Apr

5

From a Bank of America report:

Understanding which breakthroughs are on the cusp of commercialization has never been more important. In the past 100 years, 3% of companies generated nearly 100% of global net wealth (source: Bessembinder), and roughly a third of the S&P 500 index has been replaced since 2015. In our separate primer picks report, we highlight the enablers to access these breakthroughs theme with a combined market cap of c.$16tn. We identify 30 breakthroughs & tech evolutions across AI, computing, robots, communication, health tech, energy and mobility.

Big Al adds:

Just for reference, combined cap of MSFT, AAPL, AMZN, NVDA, META, and GOOGL is ~12.5T.

H. Humbert comments:

The problem with breakthroughs is this: most of the wealth is created by breakthroughs, but most companies working on breakthroughs or trying to commercialize them fail. Once the breakthrough has been so successfully commercialized that some specific companies are identified with it, they're prices are typically so high that you have to bet on their continuous growth, and if you do, you will often lose, and of course sometimes you will keep winning for a long time. "Understanding breakthroughs on the cusp of commercialization" seems like a good goal, but it's not clear it can be turned into a successful investment strategy. Cathie Woods attempts to ride these waves, so this whole approach isn't exactly a well-kept secret.

Andy Aiken writes:

What we call productive disruption (i.e., technology adoption that has sufficient economies of scale that above-market returns are available to investors) is in fact two “laws” at work: Moore’s law and Wright’s law.

Although in recent years we have not continued the log-linear progression of miniaturization obtained in an earlier time, Wright’s law (cost of technology decreases as the cumulative production of the technology increases - later famously marketed by Bruce Henderson and BCG as the “experience curve”) has continued to hold. It my view, it’s one of the few reasons that even headline inflation isn’t in double digits at the moment.

The challenge is to find the innovative companies with technology improvements on the scale of Moore’s law with cost reductions that outpace the cumulative production of the technology. At least, that’s what I look for.


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