The Merrill Perspectives Podcast

 

Moonshots:

Tech that could change the world

 

 

With

Candace Browning,

Head of BofA Global Research

 

 

Chris Hyzy,

Chief Investment Officer,

Merrill and Bank of America Private Bank

 

 

And Haim Israel,

Head of Global Thematic Investing Research

BofA Global Research

 

 

 

 

 

 

 

 

 

 

Please see important information at the end of this program.

 

 

Candace Browning:  Imagine a world where our brains can interface directly with computers.  Where our personal devices can predict our thoughts and feelings; where we’ll interact with co-workers in holographic rooms and spend our leisure time in the “Metaverse.”

                                   

                                    Where new forms of green mining and harnessing the ocean’s power will provide solutions to the climate crisis. And where radical medical advances take us to the edge of immortality.            Now what if I told you this futuristic world isn’t all that far off in the future?

                                   

                                    Hello and welcome to this edition of the Merrill Perspectives podcast. I’m Candace Browning, head of BofA Global Research.

                                    We have a fascinating program for you today. It’s all about what are known as quote unquote “moonshots” - technologies that once seemed like science fiction but are now on the cusp of being a part of our daily lives and they all have the potential to dramatically transform the way we live, work, and play.

                                    Joining me today for this conversation are Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.

Chris Hyzy:                Hello, Candace.

Candace Browning: And Haim Israel, head of Global Thematic Investing Research for BofA Global Research.           

 

Haim Israel:               Pleasure to be here, Candace.

Candace Browning:  Great. So Haim, let’s start with you. A lot of what we’re discussing today is outlined in a primer that you and your team authored and that was, I think, very appropriately titled “To the Moonshots.”

                                    So Haim, to set the stage, what exactly makes something a “moonshot?”  And can you give us a sampling of what some of these technologies are and the potential market that they represent?           

Haim Israel:               We define moonshots as technologies which will change our life in the future. Technologies which have not been rolled out yet, have not been fully commercialized yet, but on top of just being a technology that we can use will completely change our life.

                                    Think about the internet before the dot-com bubble.  Think about the smartphone technology before the iPhone, something that completely and radically changed our life. That is the moonshot theme. Five to 10 years we will not be able to live without them.

                                    Give you a couple of examples, Candace. Emotional artificial intelligence, brain computer interface, bionic humans, immortality, synthetic biology, Metaverse, holograms or next-gen batteries. Those are just a few of the examples where it’s going to completely change our life or where there is a need like completely decarbonizing our planet and deal with climate change problems, social problems, the explosion of data that will require technologies that will completely change our lives.

                                    The 14 moonshot technologies that we have specified in our report today do not have a big market potential as of today because as I said, they have not been fully commercialized. We are talking about in total $330 billion of market.  However, by the end of this decade we believe that those moonshots could see up to $6 trillion in market potential. That’s a total compounded annual growth rate of give or take 36% each year from here onward.  (Source: “To the Moon(shots)! – Future Tech Primer,” BofA Global Research, Sept. 2021)

 

Candace Browning:  So talking about radical change, Haim, in the report you note that the world could be on the cusp of, I think you called it “the fastest rollout of disruptive tech in history.”

                                    So just give us a bit of context for why you think that and why this pace of change has been growing so quickly.

Haim Israel:               All I can say here, Candace, that we haven’t seen anything yet. The rollout of technology is getting faster and faster. Since the Apollo 11 moon landing, we saw 1 trillion growth in processing power. One trillion. Every day we generate 2.5 quintillion bytes of data, 2.5 quintillion. (Source: IBM, 2020).  Quintillion by the way is a million trillion bytes of data every day.  If we think about from here onward, we’re going to use more data; faster computing power, processing power, AI, deep learning, machine learning, big data analytics. This is why the search for moonshots is so important.

Candace Browning:  You know, Haim, it’s interesting to hear you talk about things changing so quickly because, you know, if you look at medical technology, nobody really expected that we were going to be able to produce vaccines as quickly as we did.  And I think that’s a really interesting example of change happening so rapidly.

