Sister Wood warns: as next year's Interest Rate rises, the market will be "chilled to the bone".

Written by: Zhang Yaqi

Source: Wall Street News

ARK Invest CEO “Cathie Wood” warned that as interest rates may start to rise next year, the market will face a “chilling” adjustment, and valuations in the artificial intelligence sector will undergo a “reality check.”

On Tuesday, during the Future Investment Initiative (FII) summit held in Riyadh, the capital of Saudi Arabia, she stated that she expects the focus of market discussions to shift from interest rate cuts to interest rate hikes within the next year. This shift could trigger a strong reaction in the markets.

Although Wood warned of short-term adjustment risks, she clearly refuted the claim that there is currently an AI bubble. She believes that, in the long run, the valuations of large tech companies are reasonable because the world is at the beginning of a technology revolution driven by AI.

Wood's remarks come at a time when concerns over the high valuations of tech stocks are growing among major global financial institutions. Earlier this month, both the International Monetary Fund (IMF) and the Bank of England warned that if investor enthusiasm for AI cools, global stock markets could face difficulties.

The market will face a 'reality check'.

Wood elaborated on her views regarding short-term market risks. She predicts that as the interest rate environment changes next year, the market will experience a “shudder.”

“At some point next year, we will see the focus of market discussions shift from interest rate cuts to interest rate hikes,” Wood said. She pointed out that, although many people believe that innovation is negatively correlated with interest rates, historical data does not support this view. She hopes to “dispel this notion among people.”

However, Wood added that considering “the way today's algorithms work,” the rising trend of interest rates may still trigger what she referred to as a “reality check.” The backdrop of this statement is that companies and investors are pouring huge amounts of money into the technology sector, raising concerns about overvaluation.

Refusing to acknowledge the 'AI bubble'

Although short-term risks have been warned, Wood remains bullish on the long-term prospects of AI and denies the existence of a bubble.

“I don’t think AI is in a bubble,” Wood responded directly when asked about the issue. She believes that we are currently just at “the beginning of a technological revolution.” She acknowledged that there may be a market correction, as many are concerned about “whether this is all coming too much, too fast,” but she believes that in the long run, the valuations of large tech companies will be reasonable.

Wood also pointed out that the acceptance and transformation of AI at the enterprise level takes time. “Large enterprises need time to prepare for the transformation,” she added:

“This requires companies like Palantir to enter large enterprises and truly restructure them in order to fully leverage the productivity gains that we believe AI will unleash.”

Wood's perspective echoes the cautious attitude of several regulators and business leaders in recent times. Earlier this month, IMF President Kristalina Georgieva suggested:

“Buckle up: Uncertainty is the new normal, and it will persist.”

In addition to the IMF and the Bank of England, several prominent figures, including Sam Altman from OpenAI, Jamie Dimon, the CEO of JPMorgan Chase, and Jerome Powell, the Chairman of the Federal Reserve, have also expressed concerns about the potential risks of a stock market correction due to the surge in AI spending.