Cathie Wood: The market will shift from the "dream of rate cuts" back to the "reality of rate hikes," and AI valuations may face short-term pressure.

Facing recent market concerns about a possible bubble in the artificial intelligence (AI) sector, ARK Invest CEO Cathie Wood, commonly known as “Wood姐”, once again voiced her support for the AI industry. In an interview at the Future Investment Initiative (FII) forum held in Saudi Arabia, she stated that while there may be a “reality check” in the short term, the long-term potential of AI is still severely underestimated. She also pointed out that the market's misunderstanding of the relationship between interest rates and innovative technology could become an opportunity for financial education.

The market is facing pressure from interest rate hikes, and investment sentiment may experience fluctuations.

Cathie Wood stated in an interview with CNBC that as global markets gradually move away from a low-interest environment, the focus of the market over the next year may shift from rate cuts to rate hikes, which she described as a “shock” for the market.

“Many people believe that innovation and interest rates have an inverse relationship, but historically this is not the case.” Wood emphasized, “I hope everyone lets go of this misconception.” She also admitted that the dominant position of algorithmic trading in today's market will lead to a “reality check” when interest rates rise, which may trigger a temporary valuation correction.

AI valuations surge attract attention, global financial institutions issue warnings.

Wood's remarks come amid a global fervor over AI, particularly against the backdrop of ongoing increases in AI investments by companies and investors, which have led to new highs in stock prices and valuations related to AI. Several financial institutions, including the International Monetary Fund (IMF) and the Bank of England (BOE), have recently warned about the potential market corrections that could be triggered by an overheating AI sector.

IMF Managing Director Kristalina Georgieva has stated, “Buckle up, because uncertainty is the new normal.” This sentiment aligns with the views of OpenAI CEO Sam Altman, JPMorgan CEO Jamie Dimon, and Federal Reserve Chairman Jerome Powell, all of whom remind investors that the AI frenzy may bring potential risks.

Wood: The AI revolution has just begun, it will not be a bubble.

Despite concerns raised by the soaring valuations of AI, Wood firmly believes that AI has not entered a bubble phase, pointing out that “the high valuations of large tech stocks will prove to be reasonable in the long run.”

She added: “I'm not saying the market will never have corrections, of course it will. Many people are concerned whether it is developing too fast, but if our expectations for AI are correct, especially the so-called 'embodied AI', then we are at the starting point of a technological revolution.”

When asked if AI is in a bubble, she clearly stated: “I don't think AI is a bubble. I believe that in terms of enterprise applications, transformation still takes time.”

The challenges of AI transformation are numerous, and companies need time to adapt and reorganize.

Wood also mentioned that to truly unleash the productive potential of AI, companies must undergo deep restructuring. “Companies like Palantir will enter large enterprises and completely reform their operational structures to achieve efficiency improvements with AI.” This also reflects that, despite the rapid advancement of AI technology, its implementation and practical application in large enterprises still have a long way to go.

The stock market continues to pay attention to technology earnings reports and interest rate decisions.

This week, the market performed strongly, especially under optimistic expectations that the US-China trade relationship might improve, leading global stock markets to rise together. US stocks hit a historic high on Monday, and Asian markets also rebounded in sync.

Investors are currently closely watching multiple market indicators, including the financial reports of large technology companies and the interest rate decision to be announced by the Federal Reserve. According to market expectations, this could potentially be the second interest rate cut in the U.S. this year and will have a significant impact on the overall market atmosphere.

This article Cathie Wood: The market will shift from the “rate cut dream” back to the “rate hike reality”, AI valuations may be under pressure in the short term, first appeared on Chain News ABMedia.