Invest in the future: five game-changing technologies

Over the past 15 years, technology has revolutionised industries across the globe. Matthew Partridge looks at what will shape the next 15.

Since MoneyWeek launched in November 2000, huge changes have shaken up both the economy and markets – and we’re not just talking financial crises and central-bank tinkering. The most obvious example is the internet. When our first issue hit the newsstands, the dotcom bubble was imploding, turning the entire sector into a joke. But as access to the internet at rapid connection speeds has become practically ubiquitous, with web-enabled smartphones and tablets, even the most hyperbolic predictions from the dotcom days look conservative.

Industries from supermarkets to music to publishing to taxis (Uber) to hotels (Airbnb) have been altered beyond recognition, and the process shows no sign of slowing. Amazon survived the original tech blow-up and now has a bigger market cap than Walmart, while Apple has gone from being a maker of niche computers to the world’s largest listed company.

Over the same period, a technology from the 1940s has proved far more disruptive than anyone could have imagined in 2000 – hydraulic fracturing (‘fracking’). Pumping water, sand and chemicals through shale rock to release oil and gas was not a new idea. But the high oil price encouraged deployment and development of the technology, and as a result, America is now one of the world’s largest oil producers, a spectacular turnaround. So what technologies, old or new, could turn out to be game-changers between now and 2030? We’ve covered plenty of promising developments in recent years, but five in particular stand out.

Big data and better forecasting

Imagine a world where companies only ever sell you what you want exactly when you need it, and where your doctor knows what’s wrong with you before you even fall ill. That’s the promise of ‘big data’. Big data is all about exploiting the vast quantities of information that firms and other organisations routinely collect from us, to do everything from improving decision-making to coming up with new products and services. To use data effectively, you first have to be able to collect and store it. This is getting cheaper and cheaper to do.

In 2012, Kevin Kelly of Wired magazine estimated that it would cost just $600 to store every piece of music ever recorded. Today, devices with that sort of capacity cost a fraction of that price. The next problem is the data itself. There’s plenty of it – data is collected via everything from software usage to loyalty cards to sensors in smart devices – but not all of it can be easily quantified. However, ‘unstructured’ databases are making it far easier to store and sort messier data.

The next step is analysis – filtering out the useful information. A shortage of experienced people means firms are turning to consultancies to provide the necessary expertise, but increasingly sophisticated software is being developed to help with analysis. For example, IBM’s Watson system, which made headlines when it beat human contestants at a game of Jeopardy in 2011, now uses big data to improve medical diagnosis and forecast the weather more accurately.

Several retailers, both online and offline, have developed tools that can not only predict a customer’s buying habits, but also adjust prices to take advantage of their greater willingness to pay. Meanwhile, biotech companies are focusing on genomics – using big data to tailor drugs to individuals or small groups, depending on their specific genetic make-up, rather than giving the same treatment to everyone with a particular condition. One potential beneficiary of all this is the recently spun-off Hewlett Packard Enterprise (NYSE: HPE). It focuses on consulting and business support services. One of its key offerings, HP Haven, is a platform that allows firms both to store and analyse data far more effectively. Just now it trades on less than eight times 2016 earnings.

Spare parts for people

Fifteen years ago, many doctors were convinced that stem cells derived from human embryos would play a key role in curing diseases. However, they have disappointed, with only a handful of successes. But stem cells derived from adults have proved far more promising. Adult stem cells from bone marrow have been used to treat blood disorders since the 1960s. But the latest developments allow them to be used for a far wider range of treatments, including reversing progressive diseases, such as multiple sclerosis.

It is becoming ever easier to get stem cells from one area of the body to mimic the function of another area. They are increasingly used to create human tissue from scratch, enabling the building of mini-organs that can be used in drug trials. A team at University of California, Berkeley, has turned skin cells into clusters of cells with heart-like functions.

That points to the greatest potential for adult stem cells – growing entire organs. Because the cells come from the patient, the risk of rejection (and need for long-term medication) is greatly reduced.
For now, the most promising technique is to seed the cells onto another organ (or a synthetic one).

