Finance

Macau is best known as the casino capital of Asia. But the former Portuguese colony, on China’s south coast, is hoping to gain a reputation for more reputable ways to make money. In August trading began on the mcex, an over-the-counter market that is the first of its kind. Investors are not exchanging currencies, debt or equity. Instead, they are buying the future revenues of businesses in mainland China.If successful, the exchange may help solve a problem that plagues smaller firms both in China and elsewhere: the difficulty of finding finance. Charles Li, a former boss of Hong Kong’s stock exchange and the creator of the new market, has said that investors tend to eschew lending to such businesses simply because the risks and rewards are poorly matched, with borrowers burdened if a venture flops and financiers short-changed if it goes well. For bigger companies, the solution is listing on a public market—something beyond the means of their smaller peers.Mr Li believes he may have solved this mismatch. mcex allows investors to buy and sell a new type of financial instrument called a Daily Revenue Obligation (dro). Contract owners gain a fraction of a business’s revenue for a fixed period of time, in effect buying the right to future income. Issuance has been strong. dros worth almost 2.2bn yuan ($300m) were offered on the exchange in the first month of trading.Selling future revenues is a good deal for small firms. Owners get access to capital without diluting their stake and without repayment obligations. For investors, the advantage is less clear (indeed, no information is available about their appetite so far). Micro Connect, which owns the exchange, claims they can enjoy “equity-like returns”. Their exposure is, however, rather large. Small firms often fail. Whereas a loan secured against assets has limited downside for its financier, the risk for a dro holder is limited only by the size of the investment. They have no claims on the assets of the business if it goes bankrupt.But Micro Connect does have a couple of selling points. If financial instruments designed to fund firms that banks won’t lend to and investors won’t buy sounds unpalatable, allocators can diversify their risk by buying up pools of dros, known as a “Daily Revenue Portfolio”. The underlying dros are unrated, but the pools are given a risk indicator under a framework developed by a Chinese rating agency, which relies on predictions of cash flows.Mr Li’s financial innovation also offers foreign investors something valuable: access to China. After decades of trying, overseas investors still have few good options. Cross-border private-equity deals have collapsed; “keepwell agreements”, between parent firms and subsidiaries, have been the subject of years-long court disputes. mcex promises to be different. dros are Macau-issued copies of contracts agreed on the mainland. Micro Connect takes on the enforcement risk in mainland China and offers investors the assurance of a contract enforceable under Macanese law.The company that issues a dro will have its revenues verified and disbursed by local banks each day, and recorded on a blockchain, providing investors with real-time insight into the performance of the business in which they have an interest. Although technology cannot eliminate accounting trickery, such as changing when invoices are issued, it can prevent fraud. It is almost impossible for a business to earn and not disclose cash revenues in China’s entirely digitised economy.China’s entrepreneurs may be especially eager to make use of the scheme now. Banks are scrutinising lending more closely owing to the economy’s struggles, so firms are looking elsewhere for capital. Many are turning to outfits beyond the banking system, known as “shadow lenders”, from which China Beige Book, a data firm, says borrowing is at near-record highs as a share of total lending. This helps explain why China’s smaller firms are keen. Whether these are the sorts of businesses in which foreign investors want to invest is another question entirely. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Chinese electric car brand Nio released an Android smartphone on Thursday.
The company’s CEO William Li spoke with CNBC in an exclusive interview.
Nio doesn’t have plans to release the smartphone in Europe – until the market grows larger, Li said.

SHANGHAI — Chinese electric car brand Nio on Thursday released an Android smartphone, which the company expects at least half its users to buy, CEO William Li told CNBC in an exclusive interview ahead of the launch.
The phone, priced from around $900 to $1,000, is an Android device that’s about $150 cheaper versus a comparable Huawei phone, Li said in Mandarin.

