This article is part of Fortune‘s quarterly investment guide for Q2 2021.
In an era of “meme stocks,” FOMO, and Reddit-fueled trading insanity, the notion of mapping out the long-term future of the stock market can come across as quaint at best and condescending at worst. After all, how could anyone confidently claim to have the answers in a world where day traders can double their life savings by timing the stock fluctuations of a bankrupt car rental company?
Still, it remains true that investors who keep an eye toward long-term goals—specifically, by investing in industries and technologies that promise to disrupt and transform entire swaths of the global economy—are able to generate significant returns and potentially transformative wealth. Just ask those who held onto Microsoft stock after getting in on the company’s $21 per share initial public offering in 1986, or Amazon shareholders who weathered years of losses to see through their investment in what became a trillion-dollar corporation.
But anyone can invest on a five-, 10-, or even 20-year horizon—as evidenced by the scores of growth investors who have flocked to the current generation of would-be tech disrupters, driving valuations to eye-watering highs. It takes real foresight to anticipate the tectonic shifts that lie in wait some 30, 40, or 50 years in the future—and beyond.
Already, the signs and indicators are around us. Technological advances in artificial intelligence and machine learning promise only to accelerate in pace and scope, leaving not a sector of the global economy untouched by their transformative influence. Science will continue to progress unabated, bringing about once-unfathomable advances in the realms of health care, agriculture, and renewable energy.
While it’s nearly impossible to say which companies will lead the way and prosper accordingly, Fortune asked a handful of forward-thinking money managers to consider the big picture and tell us what trends and technologies—and even specific firms—they would bet on if granted an ultra-long-term horizon. Call it investing for the 22nd century.
Semiconductors: the brains behind A.I. and “deep learning”
If you’re looking to invest in the technology that will transform the future, it’s probably wise to examine the technologies that will enable the technology of the future. There’s a reason President Biden’s ambitious infrastructure proposal calls for tens of billions of dollars of investment in tech-focused research and development designed to boost the U.S. economy’s future competitiveness—including $50 billion to bolster the American semiconductor manufacturing sector amid a global chip shortage and ever-present competition from China.
For some tech-minded investors, the advancements being made, and still yet to come, on the hardware front are square one as far as bracing for future disruption. Erika Klauer, a technology portfolio manager at investment manager Jennison Associates, speaks of a “central change in the way computing is done” as enabling change in sectors as diverse as transportation, banking, and retail.
“In the past, we’ve had a situation where computers were computing on a serial level, and the huge change that’s going on right now is we’re moving into a world of parallel computing,” Klauer says. She describes this evolution as transforming A.I. and deep-learning capabilities to more closely mirror the way the human mind works, and unlocking unprecedented advancements in the process. “Our brains do not operate on a serial level; we didn’t learn how to speak by looking up words in the dictionary,” she notes. “They actually work on a parallel level; we learn by identifying patterns.”
As chips represent “the brains behind deep learning,” chipmakers are the players who will allow a future in which autonomous vehicles can process the millions of miles of information needed to travel safety; where drugmakers can analyze massive volumes of data to develop more effective treatments; and where industrial robotics applications can recognize errors of the finest margins. “Deep learning, and the move to parallel computing, is really disrupting every industry we have at the moment,” Klauer says.
Thomas Lee, a portfolio manager for the TCW Global Artificial Intelligence Equity Fund, notes the “amazing” transformation of the semiconductor sector from a “super volatile, very cyclical” industry into one bolstered by the demand for more chips across an array of applications.
“The breadth of [semiconductor] demand you’re seeing—whether in autos, or industrials, or in consumer products and data centers—is pretty remarkable,” Lee says. “That’s all because of the shift toward more digitization and automation, and that’s driving the need for more chips.”
There are already a few clear winners in this area, and their ingrained competitive advantage in a consolidated, resource-intensive sector bodes well for the future. Names like Nvidia, TSMC, ASML, and Lam Research are well-established, and Lee believes “it’s going to be very difficult for new entrants” to compete in the decades to come.
“To develop these smaller and smaller chips, it takes a lot of R&D resources and technical capabilities,” he says. “I think these guys will be around for a long time.”
Stocks: Nvidia (NVDA); TSMC (TSM); ASML (ASML); Lam Research (LRCX)
Fintech: Branches out, digital wallets and e-commerce in
Few industries are currently witnessing technological disruption to their status quo as prominently as financial services. From how people bank to the manner in which they transact, the sector is currently undergoing an upheaval—one triggered in part by the coronavirus pandemic, but which promises to persist for decades to come.
