Cathie Wood Says AI Boom Could Reshape Growth and Interest Rates
ARK Invest CEO expects artificial intelligence to boost productivity and economic growth, while potentially pushing interest rates significantly higher
The rapid expansion of artificial intelligence could reshape the global economy by lifting productivity, lowering production costs and supporting stronger economic growth, according to ARK Invest CEO and chief investment officer Cathie Wood.
Wood, who manages an investment fund worth around $42 billion, believes technology is inherently deflationary because greater productivity can reduce the cost of producing goods and services. However, she also expects the scale of the current AI revolution to create an unusual combination of stronger economic growth, falling prices and significantly higher interest rates.
AI could drive stronger economic growth
Wood argues that the current AI expansion could produce what she describes as "good deflation" — falling costs resulting from rising productivity rather than weakening demand.
She expects real economic growth could eventually reach 7%-8%, while nominal growth could reach 6%-7.5%.
Under that scenario, Wood believes short-term interest rates could eventually move towards 6.5%-7.5%. She stressed that this would not necessarily happen immediately, but could develop over time as the economic impact of new technologies becomes more significant.
Her view contrasts with the conventional expectation that technological advances which reduce production costs should ultimately create an environment of lower prices and potentially lower interest rates.
US bond yields already under pressure
Wood's outlook comes as US borrowing costs have been moving higher.
The US 10-year Treasury yield briefly moved above 5%, a level that has only been breached briefly since 2023 and had otherwise not been seen since before the global financial crisis.
Higher bond yields are important for investors because they influence borrowing costs throughout financial markets and can affect the valuations placed on growth-oriented companies.
Rabobank global strategist Michael Every noted that moving beyond the psychological 5% threshold could open the possibility of yields settling at higher levels than investors have become accustomed to following years of relatively low interest rates.
Can AI withstand higher rates?
Rising interest rates have traditionally created challenges for technology companies, particularly businesses whose valuations depend heavily on expectations of future earnings.
The concern is particularly relevant to the AI sector, where companies have committed enormous amounts of capital towards computing infrastructure and data centres.
Wood, however, argues that the current AI expansion differs from previous investment cycles because major AI companies are already generating significant revenues.
She highlighted Anthropic, saying its annualised revenue run rate increased from $9 billion in December last year to $65 billion in July, according to figures she cited.
ARK's Venture Fund has investments in both Anthropic and OpenAI, reflecting Wood's view that the enormous capital being deployed into AI could ultimately generate substantial economic returns.
Revenue growth remains central to the AI story
Wood believes the speed at which AI companies have begun generating revenue separates the current cycle from earlier technology investment booms.
She compared today's AI expansion with the US railroad boom of the late 19th century, when large amounts of capital were deployed but many companies eventually failed before the broader economic benefits became clear.
According to Wood, the AI market has already become concentrated among a relatively small number of major players, while revenue generation has started much earlier than it did in some previous technology cycles.
That distinction is important for investors assessing whether the current AI investment boom can translate into sustainable business growth rather than simply higher expectations.
Regulation remains another uncertainty
The AI industry's rapid expansion is also occurring alongside increasing debate over regulation and safety.
Some technology executives have recently called for a more cautious approach to AI development, while others argue that regulation could influence competition and the pace at which new technologies reach the market.
Wood's outlook therefore points to a potentially unusual economic environment: AI could simultaneously support stronger productivity and growth while creating conditions for higher interest rates.
For investors, the interaction between AI-driven productivity, corporate investment, inflation, bond yields and interest rates could become an increasingly important part of understanding how the technology boom affects broader financial markets.
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