Why AI Will Spark Exponential Economic Growth: Cathie Wood (Transcript)

Here is the full transcript and summary of Cathie Wood’s talk titled “Why AI Will Spark Exponential Economic Growth” at TED conference.

In this talk, investor Cathie Wood discusses the unprecedented convergence of five major technological platforms: AI, robotics, blockchain, energy storage, and multi-omic sequencing. She emphasizes the transformative role of AI, predicting a substantial increase in global GDP growth and productivity, particularly through examples like autonomous taxi platforms. Wood also forecasts a shift towards a deflationary economy due to technological advancements, despite current inflation concerns. Her outlook is optimistic about the potential of disruptive innovation, expecting a significant increase in the valuation of transformative technologies in global markets.

Listen to the audio version here:

TRANSCRIPT:

Well, today something is happening in technology that has never happened before. In the early days, where five innovation platforms are evolving at the same time, never happened before. You have to go back to the early 1900s to see three platforms evolving at the same time. You might call them general purpose technology platforms.

Emergence of Five Innovation Platforms

Back then, it was the telephone, electricity, automobile, game-changing. Well, today we have five innovation platforms evolving at the same time. And they’re changing growth dynamics incredibly. So, they are highly catalyzed by artificial intelligence, as you see here.

But robotics, energy storage, AI, blockchain technology, and multi-omic sequencing. The growth dynamics are changing. In a way, it reminds me, I got early in the business, the 1980s, I was in meetings where the going assumption was growth, if it accelerated, it would decay very quickly back down to nominal GDP growth. And that was a function of the horrors we had been through in the 70s.

Investment Challenges and Opportunities

So, it was very hard to get investors to believe that there were companies out there that were going to help generate productivity growth and actually have sustained growth rates.

We get into the internet time, and we begin this experiment with AI, recommendation engines, predictive AI, some people would say pretend AI. And still, again, after the tech and telecom bust, we’re back in the same kind of environment where no one believed that growth could be sustained. And, of course, the poster child became Amazon, with 20-25% compound annual growth rates over 20-25 years.

So, it was possible. And by the end of all of this, and actually today, many people do believe in the fangs and that growth will be sustained forever. And yet, we’re in another transformation. We’re into real AI, so generative AI. And we’re also seeing these platforms, these general purpose technology platforms, converge. So, AI, and I know you’re hearing a lot about it here.

AI Training Costs and Exponential Growth

According to our work, our chief futurist, Brett Winton and his team, artificial intelligence training costs are dropping 70% per year. What used to happen with Moore’s law in two years is now happening in six months. We’re moving from linear growth, which was that first, to this belief that exponential growth, so sustained rapid growth in the case of Amazon, finally believe that in the investment community, the fangs are the poster children.

We’re in this new world with generative AI, five platforms converging here. And investors now think that those same companies are going to be the big beneficiaries this time. Now, some might, but the history of technology is they probably won’t. If you look at technology indices from 20 years ago, 30 years ago, the top 10, even in technology, are typically not the top 10 today. I think Microsoft has been a very big exception to that. So, here we are. And what does this mean?

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Convergence and Growth Opportunities

Convergence, generative AI, well, it means explosive growth opportunities. I’m going to give you one example. Autonomous taxi platforms. Autonomous taxi platforms are going to be the convergence of three of these major general purpose technology platforms. Robotics, autonomous vehicles are robots. Energy storage, they will be electric. And artificial intelligence, they will be powered by AI. This one opportunity, we think, in the next 5 to 10 years is going to scale to a revenue opportunity of $8 to $10 trillion from essentially nothing now.

The Impact on Global GDP

Now, for perspective, global GDP today, all of global GDP today, is not much more than $100 trillion. And here we’re telling you, in the next 5 to 10 years, we’re going to see up to $10 trillion in gross revenues with the platform companies getting half of that. If the platform companies get half of that, $4 to $5 trillion, they’re probably going to be worth somewhere in the $20 to $50 trillion range. Now, that’s just one example of convergence and generative AI combining to create an explosive growth opportunity.

Predictions for Economic Growth and Productivity

Now, for the economy as a whole, we believe that GDP growth is going to accelerate. Now, we’ve been in an environment of 2 to 3% growth on average for years. And if you go back in history, the history of technology is you get jump starts in growth to completely new rates of change. And very often, the jump is between 3 and 5 times what the previous growth rate was. We think we’re in such a time now because the artificial intelligence and the convergence of these platforms is going to generate enormous productivity growth, the likes of which we have never seen.

The Potential of Knowledge Workers

So, there are today roughly a billion knowledge workers. And their wages and compensation, roughly $32 trillion around the world. We think they’re going to become four times more productive. And typically, productivity gains result in rapid growth gains, much lower than expected inflation. And if we’re right, the GDP growth, and I know this sounds crazy, and most people think we’re crazy when we say things like this, but we really do believe that real GDP growth around the world is going to accelerate from that 2 to 3% range into the 6 to 9% range. And a lot of that will be productivity driven. With productivity comes tremendous wealth creation.

The Distribution of Productivity Gains

Productivity can end up in three places. It can end up in profits. It can end up in wages going up as employees become more productive. We think that will happen as well. And, or, and it’s probably all three, lower prices, deflation. That’s the other thing I don’t think people are expecting out there, deflation. We think we’re heading into a highly deflationary period. And all you hear today is inflation, inflation, and you’ve got monetary policy focused on lagging indicators of inflation and jacking interest rates up.

