Changes to trade and industry in the wake the pandemic and climate change, particularly rising labour costs and supply chain disruptions, are pushing many disruptive technologies such as robotics, artificial intelligence (AI), electric mobility, and blockchain to forefront and creating new investment opportunities in 2022.
While most of these disruptive technologies have been around for a while, they are becoming increasingly attractive for investors when seen in the context of a new generation of consumers with certain preferences and buying patterns that are changing demands for key staples such as food, water, healthcare and entering full force into the digital economy.
As such, disruptive technology is a new asset class that can provide investment opportunities that are more responsive and focused to a world that is transitioning to the demands of climate change and consumer requirements.
“Spurred by rising labour costs and disruptive supply chains, disruptive industries such as robotics and AI could reach an inflection point in 2022,” says Jay Jacobs, head of research & strategy at Global X ETFs. “At the same time, the emergence of the metaverse and a new generation of consumers with distinct preferences are rapidly changing the way we live, spend, travel and the demand for immersive experiences via the digital economy.”
Jacobs led a team of external experts on disruptive technology as well as members of his own research team which prepared a 123-deck report that details how disruptive technology is on the way to becoming mainstream investment in 2022 and beyond.
“Our report ‘Charting Disruption’ seeks to help navigate this landscape of accelerating change by identifying what we believe are among the most critical developments for 2022 and beyond. The identified themes present where the accelerated long-term investment opportunities lie,” Jacobs says.
The report identifies these key trends:
Robotics & AI
Robotics encompasses the creation, design, and application of programmable machines that can perform tasks and interact with their environments without or alongside humans. AI refers to computer systems that can work, react, and learn like humans to autonomously perform tasks that involve decision making, visual perception, and speech recognition.
The rising cost of labour in the United States, China, and emerging markets, as well as the labour shortage in the wake of pandemic-induced lockdowns, dropping cost of building robots and greater consumer demand for products, is making investments in robotics and AI more essential.
The industrial robotics industry is set to more than double to US$37 billion in 2030, from US$16 billion in 2020, as companies look to accelerate automation in manufacturing and logistics.
“Both onshore and offshore labour continue to get more expensive over time, while robotics costs have fallen. This dynamic, alongside improving technology, is furthering the case for adopting automation. Exogenous risks such as climate change, geopolitical tensions, and Covid-19 have companies rethinking their dependence on globally integrated supply chains. With automation reducing onshore manufacturing and logistics costs, robotics could be a key beneficiary in the post-Covid world,” Jacob says.
Electric vehicle (EV) mobility
The number of EV charging stations could increase more than 7x due to the implementation of the Infrastructure Investment and Jobs Act in the US, which addresses two reasons for consumer hesitation to adopt EVs, namely concerns about range and the hassle of charging.
EV sales are reaching an inflection point as consumers, auto manufacturers, and governments accelerate the shift away from internal combustion engines and towards battery-powered vehicles.
In 2020, consumers spent US$120 billion on electric vehicle purchases, a 50% increase from 2019. As of October 2021, sales have more than doubled in the Chinese, American, and German EV markets since 2020.
“With falling costs and improving range and charging infrastructure, consumers will soon have few reasons not to buy EVs. An expected shift to cheaper, more robust lithium-iron phosphate (LFP) batteries are expected to help EVs reach the mass market, while billions of dollars invested in charging infrastructure will help reduce range anxiety. However, auto manufacturers and governments must pay attention to supply chain risks, as delayed investment in lithium mining and processing could pose risks to widespread EV adoption,” Jacob says.
The risk with investing in EV is the sourcing of lithium minerals which are essential to battery production. “While electric vehicles are poised to trigger the transportation industry’s largest shakeup in over a century, lithium mining and lithium-ion battery production are critical, but often overlooked, stages of the EV value chain,” Jacob says.
Digital economy
The digital economy consists of several high-growth segments that share a common trait: their primarily virtual existence. Whether it is selling goods online, facilitating transactions, streaming entertainment, connecting friends, or protecting data, these companies depend on widespread internet connectivity and the explosion of data creation to operate their businesses.
Traditional GDP calculations fail to fully capture the value of digital platforms, Jacob says. For example, in 2021 Americans spent about eight hours per day with digital media, which includes search engines, social media, online courses, maps, messaging, cloud video conferencing, music, apps, and more. Yet these digital goods and services go largely uncounted in official measures of economic activity, such as GDP and productivity.
This is evidenced by the fact that the contribution of the information sector as a share of total GDP has barely budged since the 1980s, hovering between 4% and 6% annually. But digital goods do create value in the form of a consumer surplus or consumer well-being generated by a product or service.
The relatively niche market for augmented reality, virtual reality and mixed reality products could grow 9.6x to over US$296 billion by the end of 2024, helped by growing use cases, content and technological advancements.
“Certain jobs are more suited for working from home (WFH) than others. At the company level, certain firms tend to hire more for positions that are well-suited for working from home. Unsurprisingly, these firms performed much better during the unforeseeable pandemic,” Jacobs says.
Blockchain
Blockchain and digital assets are upending many traditional areas of finance. With cryptocurrencies now valued at trillions of dollars in market capitalization, adoption is accelerating at all levels, with even institutional investors warming up to the emerging asset class.
“Digital currencies could more than triple in market capitalization by 2030, reaching US$10 trillion, as adoption broadens. While many investors may be reluctant to invest in cryptocurrencies directly, a growing industry of publicly traded companies that are contributing to the development of blockchain technology and digital assets provide an alternative method to gain exposure to the space,” Jacob says.
Beyond cryptocurrencies, security tokens and/or non-fungible tokens (NFTs) represent additional types of digital assets that are upending areas like art and real estate.
“Blockchain technology promises many valuable use-cases beyond digital assets. Any firm, regardless of industry or segment, that could benefit from the features of transparent, verified transactions as well as immutable data entry and recordkeeping could find value in implementing blockchain technology,” Jacob says.
