Investment and Insurance Products are:Not Insured by the FDIC or Any Federal Government AgencyNot a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank AffiliateSubject to Investment Risks, Including Possible Loss of the Principal Amount Invested
Setting the course for the next decade
Artificial intelligence and genome editing embody a new era of digitalization that is poised to spur the next stage of globalization and catalyze advancement, potentially for decades. This report explores what that means for society — and for investors.
Twenty-five years ago, IBM’s Deep Blue defeated chess grand champion Garry Kasparov and the world took notice of artificial intelligence, or AI. Today, thanks to AI, computers have learned to write poetry, smartphones find the quickest route to the office, and driverless taxis transport passengers in Arizona.
In April 2003, scientists announced the mapping of the entire human genome. Today, doctors are beginning to use gene therapy to treat inherited and acquired disorders and scientists designed the COVID-19 vaccine two days after the virus’s genetic code went public.
Disruptive, transformational technologies like AI and the gene editing breakthrough CRISPR, are entering a new era that likely will impact our lives and drive innovation for decades.
Three key ingredients have converged to propel us into a new era of Artificial Intelligence — big data, faster computers, and machine learning algorithms.
Humans consumed an astonishing amount of data last year, and researchers anticipate data consumption is likely to increase more than two-fold by 2025.
And while only 65% of the world’s population has access to the internet, that percentage increased 10% in just six months last year.
These increases are quickly pushing the bounds of computing power. Super computer processing capacities have increased even faster than anticipated.
The simultaneous increase in both data and computational speed has ignited interest among computer scientists in building algorithms to organize and analyze data — driving a new era of AI.
Global corporations are emphatically embracing this trend.
Using supercomputers to harness the power of data also extends to the fabric of our being — DNA.
Nearly 20 years after the dawn of gene therapy, recent advancements are making it possible for researchers to pinpoint what causes certain diseases, and repair and replace genes via CRISPR. The genomics revolution will help scientists understand and treat some of our biggest health care challenges.
From a high level, we expect the Information Technology and Communication Services sectors to benefit from the modern evolution of AI. Companies with the largest pools of capital and data should prevail among the multiple long-term technology trends.
The Biotechnology sector continues to become increasingly intertwined and reliant on developments within genomics and gene therapy. The sector has seen a significant increase in companies specializing in genomics-related technology.
These firms are low quality and typically struggle mid-late cycle as liquidity begins to evaporate. In the future, these smaller cap firms may present an attractive acquisition opportunity for some of the larger players in the S&P 500.
For more ideas about how to leverage these advancements over the next decade, read our Wells Fargo Investment Institute special report: Transformative technologies — Investment opportunities in artificial intelligence and genomics.
Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility.
The opinions expressed reflect the judgment of the speaker as of the recording date and are subject to change without notice. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results. Additional information is available upon request.
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client‐specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.
Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.
Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.
Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.
The bar chart shows the forecasted cumulative revenue from Artificial Intelligence from 2016 through 2025 in U.S. dollars. Static image recognition, algorithmic trading, and processing of patient data are the top three use cases.
There are three key areas where artificial intelligence and machine learning are likely to have a material impact in the near term.
Digital automation and supply chain management
Current forecasts estimate that this year alone, 90% of large and very large organizations will incorporate some version of robotic process automation, up from 55% in 2019.2 Not only do we expect this trend in AI-facilitated digital supply chain management to accelerate this decade, but a recent survey of process manufacturers suggests that two-thirds expect operations may be autonomously managed by 2030.3
2. Forecast Analysis: Robotic Process Automation, Worldwide,” Gartner, Inc., September 2020
3. Yokogawa Survey Finds Two-Thirds of Process Industry Companies Are Anticipating Fully Autonomous Operations by 2030,” Yokogawa Electric Corp., September 2020
AI is critical in the hardware needed for autonomous driving — namely, in the light detection and ranging (LiDAR) radar and cameras for vision, mapping, and computing power. Car-to-car communication is also possible through AI, where autonomous vehicles can alert others about upcoming congestion, construction, and accidents.
Healthcare and biotechnology
Rapidly advancing AI technology allows researchers to build maps of cell genomes and structures that aid in drug discovery. Over the next decade, AI may help scientists build proteins and maps to facilitate gene therapy treatment.
The discovery of clustered regularly interspaced short palindromic repeats, now known simply as CRISPR, ushered in the equivalent of the space race in the 21st century. Here’s what it is — and why it matters.
The image show the process of gene editing using CRISPR/Cas9. In the first step, the Cas9 protein and the guide RNA locate the targeted strand of DNA. The strand is then cut, allowing scientists to edit the gene by either deleting the DNA, or modifying it.
Faster and more-precise techniques will define the next decade of gene therapy.
Today, researchers are focusing on site-specific recombinases, or SSRs, which edit DNA without relying on a viral vector to introduce new DNA at the break. With SSRs, locating and simply switching the orientation of a DNA segment — much like a railroad switch — has applications within synthetic biology in the use of biocomputers.
Companies with “deep pockets” of capital and data should prevail. Existing R&D efforts give them a first mover advantage in data, alongside elevated levels of cash on balance sheets.
Growth of gene therapy and genomics-related companies expected to continue, aided by private equity funding. Significant R&D efforts alongside strategic investments.
Areas to watch
Impact of AI on cybersecurity, autonomous driving and Metaverse
Heightened M&A as large pharmaceutical companies collaborate or acquire smaller players and clinical data de-risks products under development.
Source: Wells Fargo Advisors Global Securities Research
Two simple investment approaches
Technology exchange-traded funds (ETFs)
Technology mutual funds (MFs)
Most technology ETFs passively replicate a particular technology index. One advantage of technology ETFs relative to other vehicles is that they provide investors with instantaneous access and near instantaneous liquidity. ETFs also tend to charge low fees and have full, daily portfolio transparency.
The majority of technology MFs are actively managed. The relative opacity of MFs’ holdings (compared with ETFs’ holdings) shields some proprietary strategy features, allowing them to implement an effective, active investment approach. Their variety of investment strategies seek to outperform the broader technology market or a targeted technology segment.
Investing in transformative tech? Download the full report
The full Transformative Technology report from Wells Fargo Investment Institute contains additional guidance and considerations for investors, including:
• Deeper dives into the impact of AI and CRISPR
• Details on favored asset classes and sectors
• More information to help guide your investment decisions