Alex Ely, chief investment officer of U.S. growth equity at Macquarie Investment Management, cites the ongoing evolution of the banking industry as a case study in technological disruption. “To explain what a disruption is: My mom still goes to banks and cashes checks; my son just takes pictures of checks and Venmos money to his friends,” Ely notes. “And he does this because it’s a better, faster, cheaper way of banking.”
That evolution shows no signs of abating. The number of physical bank branches in the U.S. has dwindled in recent years and will only continue to do so; Ely estimates that of the more than 80,000 bank locations presently across the country, we should “get ready for half of them to go away in the next 10 years, because nobody young ever goes into a bank—ever.”
Taking an even wider view, Ely believes that the emergence of digital payments could render physical currency moot before long. “We’ve been carrying coins in our pockets for thousands of years, and we’re going to be the last generation to do so,” he says. “It’s really the digitization of all business and consumer activity, and it will proliferate for decades into the future.”
Jennison’s Klauer cites that buzziest of fintech buzzwords, the “digital wallet,” as fast becoming an accepted model for consumers, as more users than ever are relying on their mobile devices to pay for everyday transactions. She notes how Square‘s Cash App and PayPal‘s Venmo now have more users than many of the largest traditional banks have account holders, adding that the next step is penetration into more cash-reliant international markets.
“Even though we’ve become more comfortable in the U.S. with digital wallets, the emerging markets—where the vast majority of transactions are still done in cash—are more ripe for moving toward automated transactions,” Klauer says. “As we have more proliferation of smartphones [in those markets], the use of digital wallets is going to increase very rapidly in time.”
Additionally, e-commerce operators that are able to parlay fintech advancements and provide the most seamless experience possible, for consumers and vendors alike, are primed to succeed in the marketplace of the future. Klauer points to Shopify‘s rapid growth in recent years, and the e-commerce firm’s ability to provide an array of services for online retailers, as positioning it well to capture digital wallet market share.
Whether it’s established names like Square and PayPal or emerging international players like Singapore-based Sea Limited, the fintech firms that are able to capitalize on these trends could become the financial services giants of the future. The legacy banking old guard has already taken notice.
Stocks: Square (SQ); PayPal (PYPL); Shopify (SHOP); Sea Limited (SE)
Transportation: EVs, AVs, and appreciating assets
At this point, a fleet of 100% electric vehicles is considered a formality of the future to come; what remains to be seen is which automakers are able to execute on the transition to an EV-powered future from a business perspective.
Even more intriguing, in that respect, will be the evolution toward AVs: autonomous vehicles, powered by aforementioned A.I. and deep-learning technologies, that will render human drivers redundant—and an unseemly, risky relic of the past.
Macquarie’s Ely says he tells his children that their own grandkids will one day be in awe of a “dangerous” time when people used to drive around at 70 miles per hour “in a car made of flammable liquid,” many of them distracted by their cell phones. The hope is that the advent and adoption of autonomous vehicles could one day save the roughly 40,000 lives lost to fatal automobile accidents in the U.S. every year.
That reality would also have major economic consequences. Commercial trucking appears to be ahead of the curve on adopting AVs; San Diego–based startup TuSimple, which is slated to go public this week, is collaborating with UPS and supply-chain firm McLane on a self-driving fleet of freight trucks that it hopes to roll out nationwide by 2024.
If adopted widely, such developments would save commercial freight operators billions of dollars in overhead associated with labor, insurance, and other costs while allowing them to run trucks more frequently and efficiently—albeit while also putting millions of American truck drivers out of work.
Ely notes that this sort of automation “is happening across every industry, wherever they can replace people.” Ride sharing would be another commercial transportation sector transformed by the AV revolution, with giants Lyft and Uber poised to benefit by shedding themselves of driver costs.
Once AVs are able to saturate the passenger vehicle market, they could also have a transformative effect on how people buy and use their cars. Katie Koch, co-head of fundamental equity at Goldman Sachs Asset Management, says she thinks AVs will eventually result in a decline of the traditional car ownership model—with people instead opting for a more cost-effective sharing model.
What’s more, AVs would end the paradigm of cars as a depreciating asset: “In the future, it will be an appreciating asset, because you’ll be able to rent it into a [car-sharing] network” collectively used by ride sharers, according to Koch. Meanwhile, auto insurers will have to reprice their entire business model in what will be a safer, less accident-prone world.
Stocks: TuSimple (TSP); UPS (UPS); Lyft (LYFT); Uber (UBER)
Health care: Genomes, robots, and tele-docs
Throughout human history, science and technology have conspired to transform medical care time and again. Looking toward the future, the most significant achievements are almost certainly yet to come.
Goldman Sachs’s Koch believes health care is “top of the list” when it comes to industries primed to benefit from technological developments in the coming decades. “When we think about what the future of health care is going to look like, there are going to be positives not just for [health care] companies but for the economy and society as a whole,” she says. With the U.S. presently spending roughly 18% of its gross domestic product on health care that lags behind the rest of the developed world in outcomes, there is plenty of room for improvement.
