18 Winners in the Digital Future

We know what the world will look like 10 years from now because the groundwork is being laid right now. The world will be more digital, more connected and to use the parlance of our times, more woke, asserts Jon Markman, a visionary investing expert, editor of Strategic Advantage and a contributor to MoneyShow.com. These are powerful investment trends that will be difficult to disrupt. Too much capital is already being invested. Ecosystems are developing. Winners are emerging. The Rise of Electric Vehicles When Elon Musk took control of Tesla in 2004 and talked about moving the global automotive world away from fossil fuels industry insiders laughed. They said it was impossible because nobody wanted electric cars. Tesla made a better car. Electrification was a bonus. Nobody is laughing today. Ford , General Motors , Volkswagen (VWAGY) and Toyota are spending 10s of billions of dollars to electrify their fleets by 2030. Volvo (VLVLY) wants to get there by 2025. Chinese vehicle makers, serving the world's biggest car market, have already made the transition. Electrification is happening. It is not a dream. The wheels are in motion, so to speak. Winners: Tesla is miles ahead of the competition with its charging network and cool cars. Other winners will be the companies that supply the bits and pieces needed to move the industry along to the next destination. Magna International is a Canadian auto parts behemoth building partnerships in battery technology and Chinese EV outsourcing. The Wall Street Journal reported it may have the inside track to build an EV for Apple , arriving in 2025. Magna is the current builder of EVs made by Fisker . NXP Communications is a Dutch semiconductor company that was making cars smarter before electrification. It's connectivity and payment processing intellectual property will go a long way in the connected, electric cars and trucks of the future. Ubiquitous, Low Latency Connectivity We have all heard of 5G. That's the super-fast Internet that isn't available everywhere. By 2031 fast, reliable Internet will be ubiquitous. Telco companies are building out cell infrastructure to blanket urban areas and even faster signals beamed from space will serve all of the rest. Getting 1Gigabyte Internet in the middle of the Pacific ocean will be possible by 2025, thanks to SpaceX, another company run by Elon Musk. Currently about 1,500 small internet satellites in low earth orbit are beaming internet to many rural communities in the United States. The service that is currently faster than fiber optic cable and managers at SpaceX say speeds will climb to 1 Gb in 2025 when its constellation reaches 11,000 satellites. SpaceX and Google Cloud have signed a deal that will bring satellite connectivity to the entirety of Google's fiber optic network. Low latency, ubiquitous connectivity will jumpstart smart cities and factories, connected cars and the digital transformation of the corporate world. Winners: SpaceX is not a public company, yet. Alphabet , the parent company of Google is an obvious winner. It has the scale and engineering expertise to build businesses around ubiquitous connectivity. Microsoft signed on with SpaceX, too. The software giant is also the biggest player in the software that will connect millions of vehicles to the Internet and each other. Connected cars network information so future self-driving cars will be able to navigate. Nvidia may seem like a company that builds computer gear for gamers yet the San Jose company has become a dominant player in artificial intelligence. Its Deep Learning AI underpins everything from self-driving cars to state-of-the-art telecommunication networks. Digital Streaming Media Netflix changed the world with a simple idea: Give consumers media on demand they could stream to any device with a screen. Paying a subscription for digital media is no longer novel. Netflix has 208 million subscribers worldwide. Amazon.com liked the subscription video on demand business model so much they cloned it for Amazon Prime Video, its in-house SVOD. Then Warner Media duplicated it for HBO Go. Then Disney did the same with Disney+, and Apple, and ViacomCBS and Paramount etc. Now the cable companies are getting in on it with connected TV platforms that stream content over the Internet. All of these platforms replace traditional linear TV where reach is not measurable, with connected TV that is. Media is having a giant digital transformation. By 2031 the industry will look more like traditional TV as consumers run out of money to pay for the services a la carte. And that is when SVOD companies, with few exceptions, will shift to ad-supported business models. Winners: The Trade Desk is in the business of matching top tier ad buyers like Nike with ad inventory everywhere on the internet not run by Facebook and Google. It's a big business that will surely get bigger as the entire linear TV advertising market, $260 billion annually, goes digital. Magnite is in the same sector, yet it operates from the sell side. The company focuses on content providers, matching media with content buyers. Netflix is the biggest SVOD platform. Managers have resisted ads yet it will make more sense as more of the developing world gets internet access in the next decade. Besides, never say never. 