Please enjoy ARK Disrupt Issue 81. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.
1. Did Apple Just Smoke the Competition in Augmented Reality?
A few weeks ago, AppleAAPL announced ARKit, a software development kit for augmented reality (AR). We like the name of this kit! Already, developers have created a host of impressive demo applications: ARKit can be used to create a virtual planetarium in the living room, play Minecraft on the dining room table, or land a SpaceX rocket in the backyard pool.
Compared to Google’sGOOG snail-paced Project Tango, Microsoft’sMSFT clunky and expensive Hololens, and Magic Leap’s much-hyped but no-show AR glasses, Apple’s ARKit may have smoked the competition in augmented reality. AR could be Apple’s next killer-app!
AR caters to Apple’s core competency – hardware tightly integrated with software, creating a delightful user experience. It de-risks the bear case against Apple that smartphones now are “good enough” and will commoditize as upgrade cycles lengthen. High quality AR requires much better cameras, sensors, and processors, enabling entirely new use cases and applications. AR gives both consumers and professionals a reason to buy a new gadget…and, who is better at making, marketing, and selling better gadgets than Apple?
2. Bitcoin Will Avert a Chain Split…For Now
Although controversy continues to swirl around SegWit2x – the so-called New York agreement – miner and community support is strong, with over 80% of the last 200 blocks signaling for the proposal. SegWit2x aims to activate Segregated Witness (SegWit) – increasing the transactional capacity of Bitcoin and improving the flexibility of its scripting language – and then increase the block size from 1MB to 2MB. An increase in the block size will be conditional, subject to the activation of SegWit.
The controversy revolves around the Bitcoin core developer support for SegWit2x, or the lack thereof, and the concern that its code has not been vetted sufficiently. If SegWit2x does not maintain the 80% hash rate necessary for its implementation, then BIP 148 could be activated on August 1 but, then, Bitmain could counter BIP 148 with a User-Activated-Hard-Fork (UAHF). Such a sequence of events would lead to a permanent chain split and two different versions of Bitcoin, similar to that which led to Ethereum and Ethereum Classic.
For a better understanding of this controversy, we recommend this episode of Epicenter with Jimmy Song. As always, we are paying close attention to the drama unfolding in the Bitcoin ecosystem.
3. Ripple Is Making Its Network More Robust
Ripple is an opt-in network that enables transactions in any currency – including bitcoin – and is striking partnerships with an increasing number of well-known financial institutions. Unlike traditional payment rails, Ripple’s network powers fast, real-time, and low-cost transactions. Like many blockchain networks, Ripple is a public database, or ledger, that cryptographically records all transactions securely, transparently, and pseudonymously.
One of Ripple’s distinguishing characteristics is its “validating nodes”, or gateways to highly reputed wallets. Other wallets in the system trust these nodes to advance the ledger sequence, propagating and sustaining the network. Currently, Ripple oversees and hosts these validating nodes. An example is Gateway Ripple Singapore, a ramp for currencies to move into and out of the Ripple network.
A recent study, however, exposed some vulnerability in Ripple’s network, especially in small world networks with few gateways. Pedro Moreno-Sanchez at Purdue University simulated the impact of a broad financial meltdown on a small world network. The removal of just 10 validation nodes isolated tens of thousands of other wallets from Ripple’s network.
In May, recognizing the need to make the XRP ledger more robust and resilient, Ripple proposed a way to decentralize the network and distribute its oversight. First, it intends to increase the number of validating nodes. Then, it will replace half of the existing validating nodes with attested third party nodes.
ARK agrees that such diversification could be critical in preventing catastrophic network failures. Further, the addition of non-Ripple operated nodes will enhance the network’s governance, both introducing privacy and enhancing the network’s reliability.
4. Battery Costs Are Declining Faster Than Anticipated
In previous research, ARK’s analysis of cost curve declines concluded that electric vehicles could reach price parity with gas-powered vehicles in 2022. Recently, a number of companies have reported that their battery costs are lower than ARK anticipated. GM announced that its cost was $145/kWh in 2016, and this week Audi suggested that its battery cells cost $114/kWh. Tesla’s Gigafactory also seems to be enjoying lower battery cell costs.
Battery cell costs do seem to be declining faster than anticipated, perhaps because of increased competition from South Korea and China. As a result, the price parity between electric vehicles and gas-powered vehicles could take place before 2022, the year we projected, as shown below.
Important to note, the chart below shows battery cell costs, as opposed to battery pack system costs, which are much higher. Tesla’sTSLA competitive edge is in the design and performance of battery pack systems. Battery pack system costs also should decline as OEMs ramp production of electric vehicles and enjoy economies of scale.
Source: ARK Investment Management LLC
Note: 18650/2170 Cells are Tesla’s, and Li-ion Pouch Cells are other OEM’s. The blue line represents ARK’s previous analysis, and the green line is ARK’s current analysis.
5. NVIDIA Continues to Take Market Share in the Autonomous Car Space
NVIDANVDA announced a slew of partnerships in the autonomous car space this week. First, by way of their joint venture with Zenuity, Autoliv and Volvo plan to commercialize autonomous cars around NVIDIA’s Drive PX platform by 2021. Apparently, Volvo has been pleased with the performance of DrivePX in its DriveMe autonomous testing program, and understands that first movers could grab significant share as natural geographic monopolies evolve and characterize the mobility-as-a-service market.
ARK anticipates that other teams testing autonomous cars with DrivePX will sign on to the NVIDIA platform. For example, NVIDIA is working with ZF and Hella to make autonomous cars consistent with NCAP standards. Previously, ZF had used DrivePX2 for its ProAI system focused on self-driving cars and trucks. NVIDIA also is working with Bosch, in contrast to Tier 1 suppliers like Delphi and Continental, which have committed to the Intel/Mobileye platform and will compete with DrivePX.
NVIDIA also will work with Volkswagen’s artificial intelligence (AI) team to develop autonomous systems for vehicles and robotics. Also a Mobileye partner, Volkswagen seems to have evaluated the Intel/Mobileye platform, and has chosen NVIDIA’s DrivePX instead.
Nvidia seems to be consolidating its share of the autonomous car component market, which ARK estimates will be a $50 billion market by 2030.
6. Is NgAgo A Threat to CRISPR…or Hype?
The Cas9 nuclease in the CRISPR family has emerged as the genome-editing technology of choice, thanks to its low price-point, ease of use, and rapid turn-around time. Since its discovery in 2012, CRISPR-Cas9 has become so pervasive that middle school students are experimenting with it.
That said, some scientists are touting a different genome-editing technology derived from Argonaute proteins, NgAgo. According to a study published by scientists in China, NgAgo has several advantages:
- NgAgo has higher specificity than Cas9, as it loses all activity with only 3 DNA mismatches.
- NgAgo can work with smaller proteins, making it easier than Cas9 to pack into delivery vectors.
- NgAgo can address all areas of the genome, as it is not restricted by the presence of a specific sequence of DNA.
- NgAgo is better than Cas9 at targeting G-C rich areas of DNA (which is represented by the letters A,C,T,G).
Whether or not these claims are true, we do not know. The publication has caused a lot of controversy in the scientific community, primarily because no other group has been able to replicate its results. Nonetheless, Denmark’s Novozymes (NVZMY) has licensed the technology to investigate NgAgo’s potential use in its enzymes business.
The information provided is for informational purposes only. It does not constitute any form of advice or recommendation to buy or sell any securities mentioned. It is intended only to provide observations and views of the author(s) at the time of writing, both of which are subject to change at any time without prior notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance is no guarantee of future results. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.