Investing in the Future with Three Tech Megatrends
Technology stocks around the world have been on a tear through the first half of 2023. This comes after a troubled 2022 where tech – alongside other growth stocks – failed to find their footing in response to inflation, central bank rate hikes and geopolitical concerns. However, the sector has pivoted into positive territory as investor enthusiasm returned for future-focused opportunities. In turn, the MSCI World Information Technology Index has risen more than 32% this year to date and the Nasdaq 100 has jumped almost 43%.1
As technology is running hot, investors may stop to wonder whether they have missed the boat, but when investing in this sector and its subcategories it is important to consider the medium to long-term growth potential which is driven by strong structural tailwinds such as semiconductors, ‘as-a-service’ models, and robotics.
Artificial Intelligence Boosts Semiconductors
Semiconductors are a vital component of every electronic device. They have a set of nanoscopic electronic circuits on a tiny silicon base which break up the flow of electricity and turn it into signals which tell a device what to do. This crucial functionality has seen demand for semiconductors soar alongside the proliferation of electronic devices such as smartphones and computers.
Aside from run-of-the-mill uses, semiconductors are vital for innovative industries such as artificial intelligence (AI). New AI systems are reliant on a type of semiconductor called graphics chips (GPUs), so when ChatGPT brought AI to the masses at the start of 2023, demand for GPUs went through the roof.2 Shares in Nvidia – the world’s primary GPU designer – have been skyrocketing, up more than 225% from January to the end of July 2023. Ongoing chip supply issues and the longer-term structural shift to AI adoption is set to further elevate demand for semiconductors. Overall, the semiconductor industry is expected to experience strong growth in 2024, expanding more than 18% to US$630.9 billion.3
‘As-a-Service’ Models Support Tech Growth
Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS) have facilitated the rise of the digital economy and disrupted numerous industries the world over – from Uber in transportation to Salesforce in customer management software. The key difference between businesses using ‘as-a-service’ models and traditional information technology (IT), is they use cloud computing to deliver their services rather than hardware. Subsequently, ‘as-a-service’ companies have grown significantly due to their economic advantages over traditional IT including, accessibility and scalability, lower overheads and predictable costs for customers, and faster implementation.4
Worldwide enterprise spending on IaaS and PaaS offerings has steadily been increasing – jumping from around US$15 billion in the first quarter of 2018 to US$63 billion in the corresponding period of 2023.5 Meanwhile, the total global SaaS market alone could be worth around US$10 billion by the end of the decade.6
Robotics Revolutionises Global Industries
Robots in their various forms are becoming more accessible for a wide range of industries across the globe including medical use, automotive manufacturing, and agriculture. Revenue from the robotics market is estimated to top US$37 billion in 2023, with service robotics making up the lions share at almost US$28.5 billion.7
A key factor in their increasing adoption is the falling cost of industrial robotics. In 2005 the average price of an industrial robot was US$68,659, but by 2025 it is projected to be around US$10 800.8 Paired with technological advances and easier programming, even small to mid-size businesses have been able to deploy robots to improve their operations.9 Demand has been increasing alongside accessibility and the latest World Robotics Report shows industrial robotics use is at an all-time high after 517, 385 new robots were installed in 2021 – a 31% year on year jump which is well above pre-pandemic levels.10 Looking ahead, robotics will be crucial in improving supply chains and efficiencies across the world.
The Tech Boom Continues
Underlying structural shifts across these technology industries is set to support ongoing growth well beyond the current boom. This positive longer-term outlook is crucial in identifying investment opportunities in tech. Hence, the Global X Semiconductor ETF (ASX: SEMI), Global X Morningstar Global Technology ETF (ASX: TECH) and Global X Robo Global Robotics & Automation ETF (ASX: ROBO) look to companies at the forefront of their respective industries to capture their powerful potential.