Haim Israel:               This is a great example, Candace, because it was all about data. Give or take in a year’s time, we managed to map the sequencing of the virus; came out with a vaccine in one year.  And this really shows you how fast things are changing.  All the data is out there. It’s really a way of taking it, grabbing it and using it.           

Candace Browning:  It’s very, very exciting. Now Chris, you’ve been following these kinds of disruptive technologies for a long time. So when you look at this accelerated pace of change that we’ve just been talking about, do you think that we’re entering a major new wave of innovation and what do you think that might mean for our daily lives?

Chris Hyzy:                Yes, Candace. This wave of innovation, without question, at least in our opinion, is just powerful and it’s happening before our eyes. It used to happen in a design lab.  It used to happen on a corporate warehouse, on a manufacturing floor. Now we’re starting to see this change hit daily lives virtually every day.

                                    So I would characterize this horizon, if you will, this line over all the moonshots as The Great Acceleration.  We have the advent of the next-gen web, the future of work is being discussed as we sit here today.  Digital coding is everywhere, robotics has been around forever but now we’re hitting that third wave of robotics and there’s the climate solutions revolution. 

                                    And a very simplistic one that we often take for granted is just home building and construction, how quick it’s done and the cost effectiveness. And how about being able to create memories, sports memories, kids’ memories, life memories, with just a click?

                                    So all of this is happening much quicker and that’s why these moonshots are just so interesting not just from our daily lives perspective, but also from an investment perspective.

Candace Browning:  So Haim, a few of these technologies sound familiar and they could transform everything from the car you drive to our global communication systems. So for example, next-generation batteries and 6G wireless. So what makes these technologies so special?

                                   

Haim Israel:               We didn’t wake up one day and say, “You know what? We really need 6G. Let’s just invent it or think about the next-gen batteries.” There’s a need to move that and the need is building up every day that if we’re not going to do that, we’re going to run into massive world problems.

                                    6G. 6G is, we’re in a position that we’re generating so much data that in a couple of years’ time, which we defined in our research around five, six years’ time, we’re going to generate so much data that the 5G networks, which have not been rolled out yet, will not be able to absorb and transmit all this data, because we’re using today applications that will use way more data than in the past.

                                    You mentioned Candace before about the Metaverse or holograms or industry 4.0, which are heavy users of data. We all stayed at home in the last year or so and increased the capacity of bandwidth that we need all the time. So 6G is going to hit our lives way faster than what we ever thought

                                    Same thing about the next generation of batteries. We live in a world that we’re hitting a very critical point of climate change and we need to solve that and we need to decarbonize our world.  To do that, it’s going to cost us so much money. We’ve calculated to decarbonize our planet $150 trillion for the next 30 years. (Source: IEA, “Net Zero by 2050,” May 2021)

 

                                    We’re going to run out of natural resources to do that – lithium, nickel, and so on are going to be under so much stress, so we have to move to the next generation of batteries. We have to understand how different materials can store energy. Can we use it later?  

                                    So that is the essence of the moonshots.  The world is changing so fast and we’re facing probably historical problems right now in the planet that without those technologies we will not be able to solve them.

Candace Browning:  Wow. Well Chris, let’s delve a little bit into technology and healthcare. There’s all these advances we already discussed in medicine, biotech, genomics.  Where do you see technology and healthcare merging and how do you think that’s going to play out?

 

Chris Hyzy:                I look at technology and healthcare as the greatest convergence of areas between big data and science that we will possibly ever see. Haim touched on this a little bit before.  We’ve lived it, we’re still living it now with the onset of the pandemic and then through various types of variants through the pandemic and how quick medicine, lab sciences, technology, and science converge together to create vaccines.

                                    Now we have an entirely new applied technology within medicine to be able to use hopefully potential breakthroughs in the most terrible diseases around the world, such as cancer. And it’s also going at the tangential effects like telemedicine and fitness and it’s hitting again into the consumer field where it really never touched before. 

Candace Browning:  Well Haim, I want to follow up with you in some of these future medical fields that you’re following because to me they just sound like they’re straight out of like a sci-fi novel. You’ve been talking about bionic humans and synthetic biology. I mean, Haim, are we really headed towards achieving immortality?

