Author: Cathie Wood
Translated by: Bibi News
This article is not intended as investment advice. Readers are advised to strictly adhere to local laws and regulations.
Key Points: ARK founder Cathie Wood points out in this 2026 New Year outlook that technologies such as AI, robotics, and blockchain are driving capital expenditures to new highs, while inflation is easing and productivity is improving, which is expected to boost GDP growth in the long term. The article also analyzes the trends of gold, Bitcoin, and the US dollar, as well as market valuations, providing investors with a macroeconomic and technological perspective.
Wishing ARK's investors and all supporters a Happy New Year!
We sincerely thank you for your continued support.
As I demonstrate in this letter, we truly believe that investors have ample reason to remain optimistic! I hope you enjoy the upcoming discussion. From an economic history perspective, we are at a significant juncture.
COILED SPRING
Despite the continuous growth of the US real GDP over the past three years, the underlying structure of the US economy has undergone a "rolling recession," gradually evolving into a coiled spring that may rebound strongly in the coming years.
To address the supply shocks related to COVID, the Federal Reserve raised the federal funds rate from 0.25% to 5.5% over 16 months from March 2022 to July 2023, an increase of up to 22 times.
This unprecedented tightening has pushed housing, manufacturing, non-AI capital expenditures, and low- to middle-income groups into recession, as shown in the chart below.
For example, in terms of existing home sales, the US housing market has dropped from an annualized 5.9 million units in January 2021 to 3.5 million units in October 2023, a decline of 40%.
This level was last seen in November 2010 and has remained around this low point for the past two years.
What illustrates how tightly the "spring is coiled" is that current existing home sales are comparable to those in the early 1980s, when the US population was about 35% lower than it is now.
From the perspective of the US Purchasing Managers' Index (PMI), the manufacturing sector has been in contraction for about three years. In this diffusion index, 50 is the dividing line between expansion and contraction, as shown in the chart below.
Meanwhile, capital expenditures measured by "non-defense capital goods (excluding aircraft)" peaked in mid-2022 and have since declined, currently just returning to that level, regardless of whether technology expenditures are included.
In fact, since the bursting of the tech and telecom bubble in the 1990s, this capital expenditure metric has struggled to break through for over 20 years, until 2021, when the supply shocks triggered by COVID forced digital and physical investments to rise in tandem.
What was once a "ceiling" now appears to be a "floor," as AI, robotics, energy storage, blockchain technology, and multi-omics sequencing platforms have entered a phase of scalable application.
After the tech and telecom bubble in the 1990s, capital expenditures experienced a prolonged topping process around the $70 billion level for about 20 years;
Now, this phase is giving way to what could become the strongest capital expenditure cycle in history, as shown in the chart below.
In our view, the AI bubble is still years away.
According to data from the University of Michigan, consumer confidence among low- and middle-income groups has fallen to levels not seen since the early 1980s, when double-digit inflation and interest rates severely eroded purchasing power and dragged the US economy into consecutive recessions.
More notably, in recent months, confidence among high-income groups has also shown a significant decline. We believe that consumer confidence is currently one of the most tightly coiled springs with the highest potential for rebound.
Deregulation, Low Taxes, Low Inflation, Low Interest Rates
Thanks to the combined effects of deregulation and tax cuts (including tariffs), declining inflation, and falling interest rates, the rolling recession in the US over the past few years could rapidly and dramatically reverse in the coming year and beyond.
Deregulation is unleashing innovative vitality across various industries, led by the AI and digital asset sectors, spearheaded by the first "Head of AI and Cryptocurrency Affairs," David Sacks.
At the same time, tax cuts on tips, overtime pay, and social security are expected to bring substantial refunds to US consumers this quarter, boosting the growth rate of real disposable income from an annualized approximately 2% in the second half of 2025 to about 8.3% this quarter.
On the corporate side, accelerated depreciation policies for manufacturing facilities, equipment, software, and domestic R&D expenditures will lower the effective corporate tax rate to nearly 10%—one of the lowest levels globally.
For example, any company that starts building manufacturing facilities in the US before the end of 2028 can achieve full depreciation in the first year the building is put into use, rather than spreading it over 30 to 40 years as in the past.
Equipment, software, and domestic R&D expenditures can also achieve 100% depreciation in the first year. This significant cash flow benefit has been made permanent in last year's budget and is retroactively applicable from January 1, 2025.
After stubbornly remaining in the 2%–3% range for the past few years, CPI-measured inflation may drop to unexpectedly low levels in the coming years, with the possibility of turning negative.
In recent years, inflation measured by the Consumer Price Index (CPI) has stubbornly hovered in the 2%–3% range;
However, in the coming years, inflation is likely to decline to unexpectedly low levels, with the possibility of turning negative. The reasons for this change are multifaceted, as shown in the chart below.
First, since the post-pandemic peak on March 8, 2022, when West Texas Intermediate (WTI) crude oil was around $124 per barrel, prices have fallen by about 53%, currently down about 22% year-on-year.
