Disruptive technology is fundamentally changing ‘old’ industrial systems, by creating new market constituents and marginalising old ones.
This innovation goes beyond the technology industry itself, impacting nearly every sector and delivering exciting growth opportunities for investors. Yet, at the same time, the scale and pace of this disruption changing business, as well as how economies and societies function, requiring careful management.
Digitally reshaping the traditional industrial framework
Global technology spending is forecast to reach USD 4.7 trillion in 2024, an increase of 5.3% from the previous year.1
Much of this growth in spending is being directed towards generative artificial intelligence (AI) and software, however, companies are also investing in green and digital innovation – areas that reach well beyond traditional technology divisions.
While stock market gains may appear to be concentrated in technology at present, digital innovation, led by AI, is being increasingly embraced across sectors. Manufacturing and industrial companies are incorporating robotics, 3D printing, predictive maintenance and logistics optimisation into their processes, as well as using AI to manage and monitor supply chains better. The financial sector is utilising digital payment technology, fraud prevention and blockchain to reinforce and streamline its systems. And from drug development to patient treatment, AI is influencing almost every aspect of the medical sector.
Technology also presents considerable opportunities in social issues, such as better access to communications technology and providing more equal opportunities in education, including increased personalised learning approaches. Technology can even help address the energy and resource efficiencies needed to deal with climate change.
Technology enablers
Technology themes are also experiencing significant growth – particularly those interrelated ‘enabling technologies’ that facilitate the wider growth of digitisation and AI.
Cloud computing enables the efficient use of computing resources, lowers the cost and complexity of starting a new business, and results in rapid app development and the proliferation of new products and services. Cloud service providers could also aid the development of larger, more powerful AI systems, as many of these models are run in the cloud.
Training and running the large language models that underpin generative AI has created a surge in demand for graphics processing units (GPUs), an innovative component of semiconductor engineering. Long-term semiconductor demand may also be supported by other end markets including the auto sector – where electronic content is increasing and inventories remain low – and data centres which support cloud and AI initiatives.
Meanwhile, Internet of Things (IoT) applications include home automation and security, fitness and health monitoring, factory automation, asset tracking, public transit, smart cities, and utility metering.
While AI is forcing investors to redefine the way we think about technology, not all tech segments are flourishing. Overall e-commerce spending is still normalising following outsized demand during the pandemic, and spending on personal computers and low-end smartphones has been relatively weak compared to historical trends.
Cybersecurity innovations
With companies across all sectors seeing digital transformation as a strategic imperative, the cybersecurity market is expected to grow at a significant rate in the coming years due to increasing threats from cyberattacks, data breaches, and other forms of cybercrime. With the annual cost of cybercrime set to increase from 2023 to 2028, global spending on security and risk management is set to increase by more than 14% this year and is set to reach around USD 425 billion by 2030.2
As the digital threat landscape becomes increasingly complex, a report by McKinsey suggests that now is the time for innovation in the cybersecurity industry, which needs to continuously improve technology and reduce complexity. It calls for the prioritisation of cloud cybersecurity options, particularly for highly regulated industries – and further investment in automation, AI and machine learning innovation. In addition, the report recommends that cybersecurity offerings should focus on security outcomes rather than individual technologies.3
Disruption needs to be carefully managed
Technology’s capacity to be disruptive often leads to both anticipated and unanticipated change. History tells us that industrial revolutions are often accompanied by a period of creative destruction where jobs are both created and destroyed, existing companies are outpaced by new challengers and new solutions to old problems emerge at pace.
The short-term impacts of such disruption can be profound – both for investors and at a broader societal level. In the technology sector, we have already seen that power and wealth can quickly become concentrated among a few leading players, and this trend could well be replicated by other innovations and technologies in the future.
The political sphere is already considering questions of data ownership and safeguarding privacy, as well as the need to implement stricter curbs on the development of AI. Policymakers will need to find the right balance between encouraging the development of new technologies while mitigating some of the risks. With several court cases against technology giants in the works, as well as new AI legislation being considered, this balancing act will need to be closely watched by investors and reinforces the growing requirement for specific investment expertise to ensure all angles of this increasingly complex theme are covered.
Approaching disruptive technology from all angles
We are now in an investment era where the traditional classification of the technology sector is becoming less apparent, and where innovation is spread across numerous sectors and countries– a trend that is being further accelerated by AI. And in such an environment, we think investors should consider a thematic approach to capture the full breadth of opportunities on offer.
BNP Paribas Asset Management’s Disruptive Technology strategy invests across regions and sectors including –Healthcare, Technology, Energy, Financials, Consumer and Industrials. By combining secular growth drivers – cloud computing, artificial intelligence, automation and the Internet of Things – with the foundational technologies that enable them, the team aims to identify the companies leading or benefiting from digital transformation while avoiding the companies that are failing to adapt or are being disintermediated by change.
Finding these winners could be rewarding and will take in-depth research and broad resources to examine the challenges and opportunities from multiple perspectives.
[1] https://www.forrester.com/blogs/global-tech-spend-will-grow-5-3-in-2024/
