Investors should look to the expansion of cloud computing, as well as a next-generation internet sector-themed exchange-traded fund strategy to capture this growing opportunity.
During the recent webcast, A Guide for Advisors to Cloud Computing and the Future of the Internetanalyst Will Summerlin predicted that global AI software and hardware could explode in the coming years spending more than triple consensus expectations by 2030.
Meanwhile, Summerlin predicts that artificial intelligence will grow from nearly $2.5 trillion to $2.7 trillion in enterprise value by 2030. Specifically, by 2030, software companies could collectively produce $14 trillion in annual revenue, and the $4 trillion in free cash flow could create more than $80 trillion in enterprise value, up from $2.3 trillion in 2021. Meanwhile, AI hardware companies could collectively produce $1.7 trillion in annual revenue, and the $350 billion in free cash flow could create $7 trillion in enterprise value.
Summerlin argued that our increased reliance and use of the internet continues to fuel this growth towards a more digital lifestyle. The COVID-19 pandemic has only served as a catalyst to accelerate the shift from offline to online business.
“We estimate that on average in 2021, internet users spent 38% of their free time online and 62% offline. By 2030, we expect these averages to reverse, with users spending 52% of their free time online and 48% offline,” Summerlin said.
Meanwhile, digital advertising will play an important role in connecting consumers to new products in the expanding online environment. At the end of 2021, global digital advertising totaled approximately $440 billion, or 62% of the total advertising market.
“We believe the global digital advertising market will grow over the next eight years,” added Summerlin.
Looking ahead, Summerlin asserted that the raw value of social commerce goods will support the next wave of online shopping with the network effects of social media. The gross value of social commerce goods is expected to increase over the next five years to $3.7 trillion as part of the ongoing digitalization of commerce.
Additionally, Summerlin added that games are quickly becoming the new social platforms or so-called social games.
“We estimate video game content and services will grow from around $200 billion in 2021 to over $400 billion by 2026 with the rise of virtual worlds,” Summerlin said.
Overall, Frank Downing at ARK Invest argued that revenues associated with discretionary online time will grow from $1.8 trillion to $4.1 trillion in 2026 thanks to expanding spending on entertainment, advertising and e-commerce platform fees.
Downing also pointed to blockchain technology as a catalyst for several revolutions in our economy.
“In our view, the Bitcoin protocol has created the most profound application of public blockchain infrastructure. In addition to the monetary revolution, public blockchains have also catalyzed financial and internet revolutions,” Downing said.
Specifically, it revolutionized money by allowing the coordination of the transfer of value and property rights outside the purview of centralized authorities, governments, and top-down control. Blockchain has created a financial revolution by supporting the coordination of financial services and contracts outside the jurisdiction of traditional financial institutions. Finally, it revolutionized the Internet by making it easier to coordinate identity, reputation and data outside the purview of traditional media conglomerates and big tech.
“We believe Web3 virtual ecosystems will thrive if human participants online can own – instead of use or rent – digital assets,” Downing said, adding that “public and decentralized blockchains allow users to store and trade their assets in a legitimate secondary market.”
For example, Downing highlighted the ownership of digital assets such as non-fungible tokens or NFTs that serve as smart contracts that verify ownership of digital assets on public blockchains.
To access these growing opportunities, investors can turn to ARK Next Generation Internet ETF (ARKW). The ETF is made up of companies that are focused on moving the basics of technology infrastructure to the cloud and stand to benefit from it, enabling mobile, new and local services, such as companies that depend on or benefit from the increased use of shared technology, infrastructure and services, internet-based products and services, new payment methods, big data, internet of things, social distribution and media. These companies may develop, produce or activate businesses associated with cloud computing, cybersecurity, e-commerce, big data, artificial intelligence, mobile technology, internet of things, social platforms, blockchain and peer-to-peer.
The ETF strategy provides exposure to innovation through multi-cap thematic exposure to innovative internet technologies. It can also offer growth potential by capturing long-term growth and low correlation of relative returns with traditional growth strategies and negative correlation with value strategies.
The strategy is research-based by combining top-down and bottom-up research in its portfolio management to identify innovative companies and convergence across markets.
Financial advisors interested in learning more about innovation in the internet space can watch the webcast here on demand.
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