Second, since peaking in October 2022, the sales prices of newly built single-family homes have dropped by about 15%;
Meanwhile, the inflation of existing single-family home prices (calculated using a three-month moving average) has significantly decreased from a post-pandemic year-on-year peak of about 24% in June 2021 to about 1.3% currently, as shown in the chart below.
Additionally, in the fourth quarter, in order to reduce the nearly 500,000 units of inventory of newly built single-family homes, a level not seen since October 2007, just before the global financial crisis.
Three major homebuilders have significantly reduced prices year-on-year:
Lennar down 10%, KB Homes down 7%, D.R. Horton down 3%. These price reductions will gradually transmit and be reflected in the CPI over the coming years.
Finally, non-farm productivity, one of the strongest factors against inflation, remains robust in the context of the rolling recession, growing by 1.9% year-on-year in the third quarter.
In contrast to hourly wage growth of 3.2%, productivity gains have reduced unit labor cost inflation to 1.2%, as shown in the chart below. This figure shows no signs of the "cost-push inflation" seen in the 1970s.
Further confirming this improvement trend, the inflation rate measured by the Truflation index has recently dropped to 1.7% year-on-year, as shown in the chart below, nearly 100 basis points (bps) lower than the official inflation data based on CPI from the US Bureau of Labor Statistics (BLS).
Productivity Boom
If our research judgment on technology-driven disruptive innovation holds true, non-farm productivity growth may accelerate to 4%–6% in the coming years, further reducing unit labor cost inflation.
The integration of AI, robotics, energy storage, public chains, and multi-omics technologies will not only push productivity to a new platform but also create immense wealth.
The increase in productivity may also alleviate significant geopolitical imbalances in the global economy. Companies can allocate productivity gains along one or more of the following four strategic directions:
Expanding profit margins, increasing R&D and other investments, raising employee wages, and lowering product prices.
In China, higher productivity corresponding to higher wages and higher profit margins will help shift the economic structure from a long-standing excessive investment averaging about 40% of GDP—almost twice that of the US—to a more balanced development path (as shown in the chart below).
This investment ratio has been excessively high since China joined the World Trade Organization (WTO) in 2001.
Increasing worker income will drive the Chinese economy from investment and "involutionary competition" towards consumption orientation, aligning with President Xi Jinping's proposed goal of "anti-involution."
Meanwhile, US companies may further enhance their competitiveness relative to Chinese firms by increasing investments and/or lowering prices.
However, it should be noted that in the short term, technology-enabled productivity gains may continue to slow US job growth, causing the unemployment rate to rise from 4.4% to 5.0% or even higher, thereby prompting the Federal Reserve to continue lowering interest rates.
After this, deregulation and other fiscal stimulus measures are expected to amplify the effects of low interest rates, significantly accelerating GDP growth in the second half of 2026.
At the same time, inflation is likely to continue to slow down. This is not only due to the decline in oil prices, housing prices, and tariffs, but also because the same technological forces that are driving productivity increases and lowering unit labor costs are at play.
Surprisingly, according to some benchmark calculations, the cost of AI training is decreasing at an annual rate of about 75%, while the cost of AI inference (i.e., the cost of running AI application models) can even drop by as much as 99% per year.
This unprecedented decline in technological costs will drive an explosive growth in the quantity of related products and services.
Therefore, it is not surprising that the nominal GDP growth rate in the United States may remain in the range of 6%–8% in the coming years, driven by:
5%–7% productivity growth, about 1% labor force growth, and inflation levels ranging from -2% to +1%.
The deflationary effects brought by AI and the other four major innovation platforms will continue to accumulate, creating an economic backdrop similar to the significant technological revolution period triggered by internal combustion engines, electricity, and telephone communication over the 50 years leading up to 1929.
During that historical period, short-term interest rates were generally synchronized with nominal GDP growth rates, while long-term interest rates responded to the deflationary undercurrents accompanying technological booms, resulting in an average yield curve inversion of about 100 basis points, as shown in the chart below.
OTHER NEW YEAR THOUGHTS
Gold Price Increase vs. Bitcoin Price Decrease
In 2025, the price of gold rose by 65%, while the price of Bitcoin fell by 6%. Many observers attribute the increase in gold prices from $1,600 to $4,300 (a cumulative increase of 166%) since the end of the US stock market bear market in October 2022 to concerns about inflation risks;
However, another interpretation is that the speed of global wealth creation, exemplified by the MSCI World Stock Index rising by 93%, has outpaced the annual growth rate of global gold supply of about 1.8%.
In other words, the new demand for gold may be exceeding its supply growth. Interestingly, during the same period, Bitcoin's supply grew at an annual rate of only about 1.3%, while its price surged by 360%.
In this comparison, an important difference lies in how gold miners and Bitcoin "miners" respond to price signals.
Gold miners can respond to rising prices by increasing output, while Bitcoin cannot do the same.
The supply growth of Bitcoin is strictly limited by mathematical rules: its annual growth rate is about 0.82% for the next two years, and will further slow to about 0.41%.
