10 stocks that are gaining market share thanks to their disruptive innovations like AI, according to a portfolio manager
- According to Jason Tauber, mobile phones and cloud services constitute the infrastructure for revolutionary change.
- He added that investing in disruptive technologies is like planning for asset allocation for the future.
- Investors must be prepared for volatility and be able to hold positions for at least three to five years.
Artificial intelligence is dominating the conversation when it comes to new technologies that have captured the public’s imagination, and that’s thanks to handy apps like ChatGPT.
AI can be classified as a broad category of disruptive technologies, which refers to innovations that change consumer habits and crowd out old markets. But this is only part of what is coming in a rapidly developing world. Underlying all of these changes is the underlying infrastructure that ties all these technologies together, says Jason Tauber, portfolio manager who runs the Neuberger Berman Disrupters (NBDS) ETF.
There are two key elements that make up the infrastructure. The first is very simple: almost everyone walks around with a mobile phone, which is pretty much a supercomputer connected to service providers. Then you have a public cloud infrastructure that ties it all together, like Amazon Web Services or Google Compute Engine, which provides Infrastructure as a Service (IaaS).
If you have an idea, you can build and scale a company very quickly thanks to your ability to reach out to the end user and your access to computing power. According to him, these two together really transform.
For this reason, instead of creating something as narrow as an AI ETF, the ETF focuses on anything that signals disruption to the entire industry and changes the status quo.
The fund’s approach is to remain flexible enough to move between different sectors rather than sticking to one type of technology. He noted that such a diversified exposure avoids the hype, which may not last long. For example, a few years ago 3D printing was an exciting new invention that everyone was talking about, but it wouldn’t make sense to create an ETF focused only on the promise of this printing technology because it was overvalued in the long run, he said.
In general, breakout investing should be viewed as a form of exposure to aggressive growth while being aware of the increased level of volatility associated with this class.
“It’s kind of a test of your asset allocation for the future as you try to invest in companies that are building the future,” Tauber said.
He noted that those betting on this sector should also have a longer time horizon, at least three to five years.
Main driving forces and shakers
Tauber said that ETFs include companies that win market share from their competitors through the research, development and technology they bring to their industries. And these new developments could fundamentally change how even their competitors operate.
The companies listed below are based on the top 10 weighted ETF stocks.
Nvidia (NVDA) provides graphics processing units (GPUs) that were originally used for high-end video games. But at least two decades ago, the company began developing the same technology for high-performance computing and artificial intelligence, he said. They have also built a software architecture on top of the hardware, allowing developers to easily build applications using their hardware. He noted that they have a “huge” share of the AI application market and companies are hungry for their products. In addition, Nvidia continues to add new ways to make it easier to write certain applications in their products.
“They just have a very significant economic moat in what is now an extremely hot and competitive area,” Tauber said. “All the big internet players spend a lot on their hardware, and they also put that hardware on their public cloud infrastructure. This allows all these AI startups to access the technology in the public cloud.”
Advanced microdevices (AMD) is another company that makes GPUs. They are extremely important in this ecosystem because they also hold a significant market share. In the long term, they can gain a foothold in the AI space. In the near future, they will win back a significant share of the server market from Intel. This is partly due to their strategic manufacturing partnership with Powerchip Semiconductor, which has enabled them to produce smaller, more efficient and faster chips than Intel, he noted.
Analog Devices (ADI) provides technology that can convert atmospheric information into digital data to mean something to equipment. For example, machines that can independently report on the environment, such as temperature, wind and sound. This technology is applicable in all industries, including medicine, industry and automotive.
Trading web markets (TW) simply digitizes the fixed income market.
“Historically, if you wanted to trade bonds, you actually called the broker and got the price. And now we are slowly digitizing this process. And Tradeweb is creating this digital marketplace,” Tauber said.
intuit (INTU) brings AI to the field of accounting. Their most notable ventures are Turbotax and Quickbooks. AI is being used to create smarter applications for its platforms, such as AI-based customer experiences.
“In fact, we think that artificial intelligence will speed up their ability to file tax returns almost instantly,” Tauber said.
ASML Holding (ASML) is leading the way in miniaturizing semiconductors so they can be made smaller and more efficient, he said. This company has monopolized this ability, he added. ASML is essentially a bottleneck for a continuation of Moore’s Law, which means that the number of transistors on a microchip doubles roughly every two years, and the cost of computers is halved, he said.
dexcom (DXCM) is the technology leader in glucose monitors, small patches that allow diabetics to monitor their condition at all times. He noted that this company was the first to bring this product to the market and provides the highest accuracy. According to him, it is necessary to produce tens of millions of such censors on a large scale, and DexCom coped with this task. So they have a production moat for this technology, he added.
Edwards Lifesciences (EW) is a company that specializes only in medical equipment. They are a leading provider of transcatheter heart valve replacement, which helps doctors replace aortic valves in a minimally invasive way.
Danaher (DHR) is the driving force behind various healthcare innovations in biotechnology. They are a service and product provider specifically for cell and gene therapy companies.
IDEXX Laboratories (IDXX) dominates the field of veterinary medicine, constantly innovating from the field of human health to the field of animal health, including livestock.
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