Table of Contents
Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
1) Looking at Past Technological Economic Waves
Throughout history, technological waves have revolutionized economies, reshaping industries and driving unprecedented wealth creation.
Economic Wave | Time Period | Wave Duration | Top Innovation Enablers/ Adopters Driving Growth | CAGR (Approx.) | End of the Wave/Impact |
Railroad Boom | 1820–1870 | 50 years | Union Pacific, Central Pacific | ~5%-7% | Railroads became the backbone of national economies but faced overexpansion challenges. |
Oil Boom | 1850–1900 | 50 years | Standard Oil | ~6% | Led to global dependence on oil; antitrust measures broke Standard Oil into 34 companies. |
Electricity | 1880–1920 | 40 years | General Electric | ~8% | Mass electrification spurred new industries; intense competition reduced profit margins. |
Mass Transportation | 1900–1940 | 40 years | Ford Motors | ~9% | Cars became a commodity; market saturated, and profitability declined temporarily. |
Computing | 1950–1980 | 30 years | IBM | ~8%-10% | Minicomputers and PCs emerged; IBM shifted to services to sustain growth. |
Telecommunications Revolution | 1980–2000 | 20 years | AT&T | ~10%-12% | Global connectivity surged; eventually gave way to the Mobile App Revolution. |
Dotcom/Internet Boom | 1990–2000 | 10 years | Amazon, Cisco, Microsoft | ~30%-40% | Dotcom crash wiped out weaker players; strong survivors became global leaders. |
Mobile App Revolution | 2000–2015 | 15 years | Apple, Meta (Facebook), Google | ~20%-25% | Smartphone saturation led to plateaued growth; transitioned into AI and AR trends. |
Cloud Computing | 2010–Present | 15+ years | Microsoft Azure, Amazon AWS, Google Cloud | ~18%-22% | Cloud adoption became ubiquitous, eroding price premiums; AI-driven cloud innovation. |
Electric Vehicles (EVs) | 2015–Present | 10+ years | Tesla, BYD | ~25%-30% | Competition increased as legacy automakers launched EVs; margins tightened. |
Artificial Intelligence (AI) | Present Wave | N/A | NVIDIA, OpenAI (via Microsoft), Alphabet | ~35%-40% | Early stages of adoption; transformative across various industries. |
Disclaimer: This table is for reference only and may not be entirely accurate as exact information is difficult to source due to extended timeline; it was generated with the help of ChatGPT.
By analyzing past waves, a few key patterns emerge:
Shorter Wave Durations: Advancements in technology, global competition, and cumulative knowledge are accelerating innovation cycles.
Innovation, in this context, means advancements that boost societal productivity, reshape industries, and drive economic growth.
Higher CAGR in Newer Waves: Larger addressable markets, faster adoption rates, and transformative productivity gains fuel higher returns.
Signals of Prosperity: These trends point to increasing economic prosperity, improved living standards, and wealth creation for future generations.
This is evident in stock market behavior:
Stock Prices: Indexes like the S&P 500 rise over time due to sustained economic growth, technological breakthroughs, and increasing corporate profits.
Valuations: Metrics like the P/S ratio tend to rise overtime as markets price in future growth and scalabilities, particularly for tech-driven and asset-light businesses.
Price to sale ratio tends to rise overtime.
2) Proposed Strategies: Invest in companies that propels future innovation and companies that adopts existing innovations.
As technological progress accelerates, we stand on the cusp of new economic waves.
To capitalize on these, investors should focus on companies driving and adopting innovation.
2a) What is Innovation in the Context of Enablers & Adopters?
Innovation, in this context, refers to advancements that significantly enhance society's productivity and efficiency. It’s not merely about creating something new but about driving meaningful change that reshapes industries, fuels economic growth, and improves living standards.
The economic waves mentioned in the table—like the Railroad Boom, the rise of Computing, and the ongoing AI Revolution—all embody this definition of innovation.
These waves introduced transformative tools, platforms, and systems that enabled widespread productivity gains, creating opportunities for those who both develop and embrace such advancements.
GROUP 1: Innovation "ENABLERS"
These are companies providing tools, platforms, or infrastructure that fuel innovation across industries.
