The Disruptive Advantage: How to Tap into Transformative Innovation

Introduction: What is Disruptive Innovation?

“Innovation” and “technology” are terms often used interchangeably, yet they encapsulate different ideas. While sustained innovation focuses on incremental improvements within established frameworks, ARK Invest zeroes in on disruptive innovation—radical breakthroughs that transform entire industries. This approach is not confined to the IT sector; instead, it spans a wide range of fields, uncovering opportunities where traditional models are upended, and entirely new markets are created. By distinguishing between these concepts, ARK highlights the importance of seeking innovations that do more than just enhance existing technologies—they redefine what is possible.

ARK Invest defines disruptive innovation as a process in which breakthrough technologies or business models fundamentally transform industries by displacing established incumbents and creating entirely new markets. Disruptive innovation tends to have key characteristics:

• Market Transformation: It creates new value networks and reshapes existing ones, often rendering older technologies or business models obsolete.
• Exponential Growth Potential: Disruptive innovations are driven by rapid, exponential improvements that lead to significant cost reductions and increased adoption over time.
• Long-Term Impact: While these innovations may initially appear risky or undervalued, they have the potential to drive substantial long-term economic growth by solving problems that traditional approaches cannot.
• Cross-Sector Influence: ARK Invest looks for disruptive technologies that transcend traditional industry boundaries, affecting multiple sectors simultaneously.

ARK Invest often views the innovation ecosystem in three parts: leaders, enablers, and beneficiaries. Each part plays a critical role in shaping the future of industries through disruptive innovation and ARK surfaces investment opportunities in the equity markets across all three areas.

• Leaders: These are the companies driving disruptive innovation with breakthrough technologies and business models.
• Enablers: These firms provide the supporting technologies, platforms, or infrastructure that make disruptive innovations possible.
• Beneficiaries: These are the companies that profit from and capitalise on the widespread adoption of disruptive technologies, even if they aren’t the ones creating the innovation themselves.

Which Technologies does ARK consider to be disruptive?

ARK Invest has identified 15 transformative technologies that are approaching tipping points as costs drop, unleashing demand across sectors and geographies and spawning more innovation. These transformative technologies could become the critical productivity signposts that future historians might identify.  Because the lines between and among different platforms sometimes blur, particularly in this age of convergence, we have bucketed the candidate technologies into five major platforms: artificial intelligence, robotics, multiomics, energy storage, and blockchain technology.¹

For each of these transformative technologies or innovation platforms, ARK takes a quantitative approach by modelling cost declines, addressable markets, price elasticity of demand, and adoption rates. From these forecasts we can estimate cash flows and ultimately the potential equity market value of each.

Can You Provide Descriptions For Each Innovation Platform That Discusses The Underlying Technologies?

• Artificial Intelligence:

Computational systems and software that evolve with data can solve intractable problems, automate knowledge work, and accelerate technology’s integration into every economic sector. The adoption of Neural Networks should prove more momentous than electrification and potentially create tens of trillion dollars of value. At scale, these systems will require unprecedented computational resources, and AI-specific compute hardware should dominate the Next Gen Cloud datacenters that train and operate AI models. The potential for end-users is clear: a constellation of AI-driven Intelligent Devices that permeate people’s lives, changing the way that they spend, work, and play. The adoption of artificial intelligence should transform every sector, impact every business, and catalyse every innovation platform.

• Robotics:

Catalysed by artificial intelligence, Humanoid Robots should operate alongside humans and navigate legacy infrastructure, changing the way products are made and sold, and eventually the way we live our lives at home. 3D Printing should contribute to the digitisation of manufacturing, increasing not only the performance and precision of end-use parts, but also the resilience of supply chains. Meanwhile, the world’s fastest robots, Reusable Rockets, should continue to reduce the cost of launching satellite constellations and enable uninterruptible connectivity and earth observation. A nascent innovation platform, robotics could collapse the cost of transporting across distance, with hypersonic travel, the cost of manufacturing complexity with 3D printers, and the cost of physical work with AI-guided robots.

• Energy Storage:

The declining costs of Advanced Battery Technology should cause an explosion in form factors, enabling Autonomous Mobility systems that collapse the cost of transportation. Electric drivetrain cost declines should unlock micro-mobility and aerial systems, including flying taxis, enabling business models that transform cities. Autonomy should reduce the cost of taxi, delivery, and surveillance by an order of magnitude, enabling frictionless transport that will increase the velocity of ecommerce and make individual car ownership the exception rather than the rule. These innovations combined with large-scale stationary batteries and Distributed Energy Generation, notably solar and small-scale fission, should cause a transformation in energy, substituting electricity for liquid fuel and increasing system-wide resilience, reliability, and production.

• Multiomics

The cost to gather, sequence, and understand digital biological data is falling precipitously. Multiomic Technologies provide research scientists, therapeutic organisations, and health platforms with unprecedented access to DNA, RNA, protein, and digital health data. Cancer care should transform with pan-cancer blood tests. Fed by rich multiomic data and powered by Programmable Biology, AI systems running autonomous labs could collapse the cost of drug discovery, development, and trial, transforming returns in a sector that has stagnated. Biological discoveries should power novel Precision Therapies that target and cure rare diseases and chronic conditions, unlocking profound economics. Over time, the design and synthesis of novel biological constructs will yield advances in agriculture, material science, and even computation.

