Major Themes and Investment Opportunities Over The Next Five Years
As our economy develops in the post-COVID world, digital-first solutions are a primary focus for investors, entrepreneurs and executives. Public cloud infrastructure (Google Cloud and AWS) and robust broadband connectivity are still relatively new and have opened the doors to exciting new opportunities. SaaS (Software as a Service) companies are thriving, so are digital health solutions, eCommerce solutions and digital finance applications. Let’s take a look at the major trends that are likely drivers of growth over the next five years.
The Migration From Private to Public Cloud
Why is it important? The public cloud allows entrepreneurs to test and scale new businesses quickly and cost-effectively. Private clouds are expensive to build and maintain. Amazon, Microsoft and Google are today’s leaders in public cloud infrastructure. Despite the industry’s growth to date, we are still in the beginning stages of the migration from private to public cloud infrastructure. The current estimates of public cloud penetration are around 10%. The public cloud providers are not the only opportunity. Companies like Cloudflare and Fastly help the public cloud better interact with end-users by improving security, routing sophistication, and speed.
The Digitization of Finance
Why is it important? Digital financial solutions improve security, reduce fraud and save us quite a bit of time and money. Consider the effort you’ve spent filling out loan applications, initiating wires, waiting for checks to clear and EFTs to process. Companies like Paypal, Square, Robinhood, Interactive Brokers, Market Axess, Visa and many others are actively building highly scalable financial solutions that simplify routine financial transactions. Most of the large banks today are behind the curve on this trend. The leaders of new financial technology solutions have seen their stock prices grow at incredible rates and we don’t expect that to end in the near term.
Artificial intelligence to GPUs to semiconductors to EUV machines
Why is it important? Driverless cars, automatic fraud detection, improved search results, marketing analytics, HR analytics, more sophisticated video games, superior weather predictions, etc. require us to continue to push the boundaries of artificial intelligence and machine learning. That computing relies on the public cloud, state of the art software, and sophisticated GPUs (graphical processing units). The supply chain that makes AI possible includes some of the world’s best innovators. NVidia produces GPUs with semiconductors from TSMC built with breakthrough EUV machines by ASML. There are many ways to invest in the future of AI. The total addressable market for next-gen artificial intelligence is still in its formation stage.
The Battle For Our Attention
Why is it important? Whoever controls our attention has the opportunity to control how we spend our money. Apple’s IOS and Google’s Android operating systems seem to own a near-monopoly on our attention via our smartphones. Our dedication to our phones gives Google and Apple the mineral rights (for now) to sell our attention to advertisers. Roku has paired with the TV manufacturer, TCL, to create Roku native smart TVs to distribute content and sell ads via companies like The Trade Desk.
I read about digital theme parks over the weekend and how much time people spend in digital worlds playing Roblox and Minecraft. Roblox recently broke over 1 billion playtime hours per month and is owned by Unity, scheduled to IPO this year. That 1 billion hours per month figure doesn’t include time spent viewing Roblox players on Youtube or Twitch. These companies are sophisticated and scalable and competing for your highly profitable attention.
Digital Health Care and Health Data
Why is it important? Telemedicine widens the market for healthcare while lowering the cost. At the same time, it’s more efficient for patients and doctors. VynZ Research expects the digital health market to grow from $111.4 billion in 2019 to $510.4 billion in 2025. That’s a CAGR (compound annual growth rate) of 29.0% for the next five years. Health care is 18% of our GDP. Like many sectors, COVID has accelerated this trend towards digital health. Significant mergers and acquisitions are already happening to create the next generation of digital health leaders. The merger of Livongo and Teladoc last month is an example of a powerful up and coming provider.
I am saving the best for last. Why is it important? E-commerce allows for the quick and efficient matching of buyers and sellers. Amazon does it all under one roof (Amazon.com), while Shopify democratizes the online shopping experience by providing a platform for business owners to sell their products online. VTEX is another innovator in the e-commerce space worth following (they are not public yet).
Mercadolibre and Sea Limited are leading e-commerce companies in international markets. It’s interesting to note that Mercadolibre is the only international company in the Nasdaq 100 index. It’s challenging to nail down an estimation of the total addressable market (TAM) of global e-commerce. E-commerce adds natural convenience for consumers and sellers. Distribution centers, warehouse technology and shipping logistics innovations are scaling exponentially to meet constant increases in demand. This has been a powerful force for at least a decade.
We have not addressed risk management, specific investment vehicles, tax considerations, sizing, timing, or important valuation considerations. We can’t predict the future. However, we can prepare for it by taking advantage of the trends that will eventually shape the way we live and conduct business. If you would like to discuss how to implement these trends in your investment portfolio and overall family wealth strategy, please let us know. We welcome your insight and the opportunity for discussion.
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