He told CNBC that among Nio users from which the company makes a profit, more than half are iPhone users, while the other half uses flagship Android phones from Huawei and other brands.
“I believe this portion of users are very likely to use this new form [of device] when they are changing their phones,” Li said according to a CNBC translation, citing the phone’s overall performance and car connectivity.
Nio is the first high-end Chinese electric car brand to release its own smartphone, which Li said the company developed in about a year. Electric car companies in China have sought to make in-car entertainment and mobile phone connectivity a selling point for their vehicles.
Delivery starts on Sept. 28, with orders starting immediately.

Chinese electric vehicle maker Nio launches a smartphone at an event in Shanghai on Sept. 21, 2023.
Evelyn Cheng | CNBC

Swedish electric car maker Polestar, which counts China as a major market, told CNBC earlier this month it plans to launch a phone in December.

Smartphone companies Apple and Xiaomi have long been reportedly working on their own cars.
Less than two years ago, Huawei released the Aito brand, which sells electric cars in China that are integrated with the smartphone company’s operating system. Huawei also sells its in-car software to other electric car companies such as Avatr and BAIC’s Arcfox.
That connectivity allows drivers to sync their personal device settings — such as for music — with the car. Nio also has a standalone mobile app.

A smartphone for cars

While the new Nio device resembles a typical smartphone, it comes with a special button that acts as a key for the car, Li told CNBC on Wednesday.
The Nio smartphone also allows users to connect more seamlessly with the car, such as when transitioning between the phone and the vehicle during online meetings, he said.

What we are pursuing is the car experience and the emotional experience we can provide to our users.

William Li

The new device is an opportunity for Nio to make more money per user.
“We pay more attention to the value that each user brings to our entire brand, and it is more convenient to connect users. It is also more efficient than before,” Li said. “What we are pursuing is the car experience and the emotional experience we can provide to our users.”
The phone is available to all consumers in China, not just those who own Nio cars, Li added.
He pointed out that the Nio phone app has 600,000 active users a day, about 1.5-times the number of car users.
Nio’s monthly deliveries rose to around 20,000 in August and July, after a decline in delivery volume the prior three months.

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Nio shares

In the second quarter ended June 30, Nio reported that revenue from the “other sales” category was mainly driven by a boost in the sales of used cars, accessories and power services, which more than doubled from a year ago to 1.59 billion yuan ($217.86 million) despite a decline in total revenue.
The company attributed the year-on-year and quarter-on-quarter increase in other sales to “continued growth of our users.”

Europe market

However, Nio doesn’t have plans to release the smartphone in Europe — at least not until the market grows larger, Li said.

Nio holds a product event in Shanghai on Sept. 21, 2023.
Evelyn Cheng | CNBC

Nio is in five countries in Europe, including Germany, and the company needs time to focus on developing local car services, Li said, noting those are important for auto products.
When asked about the European Union’s anti-subsidy probe into Chinese EVs, Li said the company was still learning the details.

We believe time is still on Nio’s side.

William Li

It’s more important for the world to cooperate, especially on addressing climate issues, he added.
“I don’t think anyone should block users from using good products through multiple ways” such as investigations, he said.

Investing for the future

In China, the penetration of new energy vehicles has expanded quickly, but an overall slowdown in economic growth has weighed on the market.
Competition in the domestic electric car market is “fierce,” Li said, noting challenges for industry peers as well.
But he expects business investments will help Nio create barriers to entry. “We believe time is still on Nio’s side,” Li said.
He noted the company spends about $500 million on research and development every quarter. Other major areas of investment for the company, he said, are battery charging and development of a mass market brand.

