Allocating to innovation requires a long view of how the world will improve and solve its problems. Innovation solves issues in healthcare, industrial development, e-commerce, and transportation to name a few. While disruptive innovation themes are fast-moving, sometimes the stocks themselves need time to overcome hurdles, adoption rates and understanding.
The miracle of innovation is the ability of the world to develop solutions and then for companies to come forward with new technologies. Who would have ever dreamed that 3D printing can make hearing devices, shoes, liver patches, jet engine parts, and new homes? The unthinkable multi-step production models are being condensed right before our eyes. This is resulting in reduced costs, faster development cycles, and the ability to produce in locations where previously this technology was unavailable.
If we need to deliver medicines and vaccines to parts of the world where roads are not developed, then drones can make a meaningful contribution to saving lives. These drones are powered by lightweight batteries with endurance. In places such as South Africa and India, this is happening right now.
So, how can fast-moving innovations, which will improve our quality of life, help fight inflation?
The sub-advisor for Emerge Canada, ARK Invest, conducts long-term research and develops market size estimates and forecasts which extend out past 5 years. Just some snippets from ARK Invest’s Big Ideas 2022 report:
- Delivery Drones–are expected to contribute $230 Billion in delivery revenue by 2030
- Multi-cancer Screening–Liquid biopsies should scale exponentially over the next five years
- Digital Worlds–Digital Wallets could command nearly $50 trillion in equity market capitalization by 2030
- Electric Vehicles–Global EV Sales could scale to 40 million units in 2026
- “By automating the tasks of knowledge workers, AI should boost productivity and lower unit labor costs significantly. “ AI training costs are expected to drop 60% by 2030.
- “Digital entertainment, advertising and e-commerce is expected to grow at an 18% compound annual growth rate over the next five years.”
Innovation is deflationary, not inflationary.
Within each of these areas, demand will cause new innovations to experience price declines. For example, the cost of artificial intelligence training has dropped dramatically. The cost of robots and cobots has decreased enabling more businesses to automate and help contend with labor shortages. Labor shortages are causing wages to rise, while automation will hopefully solve some service issues and ease the burden. Tesla has put a major strategic focus on the development of the Tesla Bot “Optimus” to help curb labor shortages for redundant and menial tasks. The cost of batteries has continued to decline and will enable an explosion of electric vehicles and drone usage. With more electric vehicles being to meet demand, the cost will ultimately decline as they are less expensive to maintain and they are not fossil fuel dependent.
And lastly when the cost of sequencing a genome goes below $1000 then insurance providers and health care institutions can recommend, for prevention, the use of sequencing. Enabling the early detection of abnormalities through sequencing may dramatically decrease healthcare spending. Gene-editing technology has the ability to cure thousands of monogenic diseases, which can extend quality of life and reduce treatment costs.
Due to the fears of inflation for investors and consumers there is a sense of urgency to lower costs. For a company to lower costs, they have to find ways to solve pain points economically. They could have struggles with supply chain issues, packaging, and e-commerce challenges. Finding innovative ways to transport materials, package goods, and for faster delivery means margin improvements without prices going higher. If these companies invest in innovative ways to keep their costs down and meet demand, then they contain inflation and help consumers maintain their purchasing power.
Most importantly, the growth rates expected in the above-mentioned areas of innovation exceed on average over 30% compound average increases in enterprise value based on ARK’s research over the next ten years. This wildly surpasses any forecasts for inflation.
- Equity market returns in the 5 major innovation platforms expected over the next ten years expect a CAGR and Equity market capitalizations of:
- Artificial Intelligence 26% $108 Trillion
- Battery Technology 35% $32 Trillion
- Blockchain 43% $49 Trillion
- Robotics 51% $10 Trillion
- Gene Sequencing 40% $3.6 Trillion
Important to note, the investor experience in innovation may be volatile at times. As new technologies develop and demand increases, they are subject to evaluation and market pricing by analysts and the street, which may be unaware of the true value developing. Investors in innovation should have a long-term time horizon and be prepared for volatility to benefit from the long-term potential.
For more information on Emerge Canada Inc’s offerings please visit www.emergecm.ca or contact email@example.com.
The above information is for informational purpose only. Emerge capital management is not responsible for any of the above-mentioned fields and is not responsible for performance of any sectors or particular holdings.
 ARK Investment Management LLC. (2022). “Big Ideas 2022.” 92. Retrieved from www.ark-invest.com.
 ARK Investment Management LLC. (2022). “Big Ideas 2022.” 12. Retrieved from www.ark-invest.com
 Zatara. “Artificial Intelligence - Enabling Humans to Become Superhuman.” Medium, Coinmonks, 13 Mar. 2022, https://medium.com/coinmonks/artificial-intelligence-enabling-humans-to-become-superhuman-bd82c574d6d4.
 ARK Investment Management LLC. (2022). “Big Ideas 2022.” 23. Retrieved from www.ark-invest.com
 ARK Investment Management LLC. (2022). “Big Ideas 2022.” 77. Retrieved from www.ark-invest.com
 ARK Investment Management LLC. (2022). “Big Ideas 2022.” 6. Retrieved from www.ark-invest.com