20 Years Later, E-Commerce Is Only Getting Started Amazon was founded in 1994 when Jeff Bezos drove his family across the country to sell books on the Internet out of the garage of his suburban Seattle home. The online behemoth generated $108.5 billion in sales in the first three months of 2021. That's not the story, though. The global pandemic has emboldened millions of entrepreneurs to make the same metaphorical journey Bezos set out on more than two decades ago. They are starting small businesses and selling their wares online. They will benefit from pre-existing infrastructure, like warehousing, logistic networks to get their items shipped quickly, call centers to help with customer service, and payment processing to turn every impulse click into a faster sale. This e-commerce journey is only getting started and everyone that ought to know thinks it will be huge. Facebook is setting up Shop, a portal for small businesses. Walmart managers have the same idea with Marketplace. Google announced last week at its developer conference the company would make a big push to help small businesses set up online stores, too. These corporations are all following the business model that Amazon.com pioneered. Currently 51% of all sales are attributed to Amazon Business, the subsidiary that helps small businesses sell goods at the Amazon.com storefront. Winners: Shopify is a Canadian e-commerce infrastructure provider. The company can get any small business online quickly and painlessly with software modules for payment processing, marketing, loyalty, shipping and fulfillment and even accounting. Partners include Walmart, Facebook and Google. Amazon is the biggest domestic player with 37% of all online sales yet it is only getting started with branded goods. Amazon Basics batteries are the best selling power cells in the United States. More category killers are in the works. Sea Ltd. operates the fastest growing e-commerce operation in South East Asia, the fastest growing online market. Its three divisions, shopping, gaming and payments generated $1.8 billion in Q1 sales, up 147% year-over-year. Get Ready For Conscious Capitalism The next several decades promise to be all about stakeholders. The biggest corporate winners will focus beyond shareholders and profits. Conscious capitalism seeks to benefit employees, customers, suppliers and society as a whole. Sometimes called ESG, this type of investing identifies companies at the vanguard of progressive Environmental, Social and (corporate) Governance strategies. These businesses are investing in green technologies. Socially they are leaders in employee safety, training and development, diversity, and customer protections. Their boards of directors govern transparently, pay executives according to the longer-term benefit of stakeholders. Despite all of the restrictions ESG companies have performed better than the benchmark S&P through the past five years, producing a compound annual rate of return of 18.6%, according to Forbes. The growth of ESG investing has been even more stunning as assets under administration for ESG funds have increased 18-fold since 1995, to $12 trillion in 2018. The reason is simple: Younger people are investing again and they are seeking businesses that reflect their mostly progressive values. However, the real opportunity is coming. Baby boomers are expected to pass $30 trillion down to their children. According to Morgan Stanley research, millennials are more than twice as likely than their parents to target companies that are socially responsible. Winners: Nike managers have been at the forefront the movement with pledges to protect workers' rights in the global supply chain, the use of recycled materials in its product line and advocacy of social issues. Intuit is considered the corporate leader ESG implementation. The company is consistently voted among the best places to work and its rates first on the Future 50 Sustainability All Stars list, a survey complied by Fortune and Newsweek. MSCI Inc. is a financial services company. Its expertise is compiling indices tracked by institutional investors. Recently MSCI has invested heavily in the development of global ESG investing composites. It's a big, lucrative business that is certain to improve. The Future Is Even More Digital In the future everything will either be digital, or it will have a digital twin that lives online. The idea may seem out there but Netflix streaming is barely more than more than a decade old. Today all media is on the Internet and available to be streamed on demand to billions of devices of all types simultaneously. Business consultants and software developers are working feverishly to bring everything that can be powered up inside a network, from machines on factory floors to sensors in farmers' fields to lamp posts and parking meters. It is entirely possible. Apple's Find My network already does this with one billion iPhones, iPads and Macbook computers. What's coming next will blow minds. Connecting inanimate objects to networks will enable predictive maintenance at factories. Traffic jams will be prevented by rerouting vehicles automatically. It will be a major productivity boost to the global economy, creating immense wealth. Often called the Internet of Things, Accenture analysts predict reimagining the world digitally could add as much as $14.2 trillion in value globally by 2030. Winners: Accenture is a global management consulting company working with 95% of the Fortune 100, and its employees are often embedded. They are building real software to move firms toward digitalization. Tyler Technologies builds software that makes it possible to pay a parking ticket online, or look-up the deed to a property on an iPhone. It's by far the biggest player in the multi-billion state and local government digital transformation. That process is only getting started today. Align Technologies operates the world's largest 3D printing facility in Mexico. The company prints custom acrylic aligners for its Invisalign brand, a clear orthodontic. Align is digitizing ugly metal braces with clear aligners and it is a great business. Subscribe to Jon Markman's Strategic Advantage here: https://markmancapital.net/newsletters/stocks/strategic-advantage

18 Winners in the Digital Future

These best-of-class stocks represent powerful investment trends that will be difficult to disrupt.

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