29 November 2017
This article is part of the UBS House View Year Ahead 2018, our yearly outlook on markets. You will find investment ideas and portfolio implications in the full report.
Technology has been developing at an accelerated pace and shows no signs of slowing down in 2018. Today quantum computers can process data 100 million times faster than any traditional machine. The first driverless cars are out on our roads. Earbuds can translate foreign languages in real time. Scientists are developing living solar panels that can be printed on paper, and tech pioneers are setting their sights on even grander goals like enhancing the human brain with implants for possibility of telepathic communication.
In the most recent quarter, technology firms accounted for 23% of S&P 500 earnings, up by 5ppts in three years. The tech sector is now the largest in the MSCI Emerging Market, and MSCI China, indices, and the number of patents granted has doubled over the past decade, with 1.2 million approved worldwide in the last year of data. According to the US Bureau of Labor Statistics' estimates, over the coming decade the economy will need 30% more software developers, a fastest-growing highly-paid job.
But as the dotcom bubble showed, alluring visions don't necessarily tally with attractive investments. Even if their potential is ultimately proven, technologies may take too long to develop, companies may be unable to monetize their growth, and investors may miscalculate the sector that value ultimately accrues to. In 2018, as ever, the key will be to separate hype from substance.
Use the animation below to explore 12 different long-term investment themes, from agricultural yield to water scarcity, and learn which technology appears most promising in different phases of the development cycle.
Where opportunities are
We see the most compelling technology-related long-term opportunities in three areas:
Digital data. Due to dramatic declines in the cost of its gathering, processing, storing, and analyzing, data has become a crucial global commodity dubbed "the new oil." Hunger for data can be seen in the numbers - by 2020, we expect the digital universe to be 44 zettabytes large, equivalent to 318 per household, a 50-fold increase from 2010 levels, according to the industry research firm IDC.
Automation and robotics. The combination of factory and process automation, additive manufacturing technology, and artificial intelligence is transforming the way we create and distribute goods, and taking the world into the fourth industrial revolution. The number of "internet of things" devices is soon set to surpass the number of people on the planet, and according to the International Federation of Robotics, by 2019 up to 160,000 robots could be installed in China alone.
Smart mobility. Regulatory action and technological advances have created a boom in the electrification of vehicles, autonomous driving, and car-sharing business models. We expect the smart mobility market to grow tenfold by 2025. In the coming year, we estimate that in Europe the total cost of owning a battery-powered electric vehicle will fall below the cost of a vehicle with an internal combustion engine for the first time.
Overall, in 2018 new technologies will both disrupt and delight. Investors will be at risk if they have high weightings in individual industries under threat of disruption, but we see opportunities in companies that enable and adopt big data technology, supply automation and robotics solutions, or provide electronics and components for electric cars and autonomous driving.