Haim Israel:               We are heading there.  It’s not just the technology itself, Candace, it’s how we are approaching all of this all together.

                                    The United Nations have declared that aging is a disease and actually, the concept of disease is it is treatable.  We can today sequence our DNA for $100.00. Candace, if we had a discussion back in 2003 to sequence our DNA, it would cost us $2.7 billion. Today for $100.00 you can do it and start using all this information.  (Source: National Human Genome Research Institute, 2020)

                                    We are heading into a world that we can start planting artificial organs. Artificial hearts, artificial limbs are not science fiction anymore. So we can start tapping the data, we can start using technologies, other resources in order to improve our life, improve our life expectancy, live longer and live better, and we can actually use a lot of these biological materials like enzymes, like DNA. That’s now what we call synthetic biology, in order to implant them and synthesize them in other fields completely, in other technologies completely.

Candace Browning:  Well, listening to this discussion, I’m struck by the fact that taken together, these technologies might be able to help solve some of our biggest existential challenges that we’re facing today and the one I’m really thinking about is climate change.

                                    So could you both discuss a little bit some of the potential solutions for climate change that are on the horizon as a result of these moonshot technologies?

Haim Israel:               Climate change is the biggest challenge of our times right now. And we will not be able to decarbonize our planet without technology and without future technologies.  It’s almost impossible to do unless we’re going to have moonshot technologies helping us; or carbon capture that we mentioned in our primer.  Or green mining because today mining is one of the biggest emitters out there.  Next-generation batteries we discussed that already.

                                    This decade is probably the last decade too that we can really act to save our planet. You will have to rely on technologies. As a result, you will see more and more funding, more and more resources, more and more focus by governments and this is why we believe those technologies, those future technologies of climate change are going develop so fast. And as I said in the beginning of my conversation, if you blink, you miss.  

Chris Hyzy:                Just following on what Haim said, just putting that big data sell right in front of us for a second as it relates to climate change.  You had areas of the world that used to be so-called wet. They’re now moving to being very arid. You’ve got areas that really never had floods are now flooding. You had areas of wildfires once in a while and now it’s tragic on the west coast.

                                    So using data, things like testing the hydration of soil so you can potentially prevent some wildfires in the west by knowing when the soil reaches a certain arid level, the danger zone hits, the risk rises dramatically.  So again, it’s a convergence of big data and technology together to solve some of the world’s biggest crises.

Candace Browning:  Haim, I want to take a look at what you call quote, unquote “superstar firms,” which are a very small percentage of companies that historically have had a huge outsized impact on the pace of innovation as well as the long-term growth in financial markets.

                                    So what makes these types of companies so unique?

Haim Israel:               These superstar firms is quite interesting. The research we have quoted in our note was talking about 63,000 companies trading all over the world in the last 30 years. Out of 63,000 companies, did you know, Candace, that 1.5% of those superstar firms have generated all the net return, while 98.5% generated zero?  (Source: “To the Moon(shots)! – Future Tech Primer,” BofA Global Research, Sept. 2021; Bessembinder, et al, Arizona State University, 2020)

                                    When you look at those companies – and by the way, it’s not just technology and that’s very important to highlight – you see that those are the companies that were the transformers; that were the innovators, that didn’t look at the short term. They didn’t think about the quarterly earnings and so on, but really had a vision and managed to understand that the changes that this world is facing will create completely new needs.

                                    Another thing that we brought in our research was that if back in the ‘60s an average company was staying – their life expectancy on the S&P 500 was give or take around 60 to 65 years. Now it’s 12.  (Source: “To the Moon(shots)! – Future Tech Primer,” BofA Global Research, Sept. 2021; Innosight, “2021 Corporate Longevity Forecast,” May 2021)

                                   

Candace Browning:  Wow. So what you’re saying is that people are living longer but companies are dying sooner? That’s fascinating.

Haim Israel:               Much sooner.