Read more about China from CNBC Pro

Nio previously said it plans to release a vehicle in the second half of next year under the mass market brand “Alps.”
The company has faced financing challenges more than once since its founding in late 2014. Earlier this year, Nio said it was delaying some spending plans due to lackluster deliveries.
But the company subsequently received nearly $740 million from an Abu Dhabi-backed fund. Nio also announced this week a refinancing plan for a portion of its debt. More

The Federal Reserve held interest rates steady, while also indicating it still expects one more hike before the end of the year and fewer cuts than previously indicated next year.
Along with the rate projections, the Fed also sharply revised up its economic growth expectations for this year, with gross domestic product now expected to rise 2.1% this year.
In addition to holding rates at relatively high levels, the Fed is continuing to reduce its bond holdings, a process that has cut the central bank balance sheet by some $815 billion since June 2022

The Federal Reserve held interest rates steady in a decision released Wednesday, while also indicating it still expects one more hike before the end of the year and fewer cuts than previously indicated next year.
That final increase, if realized, would do it for this cycle, according to projections the central bank released at the end of its two-day meeting. If the Fed goes ahead with the move, it would make a full dozen hikes since the policy tightening began in March 2022.

Markets had fully priced in no move at this meeting, which kept the fed funds rate in a targeted range between 5.25%-5.5%, the highest in some 22 years. The rate fixes what banks charge each other for overnight lending but also spills over into many forms of consumer debt.
While the no-hike was expected, there was considerable uncertainty over where the rate-setting Federal Open Market Committee would go from here. Judging from documents released Wednesday, the bias appears toward more restrictive policy and a higher-for-longer approach to interest rates.
That outlook weighed on the market, with the S&P 500 falling nearly 1% and the Nasdaq Composite off 1.5%. Stocks oscillated as Fed Chair Jerome Powell took questions during a news conference.
“We’re in a position to proceed carefully in determining the extent of additional policy firming,” Powell said.
However, he added that the central bank would like to see more progress in its fight against inflation.

“We want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress and we welcome that. But, you know, we need to see more progress before we’ll be willing to reach that conclusion,” he said.
Projections released in the Fed’s dot plot showed the likelihood of one more increase this year, then two cuts in 2024, two fewer than were indicated during the last update in June. That would put the funds rate around 5.1%. The plot allows members to indicate anonymously where they think rates are headed.
Twelve participants at the meeting penciled in the additional hike, while seven opposed it. That put one more in opposition than at the June meeting. Recently confirmed Fed Governor Adriana Kugler was not a voter at the last meeting. The projection for the fed funds rate also moved higher for 2025, with the median outlook at 3.9%, compared with 3.4% previously.
Over the longer term, FOMC members pointed to a funds rate of 2.9% in 2026. That’s above what the Fed considers the “neutral” rate of interest that is neither stimulative nor restrictive for growth. This was the first time the committee provided a look at 2026. The long-run expected neutral rate held at 2.5%.
“Chair Powell and the Fed sent an unambiguously hawkish higher-for-longer message at today’s FOMC meeting,” wrote Citigroup economist Andrew Hollenhorst. “The Fed is projecting inflation to steadily cool, while the labor market remains historically tight. But, in our view, a sustained imbalance in the labor market is more likely to keep inflation ‘stuck’ above target.”

Economic growth seen higher

Along with the rate projections, members also sharply revised up their economic growth expectations for this year, with gross domestic product now expected to increase 2.1% this year. That was more than double the June estimate and indicative that members do not anticipate a recession anytime soon. The 2024 GDP outlook moved up to 1.5%, from 1.1%.

The expected inflation rate, as measured by the core personal consumption expenditures price index, also moved lower to 3.7%, down 0.2 percentage point from June, as did the outlook for unemployment, now projected at 3.8%, compared with 4.1% previously.
There were a few changes in the post-meeting statement that reflected the adjustment in the economic outlook.
The committee characterized economic activity as “expanding at a solid pace,” compared with “moderate” in previous statements. It also noted that job gains “have slowed in recent months but remain strong.” That contrasts with earlier language describing the employment picture as “robust.”
In addition to holding rates at relatively high levels, the Fed is continuing to reduce its bond holdings, a process that has cut the central bank balance sheet by some $815 billion since June 2022. The Fed is allowing up to $95 billion in proceeds from maturing bonds to roll off each month, rather than reinvesting them.

