Innovation continues to accelerate exponentially. It advances despite recessions, war, pandemics, and inflation. In this Innovation Insights, we highlight four advancements we found interesting from the next frontiers in generative AI to fusion energy, agriculture, and life extension. Each one supports our belief that our ability to manipulate data, material, and organisms at their basic forms will create profound advancements in the economy. We also share our view of the Hype Cycle and recent shifts within, as AI moves to the top of hype, mRNA vaccines edge closer to established long-term adoption, and cryptocurrency transitions to the rationalization phase.
Hype Cycle
The Hype Cycle provides a framework to visualize the sentiment surrounding potentially-disruptive innovations. We believe most technologies go through the hype cycle—including very successful technologies like internet search engines, the personal computer (it was Time Magazine’s “Man of the Year” in 1982), e-commerce, social media, and the smartphone. This framework is not necessarily a call on future performance. Rather, it highlights where we are from an investor perspective in the monetization and maturity of new innovations. Exhibit 1 illustrates where we believe various technologies are in their hype cycles and highlights shifts as we see them occurring. We plan to share our views on the ever-evolving hype cycle in future updates.
Exhibit 1: The Hype Cycle This Quarter
We are seeing AI reach peak hype, cryptocurrency descend into the rationalization phase following the fall of FTX and mRNA vaccines start the ascent toward long-term adoption.
Sources: Gartner, Franklin Equity Group. This information is for illustrative purposes only and not necessarily representative of the strategy’s past or future portfolio composition. There is no assurance that the strategy will invest in any or all of these innovation examples. This information is not intended as an investment recommendation, nor does it constitute investment advice.
Chatbot hailed as the next disruptive force in AI
A newly released artificial intelligence chatbot has created waves for its disruptive potential and its early adoption curve has been stellar. This language learning model may create efficiencies in coding, science, productivity, finance, law, and education, to name a few. Language AI can turn English into Java code to improve software productivity, or even turn text into videos or 3D models. The chatbot is being integrated into corporate communication platforms for smarter assistance, and we see opportunities to monetize the technology.1
Why it matters: This latest generation of AI is unlocking productivity by serving as a “copilot” for many functions and enabling new creative outlets. Productivity is a driving economic force and AI can play a significant role. That said, at a time of peak hype we should anticipate the inevitable rationalization phase. We therefore are enthusiastic but are looking carefully for business models that effectively monetize this new technology.
Laser-based fusion achieves scientific milestone
Scientists at the US-based National Ignition Facility reached a new milestone in fusion energy by producing more energy from a fusion reaction than was needed to start it. The reaction was triggered by focusing 192 laser beams on a fuel capsule the size of a peppercorn.2 Fusion, the nuclear reaction occurring inside the sun, is powered by hydrogen and does not produce radioactive byproducts. While this represents a feat of engineering that researchers have been striving toward for seven decades, harnessing this energy to power our homes is still off in the future. Nonetheless, government and private investors are collaborating—with private fusion companies having raised over $4.8 billion thus far—in the hopes that a breakthrough can solve the technical challenges.3
Why it matters: We are in the midst of an unprecedented energy transformation that will change the way we produce, distribute, and use energy. The promise of cheap, scalable, abundant energy—and the disruptive impact it could have on many parts of the economy—continues to drive innovation in carbon-free energy sources, including those that used to sound like science fiction.
Agriculture benefits from the Intelligent Machine revolution
A new high-tech farming machine uses sensors and robotic machinery to release timed bursts of fertilizer to coat individual seeds. The process can both reduce fertilizer chemical use by 60% and prevent weeds from growing in the fertilized space between seeds.4 Fertilizer runoff pollutes rivers, causes excessive growth of unwanted algae blooms and kills marine life, resulting in large aquatic “dead zones.” Efficient use of fertilizer using robotic technology reduces costs and these negative downstream effects. Other innovations include fully-autonomous tractors controlled from a phone, robots with improved sensors and neural networks which identify and pick ripe fruits and vegetables, sensors which track soil moisture and livestock health on the rangelands bounded by “virtual fences,” and drone flyovers to monitor crops.
Why it matters: Robotics and machine learning (ML) are rapidly becoming more sophisticated and agile. Farming will be yet another beneficiary of innovation in the digital realm by realizing applications for repetitive processes that cover massive amounts of land in the physical realm.
Longevity research shows promise
The drug rapamycin, prescribed to prevent organ rejection after transplant, has also been shown to increase the life expectancy of mice by as much as 60%.5 Mice have also received genes for a telomere-building enzyme that had similarly surprising life-extending effects, boosting glucose tolerance and physical performance while stalling weight and fur loss. Epigenetic reprogramming has been used to reconstruct damaged optical nerves in mice, cause them to age faster, and accelerate aging in a single organ. 6
Why it matters: If the 20th century was about preventing premature death, the 21st century may be remembered for actually extending life. Making substantive progress in slowing aging and age-related illnesses is the holy grail of medicine. Understanding the biochemical processes to speed up and slow down aging can open new frontiers at the microscopic level for how we tackle disease.
There are also risks in investing in this or any asset class. The initial potential of any asset class may not carry over to any specific company or the entire asset class chosen for investment, over any investment time period. Any of the investment assumptions may never come to fruition. Investors should be prepared for potential losses as well as the possibility of investment gains. Ideas, products, companies or entire asset classes with positive past performance are not indicate of future results.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments.
Buying and using blockchain-enabled digital currency carries risks, including the loss of principal. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk. Among other risks, interactions with companies claiming to offer cryptocurrency payment platforms or other cryptocurrency-related products and services may expose users to fraud. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. Investing in cryptocurrencies and ICOs is highly speculative and an investor can lose the entire amount of their investment. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.
The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Bridgestow managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Bridgestow. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Bridgestow managed portfolio. Past performance does not guarantee future results.
