Energy transition, digital transition: difficult to anticipate the markets. The important thing is to identify reasonably advantageous entry points.
Technological innovation has the ability to change the world in more ways than one. One of the common denominators underlying most trends is the economy, which often determines the direction in which things move. Investors therefore play a crucial role in this process, not only to be able to make informed decisions for their own finances, but also to influence the general discourse and have a positive impact on the world.
On the way to a greener future: the energy transition
The energy transition can be summed up as follows: the world seeks to recreate in a few years what has been done in more than a century. And this time, in a more sustainable way. But when turning around isn’t an option, you have to move on. Is the energy transition accelerating?
For consumers who want to make climate-friendly choices, the economics must also make sense. Let’s take the example of electric vehicles again. The number of electric vehicle models available in the global market increased from 159 in the fourth quarter of 2017 to 551 in the fourth quarter of 2022. The more affordable electric vehicles become in the mass market and the more the sector develops in a sustainable way, the easier it will be for the world to decarbonize road transport.
industrial economy
With ‘Fit for 55’ legislation in the works, industries will either have to switch to cleaner energy sources, the cost of which is falling, or pay CO2 emissions allowances, the price of which continues to rise. One thing has become clear in our conversations with investors over the past few months. Everyone agrees that succeeding in achieving carbon neutrality will require using all possible solutions. It is therefore not surprising that investors have continued to deploy capital towards environmental themes in 2022, despite a difficult macroeconomic environment.
As AI becomes smarter, the use cases will multiply.
On the road to a more connected future: the digital transition
In December 2022, DeepMind announced that its gamer AI DeepNash had learned to master the Stratego, playing on its own. Stratego is more complex to master for an AI than chess or the game of go because it also requires playing with incomplete information. During a game of Stratego, the two players each start with 40 pawns which are first hidden from their opponent. This means that, unlike chess, players do not have access to the same information during the game. This greatly increases the number of possibilities compared to a game of chess or go.
As AI becomes smarter, the use cases will multiply. Take the health sector as an example. In January 2023, JP Morgan’s annual health conference in San Francisco was attended by big names from the pharmaceutical and biotech industries, as well as chipmaker Nvidia. According to Nvidia, 80% of the company’s medical revenue comes from radiology systems and surgical robots, while about 20% comes from AI approaches to drug and genomics research.
The main function of semiconductor chips is to perform many calculations very quickly. Artificial intelligence is therefore not only a software concept, it is also a hardware concept. Once these two elements complement each other, their uses can extend to any sector.
The growing need for security
There is a risk that digitization will go faster than digital readiness. In 2022, the number of global cyberattacks increased by 38% compared to 2021. As the world becomes ever more connected and generates, stores and shares more data than ever before, cybersecurity can no longer be considered optional. The risk caused by the lack of adequate safeguards can often prove catastrophic.
Digitization is undeniably happening. Even politicians admit it. The European Commission has designated the 2020s as Europe’s digital decade, with the aim of adapting the continent to the digital age.
To conclude
The two megatrends discussed are unlikely to dissipate, regardless of what central banks do this year. But their journey is unlikely to be linear. And this for two reasons. Monetary policy, first of all. Thematic investments aligned with megatrends generally lean towards growth and are, therefore, highly sensitive to central bank actions. And, given that it is difficult to perfectly time the markets, the best one can hope for is to identify reasonably advantageous entry points.
The second reason is technological development. The questions that drive the energy transition today, as well as the innovations that shape the digital transition, will not remain static. Any approach to investing in these areas must therefore be prepared to evolve along with the themes. This is by no means an easy task. But while results are never guaranteed, it is certainly possible to make informed decisions.