A shift to a more balanced view

The Fed’s actions come at a delicate time for the U.S. economy.
In recent public appearances, Fed officials have indicated a shift in thinking, from believing that it was better to do too much to bring down inflation to a new view that is more balanced. That’s partly due to perceived lagged impacts from the rate hikes, which represented the toughest Fed monetary policy since the early 1980s.
There have been growing signs that the central bank may yet achieve its soft landing of bringing down inflation without tipping the economy into a deep recession. However, the future remains far from certain, and Fed officials have expressed caution about declaring victory too soon.
“We, like many, expected to see the hawkish hold that Powell nodded to at Jackson Hole,” said Alexandra Wilson-Elizondo, deputy chief investment officer of multi-asset strategies at Goldman Sachs Asset Management. “However, the release was more hawkish than expected. While a share of past policy tightening is still in the pipeline, the Fed can go into wait and see mode, hence the pause. However, the main risk remains tarnishing their largest asset, anti-inflation credibility, which warrants favoring a hawkishness reaction function.”

The recent rise in energy prices as well as resilient consumption is likely why the median dot moved higher next year, she said.
“We don’t see a singular upcoming bearish catalyst, although strikes, the shutdown, and the resumption of student loan repayments collectively will sting and drive bumpiness in the data between now and their next decision. As a result, we believe that their next meeting will be live, but not a done deal,” Wilson-Elizondo said.
The jobs picture has been solid, with an unemployment rate of 3.8% just slightly higher than it was a year ago. Job openings have been coming down, helping the Fed mark progress against a supply-demand mismatch that at one point had seen two positions for every available worker.
Inflation data also has gotten better, though the annual rate remains well above the Fed’s 2% target. The central bank’s favored gauge in July showed core inflation, which excludes volatile food and energy prices, running at a 4.2% rate.
Consumers, who make up about two-thirds of all economic activity, have been resilient, spending even as savings have diminished and credit card debt has passed the $1 trillion mark for the first time. In a recent University of Michigan survey, respective outlooks for one- and five-year inflation rates hit multiyear lows.
Correction: The Federal funds target rate is a range of 5.25-5.5%. A previous version of this story misstated the end point of the range. More

Justin Sullivan | Getty Images

Check out the companies making headlines in midday trading.
Instacart — Instacart shares fell nearly 11% one day after going public on the Nasdaq. The grocery deliver company’s stock debuted at $42 on Tuesday, 40% above its $30 offering price.

Steelcase — The furniture stock soared more than 19% after posting second-quarter earnings that topped Wall Street’s expectations and offered strong full-year and third-quarter earnings guidance as more companies return to work. Excluding items, Steelcase posted earnings of 31 cents per share on revenue of $854.6 million.
Klaviyo — Klaviyo shares jumped more than 9% after the marketing automation company surged to $36.75 after its New York Stock Exchange initial public offering. The company priced 19.2 million shares late Tuesday at $30 per share, valuing the company at roughly $9 billion.
Bausch Health Companies — Bausch Health Companies surged 8% after Jefferies upgraded the drugmaker to a buy from hold, saying that a looming legal win could lead shares to more than double.
Stellantis — Shares rose about 1.7% after sales in Europe of brands such as Peugeot and Opel surged more than 6% in August. In the U.S., the Chrysler-Jeep parent warned that the United Auto Workers strike could result in more than 350 layoffs.
Pinterest — Shares added 3.1%, continuing their rally from Tuesday after management said it expects year-over-year revenue growth to accelerate after a slowdown the last two years. Citi and D.A. Davidson upgraded Pinterest to buy and increased their price targets on Wednesday to reflect the announcement.

