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The rise of the machines: Three trends for the 2020s

The sectors for investors to watch this decade – and how to play them. Part 1.
June 17, 2021

For the past few weeks, the Investors' Chronicle's Algy Hall has been battling tech issues. His company-issue laptop does not provide him with enough computing power for the volume of data he wants to crunch. It is true that the data needs of weekly stock screens look a little feeble in comparison to the volumes of data handled by, say, Google or the Chinese government, but Algy’s predicament is a reminder of the long-anticipated twilight of Moore’s Law.

Computers are no longer improving quickly enough to meet the needs of big data (or the most diligent of investment journalists). 

By the end of this decade, experts think that the long-held truth that with each passing year twice as many transistors can be squashed onto the same sliver of silicon (thus doubling the efficiency of the same sized computer) will be defunct. Traditional computers physically won’t be able to get any better. 

And considering the degree to which exponentially growing computer power has driven stock market returns in the millennium so far, a tech slowdown is a worry for investors. Would Apple (US:AAPL) have claimed a $2trn (£1.4trn) market capitalisation less than two years after smashing through the eagerly anticipated $1trn valuation without the phenomenal increases in its products’ processing power? Probably not. Would Netflix (US:NFLX) and Domino’s Pizza (US:DPZ) have been the two best performing US stocks in the 2010’s without the proliferation of smartphones? Definitely not.

And where would the broader stock market be without the growth of the tech sector? There seems little chance the S&P 500 Index, which traded around 1,000 points at the start of the last decade, would have surged through the 4,000 point mark this year. Nor the meteoric rise of the Nasdaq Composite Index, up fivefold in a decade. Even in the UK, home to a comparatively small technology sector, continually improving computing power has certainly helped businesses back to growth in the wake of the coronavirus pandemic. The FTSE All-Share recently crept over 4,000 points and looks on the cusp of an all-time high. 

So if Moore’s Law is to come to an end in the 2020’s, what should investors expect from the stock market in the same period of time? 

A correction? Perhaps. The growth reported in recent corporate financial results has helped the stock market justify lofty valuations, especially for companies in the tech sector. If that growth dries up (as technological progress slows and companies lose the pandemic booster effect), it will be harder to rationalise share prices at tens of times annual earnings. 

The looming shadow of inflation and subsequent government action also continues to tickle investors’ nerves. Markets move on sentiment and a tetchy bunch of stock pickers, keen to avoid the fallout when central banks turn off the taps, is unlikely to provide a positive catalyst. 

But innovation began facilitating positive shareholder returns years before the arrival of the supercomputer and there is no reason to believe that stock market growth will dry up with the death of one technological axiom. Companies and industries will continue to harness the power of technological change to drive growth, but investors might have to work harder to find them. 

In the guides below, our writers explain how investors can responsibly play three of the decade’s most promising themes. Next week, we will explore three more. 

Rise of the machines: how to invest in robotics, automation and artificial intelligence

These themes may seem futuristic, but investors can tap into this multi-decade opportunity now

Crypto, digital cash and the future of money 

The future of money is very uncertain, but big payments providers remain a winning bet

Into the metaverse: how to invest in the video game boom

Video games boomed in 2020 – how can investors keep riding the wave?