Disruption Has Its Financial Roll-Outs Too
Technology-specific advancements are now the major breakthroughs in an increasingly digital society. As such, keeping an eye on stocks that are related to technology companies makes sense. Kaustubh Bhosale elucidates how the global economy is undergoing the most significant technological transformation in history by virtue of multiple innovation platforms evolving simultaneously
Disruption means a fundamental change to an existing industry or market mostly due to technological innovation. Disruption occurs by bringing in a technologically-enabled new product or service with better efficiency and cost that potentially changes the way the world works. For example, in the late 19th century there were three major innovation platforms developed at the same time and improved the way the world worked. As a consequence of the launch of telephone, electricity and automobile, the world’s productivity improved while costs reduced, thus allowing demand across sectors to increase worldwide.
Today, the global economy is undergoing the most significant technological transformation in history thanks to multiple innovation platforms evolving simultaneously such as artificial intelligence, genomic revolution, blockchain, robotics, clean energy, space innovation and electric vehicles, among others. We are living in a world where the pace of innovation is gathering unbelievable momentum. Technology-specific advancements are now the major breakthroughs in an increasingly digital society. In fact, technology-based research and development has reached a high of 18 per cent of the total US capital spending in 2021, according to the Bureau of Economic Analysis.
But the disruptor effect can reach far beyond the technology sector. Single breakthroughs and applications have been proven to benefit companies in areas like financials, energy, industrials, healthcare, consumer retail and media, giving investors more chances to explore new growth opportunities. The advantage of investing in innovative technology stocks has been very rewarding. For example, Tesla’s share price skyrocketed in one year from USD 90 in 2020 to USD 900 in early 2021. India has also managed to produce its set of unicorns (start-ups valued upwards of the USD 1 billion) like Ather, Nykaa, Cred and Ola Electric. Against this, however, the manufacturing sector is still left behind which is why the government has made manufacturing its main concern and started to encourage more domestic entrepreneurs to set up factories.
Artificial Intelligence : AI learning systems have the power to innovate all sectors in the economy, even those which were previously thought resistant to disruption, especially in healthcare and financial services. The growth prospect within the AI space could be exponential. Until recently, humans programmed all software; however, now with deep learning – a form of artificial intelligence – data is used to code software. By automating the making of software, deep learning could change every industry. It is expected that deep learning will add billions of dollars to equity market capitalisation during the next few years. To understand how massive this opportunity could be, it took just over two decades for the internet to reach trillion- dollar equity market capitalisation globally, which it is today.
Green Power : Many green technology sectors companies are achieving vital points in the process. Moving from being theoretical blueprint to realised technologies and finally experiencing their products has become profitable now. But that does not mean that every green company is a good investment idea. For example, at the dawn of EV evolution, consumers experienced the disadvantage of short battery ranges and high costs of manufacturing. Buyers of an electric car were buying a less efficient product at a higher price.
Things are different nowadays – manufacturing costs have decreased and consumer inclination has changed. The technology for battery range and battery charging has progressed. Finally, electric vehicles are the automotive industry’s future and almost all automobile companies are shifting in the direction of electro-mobility. Likewise, clean power has become suitable and more competitive over the past few years. Solar and wind energy have gone from being unconventional ideas and only suitable in specific geographic locations to become the cheapest option when designing new solar power projects.
Transformations in Healthcare : The next wave of invention in healthcare treatment is already happening and involves using genetic information to understand how the body works on a molecular level. The idea is to use that information to identify patients, detect a disease in the early stage and match patients to take care of therapy. Earlier, the cost was roughly millions of dollars to sequence all the genomes in the human body and it took years of computation. Today, that same sequencing costs as little as a couple of thousand dollars and merely takes hours to assemble. As the price to sequence a whole human genome fall, DNA sequencing – a test once limited to the research laboratory – could see extensive clinical acceptance and a hundred-fold increase in volumes, changing healthcare altogether.
The technological and scientific growth in DNA sequencing, gene editing, bioinformatics and agricultural biology can help reform the sectors of healthcare, agriculture and pharmaceuticals and enhance the quality of life. Another example of the enormous benefits surrounding genomic revolution is early cancer detection through the reading of DNA signals in the blood, which is likely to become a reality within the next five years. With the progress in DNA sequencing, medical science could also have a cure for genetic disorders that previously didn’t exist and picking the right stock could be a multi-fold investment opportunity.
5G Adoption : The emergence of 5G networks is unquestionably one of the most valued and massive transformational development. The technology provides faster wireless internet access with more bandwidth and negligible delay. Since the corona virus outbreak forced people to stay indoors, global internet use has increased rapidly, creating a growing need for faster internet, more precisely a 5G network which will be the technology to watch out for in the coming years. A company called Starlink is already in business that provide satellite internet constellation operated by SpaceX, providing access to most of the earth.
Robotics : People previously were less willing to engage with AI-related technologies. However, the life-threatening corona virus seems to have changed this thinking for good. Robots are taking over the work location earlier than expected. Improvement in software and sensors should help robots to work alongside humans and in all sorts of environments. Besides, the rise in the ageing population has also enriched the space thanks to increasing demand for health monitoring and self-treatment, especially amongst elders. If the unit costs decline drastically while their capabilities increase, as expected, then the robots should convert most of the business that depends upon physical processes and workflows. For example, autonomous ride-hailing will gain acceptability, thus reducing the average cost of a taxi and also encourage widespread adoption. Also, it is predicted that autonomous ride-hailing platforms will generate huge profits in the coming years. In addition, automakers and fleet owners could enjoy enormous profits.
Blockchain Technology : This technology is being utilised to improve smart payment platforms, enable quick global money transfers, secure financial transactions, advance transportation, modernise government agencies and institutions, and even detect critical illnesses. Development in Internet of Things (IoT), autonomous vehicles, augmented reality, virtual reality and corona virus crisis-induced rapid adoption of cloud computing are expected to drive the adoption of blockchain technology in the years ahead.
With world economies reopening and picking up pace, investors are diversifying their portfolios into risky and volatile assets such as cryptocurrencies, NFTs, SPACs and small-cap stocks. Disruptive technology companies are often over-priced relative to conventional investment instruments because investors are gung-ho regarding the future plans and hyper-growth prospects of such companies. Majority of the disruptive innovative companies listed on bourses around the globe are trading at premium valuations. Previously we have seen that new emerging technologies which transform major industries and have a big impact on society have often created enormous wealth-building opportunities. This includes the introduction of smartphones, 3G, 4G networks and blockchain. So, it can rightly be said that innovation is the key to real growth and investing in companies that breed such technologies will be fruitful. However, only those investors with a long-term perspective and high-risk appetite should allocate meaningful capital to the innovative companies.