10 Disruptive Tech Stocks to Invest In
We’re a small team of writers and researchers here at Nanalyze, so we often leverage the efforts of others and take credit for it like they taught us to do in business school. We recently spoke with one of the leading experts in innovation management to learn how innovation can become a competitive advantage for companies. It all made a lot of sense, so we decided to see if there was an investment vehicle out there that would let us invest in the world’s most innovative companies. Turns out, there is.
Investing in Disruptive Technologies
The adjectives “disruptive” and “emerging” are often used interchangeably when referring to technology. Semantics aside, both words refer to ways in which exponential value can be created. For investors, exponential value means exponential returns. Here at Nanalyze, we settled on the term “disruptive” because it sounds cooler, and then consulted with industry experts to come up with 30 different disruptive technologies which we further refined into 12 categories containing over 60 themes. In other words, there’s a lot of disruption happening right now.
After spending the last seven years researching how to invest in disruptive technologies, we’ve learned a few truths. Just because a technology sounds super exciting doesn’t mean it can be commercialized at scale. (We’re looking at you graphene.) Just because a technology gets commercialized with some of the world’s best investors backing it doesn’t mean it will succeed. (We’re looking at you Bind Therapeutics.) And every pundit out there will have a different opinion about how you ought to go about investing in disruptive technologies. (We wrote about this phenomenon in an article titled Investing in Everything with Google.)
Some Wall Street pundits will tell you Google is a way to invest in autonomous vehicles, virtual reality, cloud computing, robotics, global internet, and of course, artificial intelligence. Other pundits will say “investing in artificial intelligence” simply means buying more shares in the FAMGA lot – Facebook, Amazon, Microsoft, Google, and Apple. There’s an entire global economy out there, not to mention China, and sticking to the highest market cap tech giants is weak sauce, not to mention it reeks of domestic bias. Venture across the pond and you’ll find at least eight AI healthcare stocks and five machine vision stocks that are all little-known pure-plays, some which only recently had an IPO. Today, we want to leave all the pundits behind and see what some real experts have to say about investing in disruptive innovation.
Investing in Disruptive Innovation
Out of all the technology themes we’ve looked at, there are a handful that the experts believe will dominate. In the coming years, we’ll look back at this time as the cusp of an era of innovation that mankind could not have possibly imagined. Tech prognosticator Peter Diamandis believes this, stating that 99.9% of people don’t know what we’re on the brink of. Since today’s growth stocks may become tomorrow’s cash cows, we need to consult with some experts who live and breathe this stuff so we can make sure to bet on the right horses.
What The Experts Say
Founded in 2014, ARK Investment Management is a firm led by Catherine Wood, a 40-year veteran of the financial industry who realized a career in finance was about as boring as it sounds, and decided to focus solely on disruptive innovation while adding new dimensions to research.
ARK Invest focuses solely on disruptive innovation and offers investment solutions to investors seeking long-term growth in the public markets.
The firm’s slogan is “we believe innovation is key to growth,” and they have identified five areas that represent trillion-dollar opportunities (our comments in italics):
- Artificial intelligence – (If you’re willing to ignore what the pundits say and look across the pond, you’ll find lots of small pure-play stocks in AI healthcare, machine vision, and RPA.)
- Robotics – (Loads of robotics stocks out there, particularly in Japan. Some companies like Teradyne are evolving in this direction.)
- Energy storage – (Aside from investing in the world’s largest green energy company, we’re seeing most of the action here in startups, and maybe Tesla.)
- DNA sequencing – (Illumina for picks and shovels, gene editing stocks, and synthetic biology plays like Twist Bioscience.)
- Blockchain technology – (We’re not sure any pure-play stocks exist for this theme but we’re seeing great stuff happening in startups – like real estate. IBM is trying to be a player, and maybe their new leader can actually make that pipe dream happen.)
Now that we know what themes we ought to be invested in, let’s look at some tech stocks we might invest in to get exposure to these disruptive technology themes.
10 Disruptive Technology Stocks to Invest In
ARK Investment Management builds investment products of all sorts, but today we want to talk about just one – the ARK Disruptive Innovation ETF. It’s their flagship product offering which has already attracted nearly $3 billion in assets. For a thematic ETF, that’s a sizable accomplishment. There are now more active funds and ETFs than there are stocks. If your product attracts assets under management (AUM) measured in billions, you’re doing something right.