For example, Harvard Apparatus Regenerative Technology (HART) has used the technique to create tracheas that have been used in transplants, while Wake Forest School of Medicine has grown full bladders that have been successfully transplanted into patients, and is now making progress on developing replacement ears and livers. One way to play this trend is through ReNeuron (LSE: RENE), which is trialling treatments for strokes and the eye disease retinitis. The firm is still loss making, so it’s not for the risk-averse, but has enough cash to fund development.

The robots take over

A fear of robots stealing our jobs has crept into the mainstream in recent years, and we don’t see that concern going away. As we discussed in MoneyWeek a few months ago, robots (in the form of everything from humanoids to software programs) are moving from the factory floor to the office cubicle, the operating theatre – and the kitchen.

Food processing and restaurants are particularly ripe for automation – one San Francisco company has developed a machine that can produce 360 gourmet burgers an hour, and with global fast-food chains phasing in touch screen services, Robot Pub Group now has machines that allow customers to pour (and pay for) their own pints. Meanwhile, Japanese sushi chain Kura has robots doing everything from preparing the food to delivering it by conveyor belt.

In medicine, surgical machines that allow surgeons to carry out procedures with far more precision than previously have been used more than two million times in the past 15 years. Now a team at University of California, Berkeley, has developed robots that can independently perform tasks currently carried out by surgical assistants.

Other automation systems – ones that sort and deliver prescriptions, a key task fraught with risk of human error – are also appearing in hospitals. And to deal with a looming shortage of care workers and orderlies, the Sumitomo Riko Company has created a robot that can transport frail and elderly patients. As for housework, in 15 years’ time, it could be a thing of the past.

We already have robot vacuum cleaners – the Roomba was launched by iRobot in 2002 and has been widely copied. More ambitiously, Moley Robotics’ robot chef aims to produce high-quality meals by copying the actions of an expert chef. On the ageing population front (see below), several Japanese companies are now trying to make life easier for elderly customers by distributing robots that can interact with them and monitor their health.

In terms of investing in this trend, iRobot (Nasdaq: IRBT) trades on 16 times 2016 earnings – its latest robo-cleaner has won rave reviews, and it is also developing other commercial robots, including one designed to make remote working easier.

Robots invade the skies too

And while robots will be cooking your dinner, doing your accounts and looking after you in hospital, their aerial counterparts – drones – will be thronging the skies making deliveries and spotting crime.

These remote-controlled, unmanned craft are already involved in conflict zones across the globe. But now they are moving into the civilian sphere. Despite privacy (and safety) concerns, many countries are revising rules to give them almost free rein over civilian airspace. This year the US Federal Aviation Administration set up an industry task force to rewrite its guidelines, and many retailers are set to take advantage, with Amazon, Google and Walmart all promising to establish drone delivery services within the next few years.

The revised guidelines aren’t just about allowing robo-copters to deliver your groceries, of course. The US Department of Homeland Security already uses military-grade drones to spot drug smugglers, while some local law enforcement agencies have bought used drones from the US army. Europe has already spent £320m on encouraging EU police forces to buy drones. Drones are also starting to transform agriculture. Their role mainly boils down to measuring soil conditions at ever more detailed levels, and delivering the appropriate nutrients more efficiently, so boosting yields.

For example, replacing crop-dusting planes with drones could allow more precise targeting of pesticides, reducing both costs and environmental impact. Yamaha already sells advanced dusting drones for as much as $1m a piece to Japanese farmers.

And of course, there’s recreation. Digital camera group GoPro (Nasdaq: GPRO) is developing mini-drones that can carry their cameras, allowing users to remotely film themselves performing their favourite extreme sports. It currently trades on 18 times 2016 earnings.

The end of fossil fuels?

Long touted as the future of energy, solar power still accounts for just a fraction of global production, only passing the 1% barrier this year. That’s primarily because it is expensive compared to other technologies and only useful in relatively sunny countries. But that’s changing fast. The cost of solar generation has been falling so rapidly, notes Deutsche Bank, that it is less than two years away from being competitive with coal across most of the globe. Ever-evolving manufacturing technology, combined with cheap imports from China, means that costs should continue to drop over the next five years.

