I guess we all agree – we live in very exciting times. While a potentially transformative innovation used to be a once-in-a-century phenomenon, the pipeline is now packed. Moonshots like quantum computing, neural interfaces, solid-state batteries, and fuel cells offer incredible potential to upend the global economy. Just following the recent news flow of some governments and companies focusing and investing in those areas in their efforts to become greener, we are strong believers that technology and sustainable investing go quite often hand-in-hand.
Closer to the ground, areas like artificial intelligence (AI), the Internet of Things (IoT), 3D printing, drones, and big data are already providing a glimpse into what the future may look like. In our view, big data and cloud computing alone offer a more than USD 800bn revenue opportunity already in 2025. According to the Worldbank, we should expect an additional 2bn internet users by the end of this decade. This will result in more of us moving towards a digital lifestyle, and more of us spending more time on digital rather than traditional media – and this is happening across age groups. As a result, the claim of an 10x increase of the amount of data being created looks reasonable to us, offering great business opportunities for companies and investors alike.
The ramifications of people’s increasing reliance on (and comfort with) digital business models are reverberating throughout the world – from retail and real estate to agriculture and e-commerce. These trends tend to be structural in nature, are just getting started, and have been accelerated by the coronavirus pandemic, during which people have turned to the internet for many of their daily needs. And, as with every technological revolution, there will be winners and losers along the way. This confluence of technology and economic forces is what we call tech economy. Increasingly, the tech economy is dictating everything from growth rates and incomes to inflation and how much we need to work each week. Its importance has even led to a contest for technological supremacy between the world’s two superpowers: the US and China.
Originating from the Greek words for craft and science, we can define technology as techniques, skills, methods, or processes to produce goods or services. Other definitions are more complex, but ultimately an input is being transformed into a higher value-added output by means of technology. High tech and information technology (IT) are often used synonymously to describe technology. In our recent report, we also consider technologies in other areas to open up a universe of opportunities for investors.
Computing cycles have progressed such that the addressable market has jumped by a factor of almost 10 during each cycle. But the very nature of technology makes it nearly impossible to forecast with certainty, even for experts. As Alibaba founder and former CEO Jack Ma summarized in a speech, first we thought that IBM was the innovator to beat, but then came Microsoft. Afterwards, Netscape arrived on the scene, and we thought no one could top them. Then Yahoo showed up, and Amazon and Ebay took off. When Google later appeared, we thought that was the end, but soon came Alibaba and Facebook. The question that remains now is when – not if – the next tech titan will emerge, as the world is spinning fast.
Indeed, in the past decades seemingly infallible market leaders in mini-computers, internet service provision, and mobile telephony have become shadows of their former selves. Likewise, ostensibly plausible technologies, such as self-ordering fridges or flying cars, touted over two decades ago have failed to take off despite being technologically feasible. Internet platforms look invincible today, but even they will need to adjust when the next disruption strikes. And as technological superpowers continue to evolve and diverge from one another, the landscape will become even more complex with different specializations in different regions.
The tech economy offers investors exposure to technological trends with the potential to transform the world, and COVID-19 becomes a catalyst for some of them. But riding the wave of change is not a simple feat, given the plethora of risks involved and the abundance of unknown variables at play. As said earlier, we live in very exciting times. To benefit from it as an investor, you should not invest in one trend or concentrate in a single region. A wiser strategy is to invest broadly across industries and geographies.
The writer is Head CIO European Equities, UBS Global Wealth Management Chief Investment Office
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