General Mills — Shares of the Cheerios and Yoplait maker were flat after beating analyst expectations for its fiscal first-quarter earnings results. The firm’s revenue came in at $4.9 billion, versus the $4.88 billion forecast by analysts polled by LSEG, formerly known as Refinitiv.
Coty — Shares popped 4.5% after the cosmetics maker raised its full-year outlook for 2024, due to strong momentum in beauty demand, particularly in its prestige fragrances category. Coty said it anticipates like-for-like sales to grow 8% and 10% next year, compared to prior guidance of 6% to 8%.
Zebra Technologies — Shares of Zebra Technologies shed more than 6% after Morgan Stanley downgraded the company to underweight from equal weight, citing expectations for a slower recovery in demand.
Textron — Textron shares jumped nearly 5% after siging an agreement with Berkshire Hathaway-owned NetJets. As part of the deal, NetJets may purchase up to 1,500 additional Cessna Citation business jets over the next 15 years.
Chewy — Shares of the e-commerce pet food company slid more than 5% after Oppenheimer downgraded it to perform from outperform. The investment firm said signs of weakness in the pet category signaled a more challenging environment for Chewy in the coming quarters.
On Holding — The shoe stock rose finished lower ever after Needham initiated coverage with a buy rating. The firm said On Holding is one of the fastest-growing stories in retail and at the early stage of its business cycle.
Lululemon — The athleisure clothing company rose nearly 2% after Needham initiated coverage with a buy rating, saying it expects double-digit top-line growth as accelerating technical innovation drives demand.
Azul — The Latin American airline rose almost 12% following an upgrade to buy from neutral at Goldman Sachs, which said Azul has an “undemanding valuation.”
Build-A-Bear Workshop — The stuffed animal retailer jumped 4% after D.A. Davidson initiated coverage on the stock at a buy. The firm called Build-A-Bear an “iconic” company and an underappreciated small-cap growth idea.
First Citizens BancShares — Shares cadded 1.8% after JPMorgan initiated coverage of First Citizens BancShares at overweight, saying it’s set to benefit from the assets it bought from failed Silicon Valley Bank.
— CNBC’s Alex Harring, Hakyung Kim, Jesse Pound, Michelle Fox, Sarah Min, Yun Li and Lisa Kailai Han contributed reporting. More

Federal Reserve Board Chair Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting at the Federal Reserve in Washington, D.C., on July 26, 2023.
SAUL LOEB | Getty

The Federal Reserve stayed put on Wednesday but forecast it will raise interest rates one more time this year, according to the central bank’s projections released Wednesday.
Projections released by the Fed showed the central bank would hike rates to a median 5.6% by the end of 2023, up from the current range between 5.25% and 5.5%. Twelve Fed officials at the meeting penciled in the additional hike, while seven opposed it. There are two more policy meetings left in the year.

The rate-setting Federal Open Market Committee projected two rate cuts in 2024, which is two fewer than its forecast in June. That would put the funds rate around 5.1%.
The change to fewer projected rate cuts next year has more to do with Fed officials’ optimism about economic growth than concerns about stubborn inflation, Fed Chair Jerome Powell said in a press conference.
“Broadly, stronger activity means we have to do more with rates, and that’s what that meeting is telling you,” Powell said.
The dot plot also moved higher for 2025, with the median outlook at 3.9%, compared to 3.4% previously.
Here are the Fed’s latest targets:

Arrows pointing outwards

Fed members also updated their Summary of Economic Projections, revising their 2023 economic growth expectations up sharply. The Committee now expects gross domestic product to increase 2.1% this year, more than double the 1% estimate from June.
As for inflation, the Fed expects that the core personal consumption expenditures price index would slow to 3.7%, down 0.2 percentage points from June’s forecast.
Powell said the Fed is not yet fully convinced that inflation is on the right path.
“We want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress and we welcome that,” Powell said. “We need to see more progress before we’ll be willing to reach that conclusion.”
The projection for the unemployment rate now stands at 3.8% for 2023, compared to 4.1% previously.
— CNBC’s Jeff Cox and Jesse Pound contributed reporting. More

The U.S. Federal Reserve Building in Washington, D.C.
Win Mcnamee | Reuters

On Wednesday, the Federal Reserve will publish its latest economic forecasts. There will be an intense focus on the Summary of Economic Projections, which is the Fed’s own estimates for GDP growth, the unemployment rate, inflation and the appropriate policy interest rate. 
The summary will be released as an addendum to the statement following Wednesday’s Federal Open Market Committee meeting.