Financial Markets and Monetary Policy

So, yes, this is why the financial markets are in a funk. The Fed believes we’re in an inflation-prone economy like the 70s. We are not. We went through a massive supply chain shock in the last few years. And we believe that is unwinding and that Fed policy is going to ensure that we end up with falling prices, which means margins are falling. Innovation solves problems. AI and these new technologies will enhance margins. So, we think during this time, and I think we’re seeing it empirically, that these innovations are gaining more traction today, better, faster, cheaper, more productive, more creative products and services.

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Future Prospects and the Role of the Fed

And so, we’re pretty excited about the next few years and do believe that the Fed is making a mistake. That something out there, we thought it was the regional bank crisis in early March, no. Something out there will telegraph to the Fed that the fight now is not against inflation and that real growth is not inflationary.

In fact, if you get real growth, productivity-driven real growth, it is disinflationary if not deflationary. So, we’re pretty excited about the next five to 10 years.

Conclusion: The Future of Global Equity Markets

And so, what’s the bottom line of all of this if we’re so excited and think we’re going to get beyond the macro environment? So, this is what we think is going to happen, thanks to the convergence of those five general purpose technology platforms. What you see here is a chart, and the blue part is disruptive or transformative innovation. Today, it is valued in the global equity markets, both public and private, at roughly $13 trillion. That’s a little more than 10% of all global equity market valuation. We believe that is going to scale, thanks to the convergence of these platforms and the explosive growth opportunities that they will provide, to more than $200 trillion. That is a 40% compound annual growth rate.

It’s very hard to believe, I know. In the markets, they do think we’re a little crazy, but the building blocks of our confidence here come from our research around these platforms. A 40% compound annual rate of growth makes sense in the world of accelerated real GDP, very low inflation, and very high productivity. The number I threw out, just for autonomous taxi platforms, is in that $200 trillion. It’s somewhere between, alone, that one opportunity is between $20 and $50 trillion.

The Impact of Creative Destruction

Now, what’s the other message from this chart? The other message is that, besides disruptive innovation being a very good place to invest, the other side of disruptive innovation is creative destruction. I just described autonomous taxi platforms. That is going to transform all of transportation and mobility completely. The convergence of artificial intelligence, multi-omic sequencing, and one of the other technologies underlying, CRISPR gene editing, is going to transform healthcare. We think blockchain technology and artificial intelligence, we did a fascinating podcast on the convergence between those two, is going to transform not only the entire financial services sector but is going to lead to a whole new area of property rights in the digital realm. A lot of young people today spend more than half of their discretionary time online.

That’s where they’re interested, in staking out property rights. So, we’re pretty excited about that as well. Many people ask me, we have a lot of doubters out there, which I think you probably know about, how we maintain our conviction in this kind of forecast. And our conviction has not wavered. In fact, it’s increased over the last five years. And the numbers have grown larger because of the breakthroughs in AI that we didn’t even expect to happen this quickly. The courage of our conviction comes from our research. First principles research, white sheet of paper, you know, how is this new world going to work?

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Conclusion

So, as I say, make sure, given all the creative destruction that there is going to be out there, to get on the right side of change and hang on for the ride, ignore the noise, because truth will win out. And the opportunities are enormous. Thank you.

SUMMARY OF THIS TALK:

Cathie Wood, in her talk “Why AI Will Spark Exponential Economic Growth,” presents a compelling vision of the future driven by technological innovation. Here are the key takeaways from her talk:

Unprecedented Convergence of Innovation Platforms: Wood begins by highlighting a unique phenomenon in technology today – the simultaneous evolution of five major innovation platforms: robotics, energy storage, artificial intelligence (AI), blockchain technology, and multi-omic sequencing. This convergence is unprecedented, mirroring only the early 1900s when three platforms evolved concurrently.
Transformative Impact of AI: AI plays a pivotal role in catalyzing these platforms, accelerating growth dynamics significantly. Wood emphasizes that AI training costs are dropping by 70% annually, outpacing the rate of progress once set by Moore’s Law.
Growth Dynamics and Investment Perspectives: Reflecting on her experiences since the 1980s, Wood discusses the challenges in convincing investors about sustained growth opportunities in technology. She references Amazon as an example of a company that defied expectations with consistent high growth rates over two decades.
Economic Growth and Productivity Enhancement: Wood predicts a significant acceleration in global GDP growth, driven by the productivity enhancements enabled by AI and technological convergence. She estimates that roughly a billion knowledge workers could become four times more productive, contributing to a shift from 2-3% to 6-9% in global GDP growth.
Autonomous Taxi Platforms as a Case Study: Wood provides a detailed example of autonomous taxi platforms, which she believes will scale to a revenue opportunity of $8 to $10 trillion in the next 5 to 10 years. This sector represents the convergence of robotics, energy storage, and AI.
Deflationary Impact and Monetary Policy: Contrary to prevalent concerns about inflation, Wood argues that we are entering a highly deflationary period driven by productivity gains and technological advancements. She criticizes current monetary policies focused on inflation, suggesting they are based on outdated models.
Creative Destruction and Investment Opportunities: Wood points out that disruptive innovation will lead to creative destruction in various sectors. She anticipates that the current valuation of transformative innovation in global equity markets, at $13 trillion, could escalate to over $200 trillion due to these technological advancements.
Challenges and Conviction in Forecasts: Despite skepticism, Wood’s conviction in her forecast has only strengthened, bolstered by recent breakthroughs in AI. She emphasizes the importance of first-principles research in understanding how this new world will function.
Embrace Change and Potential Rewards: In conclusion, Wood encourages embracing the change brought by technological innovation and focusing on the enormous opportunities it presents, advising to ignore the noise and hold onto the transformative potential of these developments.