• Public Blockchains:

Upon large-scale adoption, all money and contracts will likely migrate onto Public Blockchains that enable and verify digital scarcity and proof of ownership. The financial ecosystem is likely to reconfigure to accommodate the rise of Cryptocurrencies and Smart Contracts. These technologies increase transparency, reduce the influence of capital and regulatory controls, and collapse the costs of contract execution. In such a world, Digital Wallets will become increasingly necessary as more assets become money-like and corporations and consumers adapt to the new financial infrastructure. Corporate structures may be called into question.

Understanding Convergence And Exponential Growth:

As the legendary story goes, an Indian King was impressed by the inventor of chess and offered to reward him. The inventor humbly requested a simple gift: one grain of wheat on the first square of the chessboard, with the amount doubling on each subsequent square—so two grains on the second square, four on the third, eight on the fourth, and so on. The king, thinking this was a modest request, agreed without realizing the implications of exponential doubling. By the time he reached the 64th square, the amount of wheat required was an astronomical 18 quintillion (2^64 – 1) grains, far more than all the wheat in the world.

Today, computational advances have completed the equivalent of the 6^th row on the chessboard. Entering the AI cycle in 2018, computers had crossed 40 performance doublings and in 2023 surpassed 48. By the end of this decade, thanks to the acceleration in AI, computation could reach the end of the chessboard.²

According to ARK’s research, the five innovation platforms are converging to create unprecedented growth trajectories. Artificial Intelligence (AI) is the most important catalyst, its velocity cascading through all other technologies. The adoption of artificial intelligence should transform every sector, impact every business, and catalyse every innovation platform. For example, as AI continues to accelerate, robotaxis should proliferate, drug development timelines and costs should collapse, and AI agents should solve software engineering challenges autonomously, monitoring and modifying systems around the clock.³

Historical Perspective And The Present Opportunity

History can help us to appreciate the vast potentialities of our current technological revolution. Prior to the discovery and proliferation of writing, the global economy was anaemic, with growth rates below 0.04% in the 100,000 years prior to the rise of Rome. In the first 1,000 years AD, annual growth accelerated nearly four-fold to 0.14%. Then, plow technology and crop rotation strategies led to a population boom, more than doubling growth to 0.3% at an annual rate through 1500.

The printing press and the steam engine bookended the first industrial revolution, doubling growth again to 0.6% per year through 1900. Thereafter, electrification, telephony, the internal combustion engine, and digital computation and connectivity quintupled real economic growth to 3% at a compound annual rate, pushing global gross domestic product (GDP) to $107 trillion. As a result, global real per capita GDP has increased nearly 7-fold since 1900 from less than $2,000 to more than $13,400 in 2023.

Indeed, ARK’s research suggests that future historians will marvel at the cornucopia of critical inflections that occurred simultaneously during this moment of human progress: when previously unimaginable inflections associated with AI and multiomic sequencing and editing made disease cures the standard of care; when robotics proliferated across our society and batteries became the fundamental unit of energy delivery; when blockchain and cryptocurrencies became the underlying structure that would grow to transform the entire business and financial landscape.

These technologically enabled changes offer long-term opportunities for companies and investors alike. The accelerating convergence across public blockchains, artificial intelligence (AI), multiomic sequencing, energy storage, and robotics suggests that we are on the cusp of a step-function increase in real GDP growth rates that could reshape market capitalisation.⁴

Every one of the five innovation platforms that we have identified shares traits common to the fundamental innovations throughout history. Robots are transforming from an automotive-centric technology to ubiquitous devices that most bits-based businesses will deploy. Lithium-ion batteries will power these and other devices, from flying personal vehicles to augmented reality glasses.  DNA sequencing costs have fallen more than a million-fold during the past 15 years and will continue to unlock the codes to life and death, while the next class of multi-trillion-dollar global technology networks will be built on top of blockchain technologies. That these technology waves all could crest concurrently presents business leaders and investors with both tremendous opportunity and tremendous peril during the next 10-15 years. The hallmarks of these technologies—rapidly declining unit-costs and -prices impacting many industries and geographies and spawning countless other innovations—stack in such a way that forecasters may underestimate their impact over meaningful time horizons.

How To Access Disruptive Innovation

Disruptive technologies are becoming increasingly central to economic development; so should they become increasingly central to a sound investment strategy. The investment opportunities that flow from the magnitude of today’s disruptive innovation are often unrecognised or misunderstood by traditional investors. Many market participants focus on conventional growth and value investing strategies, overlooking the potential long-term transformational impact that innovation-driven companies can have on the economy. We believe that investing in disruptive innovation will outperform broad-based market benchmarks significantly over the course of a full market cycle.

The ARK Innovation UCITS ETF is an actively managed exchange-traded fund (ETF) designed to invest in companies at the forefront of disruptive innovation—namely, public blockchains, artificial intelligence (AI), multiomic sequencing, energy storage, and robotics (see chart below). We believe the ARK Innovation ETF is the closest thing to venture capital in the public equity markets, making it a compelling option for investors looking to gain exposure to cutting-edge market trends and technological advancements. Moreover, the low correlation of relative returns to traditional growth and value strategies provides potential diversification benefits, making the ARK Innovation ETF an attractive option for investors seeking to complement their existing portfolios with exposure to forward-looking themes.⁵

Through active management, the ARK Innovation ETF adapts to evolving technologies and changing markets, positioning investors for potential growth as new ideas reshape industries. While innovation-focused portfolios can be volatile, they can also create valuable, long-term opportunities, and their risk can be properly managed with strategic allocation strategies well-understood by ARK.⁶ We believe that forward-thinking investors can benefit from exposure to pioneering companies driving global change. Ultimately, the ARK Innovation ETF offers a unique chance to invest in the transformations that may redefine economies.