset movement.

We think there are just going to be a few players. Robinhood is coming at this world from the brokerage side and is moving into crypto very aggressively and into prediction markets as well. Whereas Coinbase is starting from the crypto side or the digital assets side and moving into other assets. We think they are two of the leaders in this space.

This is a little akin to what happened in China, very early on, as China was going mobile-first and banking. Alipay and Tencent Holdings Ltd (SEHK:700) – Tencent’s payments ecosystem – were the two winners there. We think these have an opportunity to be not only winners in the United States, but more globally, albeit starting from the United States.

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Dave Baxter: So, turning to another theme that many investors have found quite alluring. You recently launched a ARK Space & Defence Innovation ETF A USD Acc GBP (LSE:ARCX) for European investors. It’s an area you’ve already focused on in the past elsewhere. But I suppose it’s quite an interesting moment for it, we do see lots of funds focusing on that area, and this year in particular, it’s caught my eye that defence shares have had these enormous gains.So, in that context what edge do you think you’ll still have there?

Cathie Wood: Well, we’re probably the only asset manager out there who has put out a Space X model. Space X is leading the space race, of course, and we have had a similar fund in the United States, a public fund.

Space X is, of course, private, but it is so important to the space age. If you look at the detail with which we built that model, you’ll understand the depth of our research in the space space, I suppose.

Then, on the defence tech side, we have been focused on the new technologies evolving and really changing what war means. I think the Ukraine war has taught us all a lot. And, of course, drone technology has been central to that war.

Now, we have done a tremendous amount of work on drones because drones, again, we’re back to the convergence of these three technologies. Drones are robots, they are electric-battery operated, and they involve AI. So, we’ve centered our research around these technologies and believe we understand where the technologies are going and who’s going to get us there the fastest.

Dave Baxter: Well, thank you, Cathie. Lots of interesting points there. That is it from us, but do let us know what you think in the comments. And, as usual, if you liked this series, please do hit the ‘like’ button and the ‘subscribe’ button. Thanks and take care.

Part 2 of The Cathie Wood Interview is out next week. Subscribe for free to the ii YouTube channel to watch it as soon as it’s published.