With the cost of generation falling, one key remaining barrier is the difficulty of storing electricity during sunny periods for use at other times. Yet work is progressing rapidly here too, as battery technology improves. In May, for example, Tesla released the Powerwall, a storage system aimed at small businesses and home users. At $3,500, it may still be out of the reach of many, but Tesla aims to bring costs down by mass-producing batteries at its “giga-factory”.

And this week, scientists at Cambridge heralded a potential breakthrough that could deliver lithium-based “super-batteries that pack five times more energy into a given space than today’s best batteries”, reports the Financial Times. One way to play demand for solar is through Enphase Energy (Nasdaq: ENPH), which makes a key component in the panels, micro-inverters. The company, which trades on ten times 2016 earnings, also plans to launch its own energy storage system, aimed specifically at residential users.

Three trends for investors to watch

Ageing: Fears of overpopulation are shifting, with the latest forecasts suggesting that the global population may peak at around nine billion by 2050, assuming that developing nations continue to grow richer, driving down birth rates. This points to an older, wealthier, smaller global population, which suggests that in the long run companies catering towards older people should do well.

But don’t run out to invest in manufacturers of Mint Imperials, pipes and walking sticks yet – the “elderly” of tomorrow are likely to be healthier, and thus more active consumers than our traditional view of pensioners may suggest. Consider the sorts of financial products that may be created to cater for an older age group more accustomed to managing their own investments, and who are also likely to take a more flexible approach to retirement – working less rather than stopping outright at 65.

Redefining privacy: The rise of big data should bring many advantages, but it also involves trusting organisations with a lot of personal data in exchange for that convenience. So far, that’s a deal that most online individuals have been more than willing to do, despite ongoing hacking scandals. At what point will we draw the line? Will we be able to draw it at all? At the least, it suggests the market for cybersecurity will keep growing.

Digital currency: Bitcoin has slipped from the headlines, but only to be replaced by excitement over the potential for blockchain technology. Central banks are also clearly tempted by the idea of scrapping cash in order to control consumer behaviour even more tightly. This is one reason we’ve launched a petition demanding that the British government guarantee that cash won’t be abolished.

The three big bets to make now

Three key technologies underlie the advances I expect to see in the coming decades, says Dr Mike Tubbs: information and communication technologies; new materials (such as graphene, nanomaterials and microelectromechanical devices); and biotechnology (from new biotech drugs to gene editing and stem cells).

Indeed, around 75% of the stocks in my Research Investments portfolio are involved in these technologies. And when people look back in 20 to 30 years’ time and name the biggest advance of the previous quarter century, they are likely to choose one of two broad areas: intelligent automation (driven by smart software and sophisticated chips) and improved healthy life expectancy.

Intelligent automation will give us driverless cars, robotic factories and surgery, automated militaries (in the form of cyberwarfare and platforms such as ships, aircraft and tanks being automated to reduce casualties) and automated office work, even in professional areas such as finance and law.

We can see the precursors today in Google’s fleet of driverless cars being tested on public roads, in military drone strikesand in Da Vinci robotic surgery systems (still controlled by surgeons). Therapeutic biotechnological advances will include effective biotech drugs for currently incurable diseases (such as Alzheimer’s and Parkinson’s), cures for most types of cancer, gene editing to treat many inherited diseases, replacement body parts, and mini-robots that can travel through veins and arteries to carry out tasks that currently require surgery.

Precursors today include approved cancer immunotherapy drugs (which enable the immune system to attack cancer), potential treatments for Alzheimer’s, trans-arterial heart valve insertion and early gene therapy treatments.

These advances will extend healthy life expectancy, important for rapidly ageing societies, while automation will enable older people to enjoy fuller lives. I suspect therapeutic biotech will be the most significant development over the coming decades because of its current very rapid rate of advance. However, both will transform standards of living across the globe.

• Dr Mike Tubbs writes the Research Investments newsletter.


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