The world is changing faster than ever, and disruptive technologies and novel innovations are at the forefront of this rapid transformation. As we move further into the new age, businesses that can position themselves to benefit from novel innovations are more likely to thrive. From artificial intelligence (AI) to the adoption of new technologies and evolving therapeutics, change is set to accelerate in the coming years.
By investing in research and development, partnerships with technology companies, and a forward-thinking approach to business strategy, companies can position themselves at the forefront of these emerging trends. Not only does this help them stay competitive, it opens up new avenues for growth and expansion.
Here’s a look at some of the most promising future-facing trends and how three businesses are positioning themselves to benefit from these changes.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments will rise and fall in value, so you could get back less than you invest.
Because of how these shares are listed, if you want to buy any of them, you’ll need to complete and return a US government W-8BEN form.
Intuit
Intuit’s product suite includes names you might have heard of, like QuickBooks, TurboTax, and Credit Karma. These services leverage technology and AI to help individuals and small businesses manage their finances and taxes.
Intuit’s mission-critical software and services are central to the investment case – as the late Benjamin Franklin famously pointed out, taxes are one of life’s certainties.
That means demand’s likely to remain sticky long into the future. Retention rates of around 80% for QuickBooks online highlight the appeal. QuickBooks also links to up to 700 applications. It’s easy to see why unwinding is tricky.
Growing the top line is just as important as retention, and there’s a bucketload of opportunity to go for. Intuit’s barely scraped the surface of the total addressable market that management estimate to be worth over $300bn.
For now, focus is on growing users of its core products like QuickBooks and TurboTax where opportunities are more immediate. The cloud transition is gathering pace, with online sales now exceeding desktop alternatives. This should help expand the suite of offerings to a broader audience and improve cross-selling opportunities.
Inorganic growth isn’t off the table, though, and last year’s acquisition of Mailchimp for around $12bn is another sign of intent to expand the offering to cover more bases. Mailchimp’s a digital marketing platform for small and medium-sized businesses. Aside from giving access to another market, there are genuine cross-selling opportunities with QuickBooks so businesses can seamlessly manage their marketing and finances.
The group generates a good amount of cash, and operating cash flow is expected to be around $4.5bn this year. But the Mailchimp acquisition has put a little strain on the balance sheet. At the start of the calendar year, net debt was more than $5bn. So we’d expect some of that cash to go toward paying down debt.
There’s a lot to like for investors willing to stomach some risk. Despite coming down from lofty heights, the valuation’s still demanding. Execution needs to be on point to justify the 30 times earnings multiple.
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Moderna
Moderna’s mRNA technology has become a game-changer in the healthcare industry, thanks to its successful COVID-19 vaccine development. With the rapid pace of development and flexible manufacturing capabilities, Moderna has the potential to expand its vaccine revenue beyond the pandemic.
Group revenue is expected to fall almost 60% this year from pandemic highs. However, despite slowing, if higher-risk populations continue to receive annual vaccines beyond the pandemic, there’s potential for continued revenue in the mid-single-digit billions annually.
Moderna’s respiratory vaccine sales, including the COVID-19 vaccine and leading phase 3 programs in RSV (a virus that causes cold-like symptoms) and influenza, are estimated to be between $8-$15bn by 2027.
As with any estimates, especially in the pharma industry, there’s high uncertainty around the number of long-term competitors, pricing and drug approval. All of which adds risk.
That’s where Moderna’s strong and multi-layered intellectual property is crucial for maintaining a competitive edge in the healthcare industry. But it’s expensive, research and development costs are growing substantially in 2023 and will likely continue to grow over the next few years. Costs should begin to drop as more of the first wave of programs complete clinical studies and smaller studies are initiated for combination vaccines. Of course, there’s no guarantee.
And that leads nicely to the elephant in the room. Without the massive tailwind of the pandemic, the group’s loss-making. Founded in 2010, it’s still in its relative infancy, so seeing losses at this stage is unsurprising. We expect regular profit to be a few years off, so solvency and liquidity are important. The balance sheet being light on debt is a positive.
Moderna’s lead in mRNA technology, good progress on clinical trials, and expanding evidence of efficacy across multiple therapeutic areas could support a path to sustained profitability in the medium term. Innovation is front and centre, and the recent team up with IBM to leverage next gen computing power is a great example of mixing future technology with therapeutics.
Trading at 7.4 times forward sales, the valuation reflects the potential of the class-leading technology, but is significantly less demanding than during the height of the pandemic. Investors should remember this is a higher-risk play in the healthcare sector and there are no guarantees.
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Nvidia
Nvidia is one of the world’s largest makers of microchips, known as graphics processing units (GPUs). The group had a tough 2022 as growth in its core gaming business slowed down. That fed into a 40% drop in underlying operating profit to $2.2bn in the fourth quarter. However, the company is now focusing on the future with a pivot towards AI, a move that could set it up for significant growth in the coming years.
The emergence of the ChatGPT chatbot last year, which runs on Nvidia chips, has generated a surge of interest in AI. CEO Jensen Huang sees recent breakthroughs in the field as an inflection point for broad adoption across every industry. Nvidia’s enterprise software also accelerates the development of AI applications and offers ‘pretrained’ models, opening new opportunities to increase recurring revenues.
Through relationships with major cloud service providers, supercomputers required to train AI models are becoming more accessible to users through an internet browser. This move should help generate more revenue from the 10,000 AI start-ups with which Nvidia is currently working.
The company is also partnering with Deutsche Bank to develop AI-driven applications for financial services, showcasing its ability to attract larger customers in this field.
Nvidia looks well positioned to benefit from the AI frenzy, with the potential to capitalise on future trends. While the speed of client take-up remains to be seen, the company is a frontrunner in the field. As with all novel technologies, companies might prefer to dip their toe before committing to big spending programs.
Nvidia’s focus on AI isn’t the only promising area. It’s also encouraging to see signs of a recovery in gaming revenues. The company is launching a new generation of gaming chips and partnering with Microsoft to bring popular games like Call of Duty to the platform.
However, for all the positives, the market valuation is well above the long-term average. That means there’s significant pressure to deliver. With the wider industry still struggling to thrive in the current economic climate, investors should be prepared for volatility and have a long-term mindset.
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Unless otherwise stated, estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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