All we’ve done here is take the top ten stocks in the ARK Innovation ETF and list them out. As with any ETF, the top ten list will change based on the movement of share prices, and of course, active management of the ETF. Without further ado, here are the top ten stocks that make up just over 58% of the ETF’s weighting.
Elon Musk is a volatile character, and so is the company he runs. We’re more excited about the potential of his Starlink venture than his electric cars that everyone can’t stop talking about. “What we need are some more opinions about tech giant Tesla,” said nobody ever. Moving on.
The company behind this tech stock markets several software and hardware payments products and has expanded into small business services. When you sign up for a Nanalyze Premium Membership, Square will facilitate the transfer of wealth so that our over-worked MBAs can afford a decent meal during their one day off a week.
We’ve covered genetic testing for a while now, and it seems like Invitae wants to dominate this space with a diversified portfolio of genetic tests. This growth stock may be faltering temporarily as test volumes plummeted 50% because everyone is staying at home. In response, Invitae is launching a telemedicine campaign. So says the Motley Fool.
Last time we checked in on gene editing stocks everyone was having an intellectual property pissing contest. Our thought was to just invest in all three of the major players and see what happens. ARK Invest also takes a similar approach with Intellia Therapeutics and Editas occupying positions 13 and 14 of their portfolio with a combined weighting of 6.43%.
We’re long-term shareholders and have nothing but great things to say about a tech company which is the dominant provider of the picks and shovels needed to access the recipes for everything on earth. They say you’re not supposed to fall in love with stocks, because even if you think all the stars are aligned, there’s always company-specific risk.
They’re an online education company that contracts with non-profit colleges and universities to offer online degree programs. This SaaS offering ought to be booming right about now, but the stock chart says otherwise. According to an SEC filing, they think the WooHoo Flu just might be the death of them. Distance learning sure must be disruptive because everyone’s doing it now.
You might not know about Roku because you don’t live in ‘Murica where people consume excessive amounts of television. Roku sells hardware like smart TVs which are connected to the Internet so they can stream loads of inane rubbish into living rooms from sea to shining sea. Streaming content may be disruptive, but like Facebook, it’s probably not the best thing for nationwide productivity.
Zillow is the leading real estate and rental marketplace with a living database of more than 110 million U.S. homes. That’s a lot of big data they’ve amassed for the residential real estate market which they’re now feeding to hungry machine learning algorithms that provide insights. One of those is the “Zestimate” of what your house value might be at any given time. In our previous piece on Using AI for Commercial Real Estate Valuations, we talked about how GeoPhy’s AI valuations are twice as accurate as traditional property valuation methods.
Is Protolabs a 3D Printing Company Yet?, was the topic of an article last year on this company which is now one of the largest suppliers of custom 3D printing services in the world, producing more than 100,000 printed components every month across six different additive manufacturing technologies. The dominant 3D printing business model has evolved into “on-demand manufacturing” which combines subtractive and additive manufacturing, depending on what works best for the job.
Speaking of evolving business models, last time we checked on Stratasys they were trying to replace their CEO who abruptly resigned, costs were being reigned in, and revenues were stagnant. We’re shareholders so we get to piss and moan about how poorly this crummy stock has performed. 3D printing may be experiencing double-digit growth, but SSYS sure isn’t.
There you have it, the top-ten disruptive tech stocks in the ARK Innovation ETF as of May 11th, 2020. In looking at the broader list of stocks in this ETF, we’re a bit puzzled why they would include Organovo and not NVIDIA, but that’s why they get paid the big bucks. (Note that these are only the top ten stocks in the ETF, and there are 23 others that make up the other 42% of the portfolio. We’ll save those names for another day.)
Trying to pick the winners in the stock market is no easy task. (In the tech sector, it’s even worse due to the inherent volatility.) They say somewhere around 80% of active managers can’t beat a broader stock market benchmark like the Nasdaq composite. Out of all the firms we’ve come across trying to play the “exciting technology investment theme ETF” game, ARK Invest puts forth the best case for their investment methodology and corresponding investment products.
There are some real hacks out there trying to peddle advice about investing in disruptive technologies – like that little-known 5G stock that’s about to blow. It’s comforting to know that some real experts are having a go at defining the top companies to invest in for disruptive innovation.
Tech stocks are volatile investments during the best of times. Here at Nanalyze, we complement our tech holdings with a dividend growth strategy that performs extremely well during recessions. Find out which 30 dividend growth stocks we're holding in our report - Quantigence - A Dividend Growth Investing Strategy - freely available to Nanalyze Premium Subscribers.