The Gold Price In Perspective
Measured by the ratio of gold market value to M2 money supply, this ratio has only been higher than the current level during one period in the past 125 years, namely the early 1930s during the Great Depression, when the price of gold was fixed at $20.67 per ounce, while the M2 money supply plummeted by about 30%, as shown in the chart below.
Recently, the gold-M2 ratio has surpassed its previous historical high, which occurred in 1980 when both inflation and interest rates soared to double-digit levels. This means that, from a historical perspective, the current gold price is at an extreme level.
It is also noteworthy that, as seen in the chart below, the downward phase of this ratio over the long term often corresponds to good returns in the stock market.
Since 1926, according to research by Ibbotson and Sinquefield, the long-term compound annual return rate of stocks has been about 10%.
After this ratio reached two long-term peaks in 1934 and 1980, stock prices, as measured by the Dow Jones Industrial Average (DJIA), increased by 670% over the 35 years ending in 1969 and by 1,015% over the 21 years ending in 2001, with corresponding annualized return rates of 6% and 12%.
Notably, small-cap stocks had annualized return rates of as high as 12% and 13% during these two periods.
Another very important factor for asset allocators is that since 2020, the correlation of Bitcoin returns with gold and other major asset classes has been very low, as shown in the table below.
Interestingly, the correlation between Bitcoin and gold is even lower than the correlation between the S&P 500 index and bonds.
In other words, in the coming years, Bitcoin is expected to become an important diversification tool for asset allocators to enhance "unit risk return."
The Dollar’s Outlook
In recent years, a widely circulated narrative has been that "American exceptionalism" is coming to an end. Representative evidence for this view includes:
The dollar's decline in a certain half-year set a record for the largest drop since 1973; on an annual basis, it was the most significant annual decline since 2017.
Last year, measured by the trade-weighted dollar index (DXY), the dollar fell by 11% in the first half of the year and 9% for the entire year.
If our judgments about fiscal policy, monetary policy, deregulation, and US-led technological breakthroughs are correct, then the return on investment capital in the US will rise relative to other regions globally, thereby strengthening the dollar.
The policies of the Trump administration echo the early days of Reaganomics in the 1980s—when the dollar nearly doubled, as shown in the chart below.
AI Hype
The AI wave is driving capital expenditures to levels not seen since the late 1990s, as shown in the chart below.
In 2025, investments in data center systems (computing, networking, and storage devices) are expected to grow by 47%, approaching $500 billion;
In 2026, it is expected to grow by another 20%, reaching about $600 billion, far exceeding the long-term trend level of $150 billion–$200 billion per year in the decade before the advent of ChatGPT.
Such a massive scale of investment naturally raises a key question: Where will the returns from these investments come from, and who will benefit?
In addition to semiconductor and large cloud computing companies in the public market, private AI-native companies are becoming significant beneficiaries of this growth and investment return. AI companies are among the fastest-growing businesses in history.
According to our research, the speed at which consumers are adopting AI is twice that of the internet adoption in the 1990s, as shown in the chart below.
By the end of 2025, it is reported that OpenAI and Anthropic will have annualized revenue run rates of $20 billion and $9 billion, respectively, having grown 12.5 times and 90 times from $1.6 billion and $100 million in just one year.
Market rumors suggest that both companies are considering IPOs within the next one to two years to fund the massive investments needed to support their product models.
As OpenAI's application business CEO Fidji Simo stated:
"The capabilities of AI models far exceed the levels that most people experience in their daily lives, and the key in 2026 is to narrow that gap. The leaders in the AI field will be those companies that can translate cutting-edge research into products that are genuinely useful for individuals, businesses, and developers."
This year, substantial progress is expected in user experience in this direction, becoming more intentional, intuitive, and highly integrated.
An early example is ChatGPT Health—an internal section of ChatGPT designed to help users manage their health and medical needs based on their personal health data.
On the enterprise side, many AI projects are still in the early stages, constrained by bureaucratic processes, inertia, and the reality that organizational restructuring and data infrastructure must occur before AI can truly deliver value.
By 2026, enterprises are likely to realize that they must train models based on their own data and iterate quickly, or they will be left behind by more aggressive competitors.
AI-driven application scenarios will bring immediate and exceptional customer service, faster product release rhythms, and startups that "do more with less resources."
High Valuation Of The Market
Many investors express concerns about stock market valuations, which are currently at the high end of their historical range, as shown in the chart below.
Our own valuation assumption is that the price-to-earnings (P/E) multiple will revert to the average level of the past 35 years—around 20 times.
Some of the most significant bull markets have evolved during periods of multiple contraction. For example:
From mid-October 1993 to mid-November 1997, the S&P 500 index had an annualized return of 21%, while the P/E ratio fell from 36 times to 10 times.
From July 2002 to October 2007, the S&P 500 index had an annualized return of 14%, while the P/E ratio contracted from 21 times to 17 times.
Given our forecast of accelerated real GDP growth driven by productivity and easing inflation, this dynamic is likely to reappear in this market cycle—potentially even more pronounced.
We sincerely thank the investors and friends who have consistently supported ARK, and also thank Dan, Will, Katie, and Keith for helping me complete this extensive New Year’s letter!
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