Candace Browning:  Haim, this all sounds very promising but I’m sure there’s also a lot of risks associated with some of these technologies. So can you talk about some of the risks that could delay or even derail the development of some of these technologies?

Haim Israel:               First of all, we need to remember that we are talking about technologies which are today on the drawing board. We had a lot of promising technologies over the years that have not materialized and have not delivered what we thought or evolved to something completely different.  So the risk there is quite high.

                                    The second thing that we keep reminding everybody is that those moonshots are coming with a lot of social implications as well. Immortality, great example about a technology that will extend our lives and will have a lot of social implications. We live in a world where there are more people that are 65 years and above than children under 15. What does that means for our pension system, what that means for immigration, what that means for inequality in a lot of different countries.  So all those moonshots also have a social price tag.

                                    Regulation – which is always fascinating to me to see that regulation is always behind technology. When there’s a need, regulation wakes up and not before that.  

                                    Privacy - All those technologies eventually are coming down to data and quality of data and data gathering and data collection. What does that means for our privacy? Who will use those technologies? So this is another key, key risk that I think that we’ll have to address at one point.

Candace Browning:  Chris, when you look at where the greatest innovation is today and potentially in the future, what sectors and industries do you think could be the most impacted?       

Chris Hyzy:                You know, decades ago it was always talk about just the technology sector. Now what we like to do is look across sectors and say technology’s everywhere. We started out the podcast by talking about in our daily lives. Anything that touches your daily life and changes it hopefully for the better, there’s some technology or some innovation there.

                                    So when we go through all of this, we think about next generation of the cloud.  We think about cyber security. Think about what Haim talked about in terms of the amount of data, the use of data, the Metaverse. Cyber security hasn’t even touched a good portion of that.  

                                    We talked about biotechnology and medicine, healthcare, lab sciences – those are the areas of greatest investment potential and opportunity. 

                                    And then the use of blockchain. For instance, look at the supply chain. There’s supply chain disruptions everywhere.  The ability to use the blockchain, where you can see movement from a chip from design to end use and how quick and how many steps that can cut out is enormous potential. So those are the opportunities, those are the bigger themes to think about.

                                    And then on the risk side, sometimes a theme is so interesting, sometimes it’s so new that it’s hard to invest in that because capital may be there but the profit potential is not crystalizing yet -- or the rate of change is so quick that it’s not applied in a way that we can actually consume. And that’s also why technology is interesting. You’ve got a wide opportunity set but you also have to be careful about being too early in a lot of these growing themes that have some risks to them.          

Candace Browning:  So Chris, for investors who are interested in including these types of longer-term themes in their portfolio, how do you think they should approach that?  And what role could an advisor play in helping investors understand both the opportunities and the risks involved?       

Chris Hyzy:                I think this is where advice, counsel, consultation about where we’re headed and goal planning is so very important and where the advisor becomes very powerful.

                                    Let’s take a concept that is well understood where you have the core and the satellite approach to investing.  Where you have a core portfolio that’s designed for specific goals in mind. And then the satellite approach in years past it used to be adding more to certain areas. In some cases growth areas, in some cases where the opportunity set was wider.

                                    Now core and satellite is approaching an entire new thought process where you’re adding investment themes more into a portfolio.  We talked about technology and innovation across all sectors and that lends itself to being a greater opportunity set for the core / satellite type of approach.

                                    So we would consider having a core portfolio across different asset classes that is designed for specific goals and then overlay that portfolio with certain themes, ones that have the profit potential and ones that we see a greater opportunity set in the future.           

Candace Browning:  Well thank you. I think that’s really the perfect note to end on. Haim and Chris, I want to thank you both so much for this fascinating look into the future of technology. I know, I for one am really looking forward to seeing how all of these moonshot technologies are going to play out.

                                    And thank you all for tuning in to this edition of the Merrill Perspectives podcast. My co-hosts have been Chris Hyzy and Haim Israel.  I’m Candace Browning, head of BofA Global Research.

                                    To learn more about our latest insights on the markets, please visit ml.com.  And you can sign up for Merrill Perspectives wherever you get your podcasts.

                                    Thanks again for listening.

                                   

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