Investors will carefully study these projections, and they will likely move the market. 
But should you change your investment portfolio based on the Fed’s projections? You probably should not.
The Fed’s poor forecasting record: One example
Larry Swedroe, head of financial and economic research at Buckingham Strategic Wealth, for decades has studied economic forecasts of everyone from stock-picking gurus to the Federal Reserve. 
He has this piece of advice: Don’t base your investment decisions on what the Fed says. Or anyone else, for that matter. 
Swedroe recently wrote an article where he looked at one simple metric: the Fed’s effort to project its interest rate increases for 2022. 

Swedroe noted that at the end of 2021, the Federal Reserve forecast that it would need to raise rates three times and that its policy target rate would end 2022 below 1%. 
What actually happened?  The Federal Reserve raised the Fed funds rate seven times in 2022, ending the year with the target rate at 4.25%-4.50%. 
Federal Reserve: 2022 meetings
(rate hike each meeting, in basis points)

Dec. 14 — 50 bp
Nov. 2 — 75 bp
Sept. 21 — 75 bp
July 27 — 75 bp
June 16 — 75 bp
May 5 — 50 bp      
March 17 — 25 bp 

What happened? How could the Fed have been so wrong? It simply mis-forecast the rate of inflation. 
“One of the surprises, at least to the Fed, was that inflation turned out to be much higher than its forecast,” Swedroe wrote. “Its December 2021 forecast for 2022 inflation was for the core CPI to be between 2.5% and 3.0%. Inflation turned out to be more than double that.” 
If the Fed can’t get it right, what hope do we have? 
This has implications for forecasting in general. Swedroe, along with many others, has long noted the poor track record of stock market forecasters. But the Federal Reserve is a special case:  “One would assume that if anyone could accurately predict the path of short-term interest rates, it would be the Federal Reserve — not only are they professional economists with access to a tremendous amount of economic data, but they set the Fed funds rate.” 
Yet the Fed has a poor track record predicting not just interest rates, but other issues such as GDP growth.  I discuss this in my book, “Shut Up and Keep Talking:  Lessons on Life and Investing from the Floor of the New York Stock Exchange.” The Fed’s own research staff studied the Fed’s economic forecasts from 1997 to 2008 and found that the Fed’s predictions for economic activity one year out were no better than average benchmark predictions. 
How does this happen?  There are two problems: 
1) Predictions from the Fed and everyone else are riddled with bias and noise that limit the quality of those predictions; and 
2)   Lack of complete information, because events occur that are unpredictable and can affect outcomes. 
All of this should make everyone very humble about forecasting, and less eager to make sudden changes in investments. The key to investing is to know your risk tolerance, have a long-term plan, stay invested and avoid market timing. 
Swedroe’s conclusion: “If the Federal Reserve, which sets the Fed funds rate, can be so wrong in its forecast, it isn’t likely that professional forecasters will be accurate in theirs.” More

Pinterest app on a mobile phone.
Andrew Harrer | Bloomberg | Getty Images

Check out the companies making headlines before the bell.
Dollar General — Dollar General shares fell 2% after JPMorgan downgraded the discounter to underweight from a neutral as the company’s core shopper grapples with persistent inflationary pressures and dwindling savings.

Pinterest — Shares climbed more than 3% premarket after management said at the company’s first investor day that it expects year-over-year revenue growth to accelerate following a slowdown in 2022 and 2023. Both Citi and D.A. Davidson upgraded to buy and increased their price targets in reaction Wednesday.
General Mills — The Cheerios and Yoplait maker rose 1% premarket after reporting fiscal first-quarter results slightly above Wall Street expectations, and reiterating its outlook for fiscal 2024.
Instacart — Shares of the grocery delivery company were down nearly 4% one day after its stock market debut. The stock opened at $42 on its first day of trading, after pricing its IPO at $30 a share late Monday.
Coty — The cosmetics maker gained nearly 6% premarket after raising its full year outlook for 2024, citing momentum in fragrances at its prestige brands, including Burberry, Calvin Klein and Gucci. It expects like-for-like sales to grow between 8% and 10% next year, compared to prior guidance of 6% to 8%.
Bausch Health — The pharmaceutical stock gained more than 5% before the open after Jefferies upgraded to a buy and raised its price target to $16. The investment bank cited strong third-quarter earnings, increased clarity on the Bausch + Lomb spinoff and likely legal victories as catalysts.

