ARK Invest CEO Cathie Wood cautioned on Tuesday that while she does not believe the artificial intelligence sector is in a bubble, there could be a significant "reality check" in AI valuations as market conditions shift. Speaking with CNBC’s Dan Murphy on the sidelines of Saudi Arabia’s Future Investment Initiative (FII) in Riyadh, Wood acknowledged that rising interest rates could trigger a market correction. She noted that the coming year will likely mark a turning point, as the conversation around monetary policy moves from expectations of continued low rates to the reality of rising ones. “We are going to reach a moment in the next year where the conversation will shift from lower interest rates to rising rates,” Wood said. While she challenged the common belief that innovation and low interest rates are inversely linked—pointing to historical evidence that innovation can thrive even in higher-rate environments—Wood stressed that markets will eventually face a reckoning. “I want to disabuse people of that notion. But nonetheless, we think there will be a reality check.” Her remarks come amid growing scrutiny of soaring valuations across the tech sector, particularly in AI-related companies. Despite strong investor enthusiasm and massive capital inflows into AI startups and infrastructure, concerns are mounting about whether current market prices reflect sustainable long-term growth. Global markets saw gains earlier in the week, driven by optimism over potential U.S.-China trade de-escalation. U.S. stocks hit new highs on Monday, while Asian markets also posted solid returns. Investors are now closely monitoring key developments, including upcoming earnings reports from major tech firms and the Federal Reserve’s upcoming interest rate decision. The Fed is widely expected to deliver its second rate cut of the year, a move that could further fuel risk appetite. However, Wood’s warning underscores a broader caution: even in a favorable environment, the pace of AI investment and speculation may eventually require a recalibration as economic fundamentals catch up.