Advancements in the field of genetic sequencing and therapy could well develop treatments and cures for thousands of genetic diseases—many of them life-threatening, and only a small percentage of them currently treatable. Koch says genetic biotechs like Illumina and Sarepta Therapeutics are rapidly approaching the “cost curve inflection point” whereby once cost-prohibitive methods can be made readily available to those in need.
“It took $3 billion and 20 years to map the human genome, and in the next 12 months we’ll be able to sequence a whole genome for $100,” she notes. “We are so early in the story of how genetic disease is going to be cured.”
Another rapidly evolving segment of the market is robotic surgery. Robot-assisted procedures have been on the rise in recent years, and Koch thinks the future will bring a wave of developments in the biotech space that will see surgical robotics—such as Intuitive Surgical‘s Da Vinci Surgical System—further increase in prominence.
“It should be a cost deflator, and higher precision drives better outcomes,” she says, pointing to robotic surgery technology capable of halving the recovery time for hip and knee replacements.
Several investors also believe the coming decades will bring a revolution in the personalization of health care—one featuring chip-enabled diagnostics that would transform preemptive care and remote, virtual health services that would drive efficiencies across the sector. Koch cites DexCom‘s continuous glucose monitoring (CGM) systems as one such advancement in diabetes care, while Ely notes Exact Sciences‘ Cologuard stool DNA test as a major step forward for the early detection of colorectal cancer.
“I completely see the possibility, in the future, of you getting an alert on your phone to tell you to stop eating french fries because your cholesterol is going up,” Ely says.
Stocks: Illumina (ILMN); Sarepta Therapeutics (SRPT); Intuitive Surgical (ISRG); DexCom (DXCM); Exact Sciences (EXAS)
Energy, agriculture, and the environment
Unsurprisingly, investors in the energy and infrastructure spaces consider renewables a core part of their long-term outlook. “There’s so much talk about [renewable energy] but we’re in the very early stages,” notes Josh Duitz, portfolio manager of the Aberdeen Standard Global Infrastructure Income Fund.
Renewable capacity is expected to grow 11-fold by the year 2050, according to Duitz, and long-term sustainability commitments from governments and corporations alike make the sector a no-brainer. “It’s clear because of climate change that we need renewables—but also the cost has come down so much, and it’s going to continue to,” he says.
He points to offshore wind power as a particularly promising sector, given goals like the European Commission’s target to increase offshore wind capacity to 300 gigawatts by the year 2050. That would be a boon for the likes of German wind power giant RWE, while in the U.S., renewable-focused utilities like NextEra Energy are bracing for a similar revolution stateside.
“Think about how large the oil companies were in their heydays,” Duitz adds, referring to the possibility that potentially lies in wait for renewable energy firms and their investors. “You want to be the [renewable energy] company that has the expertise, the foresight, and the ability to grow.”
Goldman Sachs’s Koch thinks that resolving the climate crisis could prove to be “one of the great wealth-creating opportunities” of the 21st century. “I’m really bullish that we’re going to solve the climate emergency because of how existential it is, and because we have the technologies and a millennial mindset that cares about it,” she says.
Consumers are already fueling a move away from single-use plastic, which Koch says is spurring developments in biodegradable bioplastics like those produced by Danimer Scientific. She expects that mentality to filter into realms of fashion and apparel, with the likes of textile recycling company Renewcell leading the shift toward renewable materials.
Agriculture is another industry primed for eco-conscious growth—with plant-based food producers, like Beyond Meat, and their lab-grown meat alternatives only due to increase in viability and market share. One company, Netherlands-based DSM, has even developed a cattle feed shown to significantly reduce methane emissions, a major contributor to global greenhouse gases.
“A whole new mindset will give rise to these growth industries that will be very profound in the renewable economy,” Koch says. “That’s where there’s going to be so much money made, because private capital has to be part of the solution—governments can’t tackle it on their own.”
Stocks: RWE (RWE); NextEra Energy (NEE); Danimer Scientific (DNMR); Renewcell (RENEW); Beyond Meat (BYND); DSM (DSM)
Explore Fortune’s Q2 investment guide:
- 10 stocks fund manager Cathie Wood is buying—and 3 she’s avoiding
- Bitcoin investors: Learn about the Hunt brothers and the silver market
- Why some investors are betting on cash
- How to invest for the 22nd century
- Everything you need to know about buying NFTs
- What the savviest short-seller has in his sights next
- The investment billionaires like Bill Gates are doubling down on
- Coinbase? Bitcoin? The case for making a few wild bets