Goldman Sachs — Shares edged up fractionally premarket on reports the investment bank plans to sell lending platform Greensky as part of a broader pullback from consumer lending. The deal would be worth about $500 million, according to Bloomberg.
— CNBC’s Yun Li, Tanaya Macheel, Pia Singh and Samantha Subin contributed reporting More

Arm, the U.K.-based company controlled by Japanese investment giant SoftBank, listed on New York’s Nasdaq on Thursday at an IPO price of $51 per share for a valuation of almost $60 billion.
The initial buzz has since fizzled, with the stock suffering successive daily declines to close the Tuesday trading session at $55.17.

Cathie Wood, CEO of Ark Invest, speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York City, February 27, 2023.
Brendan McDermid | Reuters

Ark Invest CEO Cathie Wood said she did not participate in Arm’s blockbuster initial public offering last week because she finds the chip designer was overvalued relative to its competitive position.
Arm, the U.K.-based company controlled by Japanese investment giant SoftBank, listed on New York’s Nasdaq on Thursday at an IPO price of $51 a share for a valuation of almost $60 billion. The shares jumped almost 25% on the first day of trading to close at $63.59.

The initial buzz has since fizzled, with the stock suffering successive daily declines to end the Tuesday trading session at $55.17.
Speaking on CNBC’s “Squawk Box Europe” on Wednesday, Wood said the recent frenzy around AI-exposed companies was justified and that “innovation is undervalued given the enormous opportunities that we see ahead, catalyzed very importantly by artificial intelligence.”
“As far as Arm, I think there might be a little bit too much emphasis on AI when it comes to Arm and maybe not enough focus on the competitive dynamics out there,” she added.

Arm CEO Rene Haas and executives cheer, as Softbank’s Arm, chip design firm, holds an initial public offering (IPO) at Nasdaq Market site in New York, U.S., September 14, 2023.
Brendan Mcdermid | Reuters

“So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view on the high side, and we see within our portfolios much lower-priced names with much more exposure to AI.”
Arm declined to comment.

The top holdings in Wood’s flagship Ark Innovation ETF include Tesla, Shopify, UiPath, Unity, Zoom, Twilio, Coinbase, Roku, Block and DraftKings.
After taking a beating during the recent cycle of aggressive interest rate hikes from the U.S. Federal Reserve, the Ark ETF resurged this year, as investors flocked to stocks with AI exposure. Wood said that the anticipation of interest rates peaking would further this trend.
“The appetite for innovation is stirring here, and I think one of the reasons is because many investors and analysts are starting to look over the interest rate hike moves we’ve seen, record breaking in the last year or so, and to the other side,” she said.

With inflation coming down across major economies and with central banks expected to begin unwinding their aggressive monetary policy tightening over the next year, Wood suggested the coming period “should be a very good environment for innovation and global megatrend strategies.”
Ark Invest acquired British thematic ETF issuer Rize ETF late Tuesday for £5.25 million ($6.5 million), marking the company’s first venture into the European passive investment market.
Wood said that Europe has not had access to actually invest in the company’s U.S.-based ETFs until now, despite accounting for around 25% of demand for the company’s research since Ark’s inception in 2014.
“The cost of technology, especially with artificial intelligence now, is collapsing, and therefore it’s going to be much easier to build and scale tech companies anywhere in the world. This is no longer just the purview of Silicon Valley,” Wood said. “We are very open-minded about technologies flourishing throughout the world, including Europe.”
Correction: This story has been updated to reflect the date of Ark Invest’s acquisition of Rize ETF. More