Key Categories & Examples:
1. SOFTWARES
Cloud Computing, Developer Tools, Collaboration, and AI:
Example: Microsoft
Microsoft is uniquely positioned to enable innovation with its
Cloud computing platform (Azure),
GitHub (the largest code repository), and essential enterprise tools.
Its integrated ecosystem empowers businesses and developers to innovate at scale.
Investor Tip, things to monitor:
Monitor Microsoft’s succession planning post-Satya Nadella to ensure continued strategic leadership.
Monitor Microsoft's antitrust threats and the repercussions the company may face which may be detrimental to shareholders' value.
Cybersecurity:
Example: Fortinet
Ensures secure environments for enterprises to innovate without disruption.
2. HARDWARES
Personal Computing Devices:
Example: Apple
Apple’s ecosystem supports software developers' productivity with best-in-class devices.
Apple's Macbooks' consistently rank as the top computing devices in the market over the years. The company’s foray into AR/VR computing (e.g., Vision Pro) shows its intent to stay competitive in emerging computing paradigms.
Semiconductors:
Example: NVIDIA
NVIDIA powers high-performance computing for innovation across AI and other advanced applications.
Personal Note: While NVIDIA's contribution in the innovation space is important, it's currently outside my circle of competence and currently overvalued.
Personal Preference: I lean toward investing in software enablers due to their adaptability, scalability, and higher profitability compared to hardware businesses.
“Software is eating the world” – Marc Andreessen
Software's flexibility makes it the primary driver of future innovations, while hardware often supports and enhances software capabilities.
GROUP 2: Innovation "ADOPTERS"
The enterprises of tomorrow will leverage groundbreaking tools to stay competitive, as innovation equals value creation, which translates into economic rewards.
These are companies that embrace cutting-edge tools and technologies to disrupt traditional industries and create value for their users.
Key Examples
Cloud Revolution:
SPS Commerce: Innovating supply chain solutions with a cloud-first approach, disrupting legacy systems.
SPS Commerce connects businesses across diverse channels, enabling seamless collaboration for e-commerce, retail, wholesale, and more—empowering innovation and efficiency in the supply chain ecosystem.
AI Transformation:
Axon: Leading in defense and security by integrating AI into its tools.
Internet & Mobile App Wave:
Spotify: Revolutionized music streaming.
Netflix: Disrupted video streaming.
Airbnb: Transformed accommodation and tourism.
Mercado Libre: Pioneered eCommerce in Latin America.
Mercado Libre serves as the digital backbone of Latin America, revolutionizing e-commerce and fintech by empowering businesses and individuals through seamless online marketplaces and innovative financial solutions.
GROUP 3: Innovation "ENABLERS" + "ADOPTERS"
The Power of Being Both an ENABLER & ADOPTER: The Case of Microsoft
While many companies excel in one category—either enabling or adopting innovation—those that successfully play both roles are particularly compelling. Microsoft stands as a rare and powerful example of a company that does both on a large scale, leveraging its cloud computing platform, Azure, and its AI capabilities while also adopting cutting-edge technologies in its own operations and products.
As an ENABLER, Microsoft has built the infrastructure that powers countless other companies, from cloud computing to AI tools. This alone places it at the forefront of technological innovation.
But as an ADOPTER, Microsoft is also seamlessly integrating these technologies into its own business, enhancing its products and services, such as its integration of AI into Office 365 and its advancements in AI-driven software.
This dual role allows Microsoft to benefit from both worlds: the growing demand for innovation-enabling tools and the increased adoption of these tools within its own ecosystem, driving long-term growth.
In contrast, while Apple may be a strong ENABLER with its hardware and software ecosystem, its AI adoption has been slower compared to competitors. Apple has yet to fully harness AI in a way that significantly enhances its product offerings at the scale seen by others like Microsoft or Google.
The ability to both enable and adopt innovation at scale is a rare and valuable trait for any company, and Microsoft’s example shows how this strategy can propel sustained growth in a rapidly evolving technological landscape.
Closing Thoughts
The history of technological waves reveals a pattern of faster innovation, higher returns, and increasing prosperity. By investing in innovation ENABLERS and ADOPTERS, you position yourself to ride the next wave of economic transformation. Focus on companies with strong fundamentals and scalable growth potential, as they hold the key to unlocking future opportunities.
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