15 October 2020
GAM Investments’ Mark Hawtin believes a fourth generation digital revolution is set to spark even more rapid technological change, creating investment opportunities in a range of sectors.
At the start of 2020, prior to the outbreak of Covid-19, we discussed how new and fast growing technologies such as artificial intelligence (AI), the internet of things (IoT), big data and blockchain are set to drive the disruptive power of technology even more, intensifying the polarisation between winners and losers. In our view, these technologies, combined with the network effect – where the value of a network increases exponentially with the number of users – represent a fourth generation digital revolution which we expect to accelerate post Covid-19.
The fourth wave or ‘digital 4.0’ as we describe it, will be larger than its predecessors. Digital 1.0 involved thousands of mainframe computers in the 1970s. Millions of client server systems in the 1980s-90s powered the second wave while the introduction of billions of smartphones in the 2000s led to ‘digital 3.0’. Today, we are moving towards trillions of devices becoming connected to the IoT while big data and AI deliver a new era of growth and connectivity, transforming business models and creating new investment opportunities. The risk for investors, therefore, comes from being stuck in the previous phase and not positioned for the next.
Instead of simply owning the major names (Amazon, Facebook and Google) we believe it is crucial that investors find companies which are likely to be major beneficiaries of this next phase. We anticipate healthcare, transportation and industrials to be three key investment focal points for disruptive technology over the next five to 10 years. Each sector could rise on the tide of ‘digital 4.0’ and such opportunities may not emerge from big tech giants that have caused many major indices to surge in the past decade.
Digital health utilises advanced technology and connectivity, and converging information such as patient history, to ensure quality customer treatment. Estimates suggest the market valuation for digital health will surpass USD 639.4 billion by 2026, up from USD 106 billion in 2019.1 It is thought that the growing number of smartphone users across the globe will be key to driving the market growth. Rapidly growing healthcare IT infrastructure in both developed and developing countries could also be conducive to expansion. Furthermore, a growing awareness about the importance of fitness and health among the population will increase product adoption, driving the market growth.
We believe technology is the single biggest hope for rising healthcare costs. Electronic patient records, for example, will drive significant cost reductions. We see significant opportunity for AI, IoT and 5G to deliver the very best expertise to rural hospitals and remote locations. Furthermore, better and faster analytics are likely to pre-empt major health issues while big data and AI will accelerate modelling of disease and pharmaceutical research. In short, there are potentially billions worth of dollars in savings in multiple areas.
In broad terms, the global transportation market represents circa 10% of global GDP – an enormous disruption opportunity. However, the performance of many traditional transportation businesses has been poor in recent years. Instead, greater attention is being placed on electric cars, shared mobility and autonomous vehicles. Estimates suggest the autonomous vehicle market alone was around 6.6 million units in 2017 and is anticipated to reach 67.5 million units by 2028, a compound annual growth rate of 20.78% during the forecast period2. This projected growth is reflected in Tesla’s valuation, for example. Tesla’s share price has seen a stratospheric rise over the past year. We believe other opportunities will emerge among companies involved in vehicle operating systems, computing platforms and transportation-as-a-service (TaaS). Meanwhile, in our view, the ride sharing market (Uber, Lyft) has a long way to go before reaching the right model.
We believe a new industrial revolution is in full swing and is driven by IoT, 5G, big data and AI. Companies are already utilising tech throughout industrial chains in order to get better returns on investments. Factories of the future are likely to consist of predictive machine analytics, blockchain for enterprise resource planning and supply chain management, collaborative robots (cobots) and industrial augmented reality. We think 5G, linked with IoT, will drive an enormous new wave of innovation across manufacturing.
Ultimately, in our view, winners and losers across global equities are set to be defined by the use of disruptive technology. The fourth generation digital revolution is set to spark even more rapid change. IoT, enabled by 5G, big data and AI, will drive a digital wave bigger than its predecessors. We believe new winners will emerge, utilising the unique digital network effect that drives exponential gains, with healthcare, transportation and industrials becoming three key investment focal points for the next decade.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice.