A Bloomberg article that touches on disruptive technology.

In particular, it discusses AI and deep learning and their 'transformational' application to, among other things, healthcare.

Disruptive tech may be cash cow of decade

ANDREW WHITE DAVID ROGERS

BLOOMBERG

Give me half your portfolio, says Brett Winton, and I’ll give you a window to more than $US5 trillion of value creation from disruptive technology in the next decade.

The Venice Beach-based director of research at ARK Invest says investors should look for exposure in five big areas of technology, not just for the upside, but as insurance against the disruption of those areas wreaking havoc on traditional investments.

Among his more alarming predictions, is 80 per cent of traditional carmakers will go bust in a “great culling” as autonomous vehicles go mainstream.

When this happens in the nottoo-distant future, the price for your autonomous Uber or Tesla collapses to US26c a mile (23c a kilometre) versus about US70c a mile to drive a car in the US now.

There’s also a bubble in the private markets, with $1.1 trillion of estimated M&A that needs to take place in “unicorns” to verify the valuations being put on tech investments held away from public markets. A reckoning may be coming. On the upside, gene sequencing that cost $2.7 billion to achieve 20 years ago, might collapse in price to $100, making it cheap enough to be widely available to understand where mutations are happening within DNA.

From there, Winton believes a powerful gene-editing tool called CRISPR will allow medicine to correct mutations inexpensively and precisely. He says there are five big themes to back in the next decade. Artificial intelligence and deep learning, robotics and collaborative robotics, gene sequencing, battery technology, and blockchains and cryptocurrency; each, likely to create more than $1 trillion of incremental market value over the next decade.

Winton is not alone in seeing this age as similar to a century ago when the internal combustion engine, electricity and the telephone were all at their beginnings.

ARK Invest was founded in 2014 to focus on disruptive innovation as a specialist strategy but Winton feels it’s actually the “right way” to manage equities, particularly growth equities generally. That is, in part, because we are in a unique time in technological economic history.

“These are technologies that cut across sectors, so they have general utility for all kinds of business categories and all geographies,” Winton says. He describes AI and deep learning as having a bigger impact than the net, where the impact was largely concentrated in media, retailing and telecoms.

“We believe artificial intelligence will prove particularly transformative in sectors that have previously seemed impervious to disruption, notably healthcare and financial services,” he says.

Gene sequencing could upset healthcare — one of the biggest areas of government and private spending — by transforming the industry from managing expensive treatments for symptoms to curing diseases.

The issue for investors might be weathering the fallout from disruption in the first place. Disruptive companies can feel the force of a market shake-out first — as happened with the tech stocks in the December quarter rout — before they triumph.

ARK has attracted growing mainstream interest, with Resolute Investment Managers and Nikko Asset Management both taking minority stakes in the New York-based investment adviser that manages $US4 billion, as well as offering strategies to their clients.

Wall Street, Winton says, is geared to the short term when investing. That is particularly pronounced in the auto industry where he sees a lot of rationally motivated biases to present the technologies infiltrating their sectors as “not that big a deal”.

But over the next decade he expects to see autonomous car platforms such as Uber, Lyft and Tesla grabbing $US5 trillion of market capitalisation, roughly the same as the global energy industry now.

“Their view is that, ‘we’ll invest in it when it’s time to invest in it, and that’s not yet’,” he says.

“They think they can make this transition very easily. But whereas with previous technological transitions it wasn’t necessarily getting into some of these sectors that are now vulnerable. We think a lot of sectors in the economy are vulnerable.”

Battery technology is advancing at such a rate that a car buyer in 2021 or 2022 is going to walk into the dealership and the electric vehicle is going to be priced the same as the median internal combustion powered car sold in the US.

So it will be surprising if consumers didn’t switch to electric vehicles over time.

Meanwhile, traditional car manufacturers face having to massively disrupt their own designs and processes but are instead focused on short-term modifications that won’t be competitive with new players.

“Mercedes Benz’s attempt at electric vehicles seems destined to fail”, according to Winton, as they are putting electric motors in their existing lines, rather than thinking about the most efficient design for an electric car and committing capital to it.

“It’s no surprise that they have a hard time thinking, we need to rip all of this up, but I don’t know how they survive if they don’t,” he says.

‘We believe artificial intelligence will prove particularly transformative in sectors that have previously seemed impervious to disruption.’