New technologies have led to a series of industrial revolutions. Today, we believe we are entering a fourth revolution—one with growth opportunities for investors, as well as risks.
Technical advancements are the key drivers of change
Sources: Schwab, Klaus, The Fourth Industrial Revolution, New York, Crown Business, 2017, and Wells Fargo Investment Institute. In his book, Klaus Schwab identifies the fourth industrial revolution as being characterized by digital, physical, and biological systems. We are calling this the intelligence revolution.
Computing power is driving the intelligence revolution. It's typically determined by the density of integrated circuits, which has increased exponentially since the 1970s.
Future technology will bring more seamless connectivity on mobile devices and more realistic virtual reality.
More transistors = more computing power.
Sources: Our World in Data, Karl Rupp, GitHub, and Simonite, Tom, “Moore’s Law is Dead. Now What?,” MIT Technology Review, May 2016
Today's circuits are reaching the limits of density: The gap between transistors is approaching the size of a silicon atom.
New systems are being developed to overcome this limitation. This is expected to impact technologies from autonomous vehicles to augmented reality.
Uses photons as a basic unit for computation. Theoretical benefits include more bandwidth and less heat.
Uses basic units that do not have to be in definite binary states (0 or 1). Offers significantly greater computing speed.
Uses systems of biologically derived molecules to store, retrieve, and process data. Provides a link between IT and biotech.
Source: DNA computing, retrieved from cs.stanford.edu, and Wells Fargo Investment Institute
For investors: Opportunities lie with developers of new systems, and with industries currently held back by insufficient computing power.
Examples:
Robots have existed since the 19th century, but today's robots have evolved to an unprecedented level of sophistication.
Though the majority still focus on industrial applications, robots today also deliver food, perform surgery, lay bricks, and more.
A German instrument maker creates a wind-up robot “Trumpet Player.”
American automaker General Motors installs the first industrial robot on a production line. The Unimate robot arm sequences hot pieces of die-cast metal.
SAM (semi-automated mason) can lay about 3,000 bricks in an eight-hour shift—several times more than someone working by hand.
Sources: Business Insider, 2011; Robotics Industries Association, 2018; USA Today, Productivity boost? Robots break new ground in the construction industry, March 19, 2018
The number of operational robots is expected to have an average annual growth rate of 14% between 2018 and 2020.
Source: International Federation of Robotics, September 2017
This is expected to impact industries from health care to materials processing.
For investors: The opportunity is with companies moving robots from the factory and into people’s lives. Potential roles for robotics include:
Download the full Tomorrow's Technology report to learn:
Decentralized ledger technology (such as blockchain) gave rise to cryptocurrencies like bitcoin. Its use of peer-to-peer networking allows for secure data sharing and synchronization.
By 2030, the estimated business value added by blockchain alone will exceed $3.1 trillion.*
* Source: Gartner, 2017
Transactions are recorded by a central authority on a ledger that must be reconciled with each participant's copy.
Transactions are recorded on a common, shared ledger and confirmed by participants in real time.
This technology is about more than cryptocurrency. Due to its speed, flexibility, and scale, it could benefit any industry requiring fast, secure transactions. For example, blockchain could reduce the cost and increase the speed of international monetary transfers.
A digital ledger records all transactions that take place on a peer-to-peer network
Information is encrypted and every occurrence is recorded, so it cannot be altered
The ledger is decentralized; there’s no need for a central, certifying authority
It can be used for more than the transfer of currency; records and other kinds of data can be shared
Encrypted information can be shared across multiple providers without risk of a privacy breach
Source: Wells Fargo Investment Institute, August 2018
The change will accelerate as computing power and connectivity increase.
For investors: Opportunities lie in sectors where real-time transactions, record keeping, and security are top of mind, including:
Let the strategists at Wells Fargo Investment Institute show you:
Artificial intelligence (AI) is a collection of technologies allowing a machine to learn and process language.
Today, AI and machine learning can recognize spam emails, customize online shopping based on buying patterns, and power voice-activated search.
AI is intelligence exhibited by machines, as opposed to humans.
Digital voice assistants in smartphones and home speakers.
This type of AI uses statistical techniques to improve performance on specific tasks.
Online customer support chatbots.
AI's potential impact is huge. It can drive action based on the fast analysis of large amounts of data. Uses range from the autopilot of commercial planes to secure mobile checking.
The technology's reach is extending into medicine, manufacturing, and more.
Source: Artificial Intelligence Index, indeed.com. November 2017.
This technology makes data an even more valuable asset, and increased computing power an ongoing need.
For investors: The opportunity lies in sectors that rely upon the analysis of large amounts of data. Areas of impact include:
The full Tomorrow's Technology report from Wells Fargo Investment Institute includes:
Investment risks/technology companies and drivers
Technological drivers: The technological drivers of change discussed in this report include advances in computing power, robotics, decentralized ledgers, and artificial intelligence. These drivers of change have the potential to create significant value for consumers; however, in some cases, that value may not be evenly distributed. The use of automation and robotics, for example, may create considerable opportunities for those with artificial intelligence skills while the labor of less-skilled workers may be replaced with machines. There is never any assurance that new technologies will create real value, and it is important that investors consider all aspects of technological advancement when considering potential investment opportunities, including which new technology may become commercially successful and make it possible to achieve excess investment returns. Allegations of data security breaches, infringement on intellectual property, and violation of privacy rights may engage companies in protracted legal proceedings and, even if a lawsuit is avoided, substantial costs, all of which can diminish the company’s ability to operate successfully and produce negative consequences for its investors.
Investment risks/sectors: When considering investing in new technologies within equity sectors, it is important to consider the sector‘s particular risks and the risks associated with investing in new technologies. Keep in mind sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy. This can increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector.
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