What am I Really Buying?
Analyzing Applied Innovation Exposure Across Market Caps Reveals a Skew to few Innovations for Mega Cap Stocks
The Singularity Universe comprises USD 2.9T in applied innovation revenues spread across nine technological domains of applied innovation (Singularity Sectors). This equals 4% of the total USD 74T revenues in global listed equities. To visualize and unravel where innovation revenues show up in the global equity universe, we parsed the total revenues of each Singularity Sector by company market cap range. For investors seeking a tilt on any innovation in particular, size will matter.
Horses for Courses: Different Innovations Dominate in Different Market Cap Ranges
Singularity Sector revenues are strongly skewed within market cap ranges (see Figure below). Singularity revenues in Mega Cap companies are dominated by applied innovations in Big Data and Compute Power.
Innovation Revenues in Mega Cap Space Show in the Cloud
Within Mega Caps, Big Data hosts a handful of established Cloud providers including Amazon (SI-Score: 12), Microsoft (SI-Score: 38), Alphabet (SI-Score: 9), and Oracle (SI-Score: 93). Their cloud solutions include services related to cloud computing, storage, data analytics, security, and cloud migration. Benefiting from their global reach and network effects, leading cloud providers have managed to evolve their technological capabilities to service customers across industries, regions, and company sizes. Moreover, as the digitalization wave continues to take hold, their activities
continue to be the fundamental driver of a value chain spanning Artificial
Intelligence, Big Data, Compute Power, and Networks & Connectivity.
In particular, Artificial Intelligence related products and services, including. Generative Artificial Intelligence (GAI) offerings, are bound to make up an increasingly important part of cloud revenues. However, AI-specific revenues still haven’t visibly penetrated the Mega Cap space.
Mega Cap Compute Power (CP) exhibits a similar landscape of a dominant
few. Among them, advanced foundries including Taiwan Semiconductor
Manufacturing Corp. (TSMC, SI-Score: 48) and equipment providers such
as photolithography machine producer ASML (SI-Score: 100) are central
players in the value chain for high-end computing chips. These companies successfully leverage the continued penetration of digital devices and services across industry sectors and the ever-growing demand for powerful server computers.
Robotics Dominant in Large Cap Range
In smaller market caps, a more diversified picture emerges. The Large Cap range has a more prominent role for Robotics (25.4%). Broken down by region, these revenues are concentrated in the U.S. (50%), primarily in Med-Tech, and in Western Europe (43%) with a leading role for sensor, robotic, and automation providers. Robotics revenues from companies in the Small & Mid Cap range cluster in Asia Pacific (52%). Among them are AgriTech leaders such as Kubota (SI-Score: 68) and automation technology providers including Mitsubishi Electric (SI-Score: 32).
Large Cap Artificial Intelligence revenues are centred in the U.S. (52%),
followed by India (31%) and Japan (14%). Aside from leading IT-consulting
companies, Customer Relationship Software as a Service (SaaS) leaders
such as Adobe (SI-Score: 100) are among the most notable value creators with a growing offering of AI-powered customer engagement tools. Western European companies take up a significantly smaller share of the AI revenue pie with less than 3% of Large Cap revenues.
Regionally Diversified Innovation Streams in Smaller Caps
Here, AI revenues originate primarily in the U.S. (35%), Japan (27%), and India (13%), where IT-consulting companies such as Kyndryl (SI-Score: 100) are among the main beneficiaries of growing interest in AI/ML based business intelligence and data analytics solutions across customer segments. Compared to its prominence in the Mega Cap space, Big Data represents a much thinner share of innovation revenues in smaller market caps. In the Large Cap range, rising cloud service challengers include China-based Alibaba (SI-Score: 9). In the Small- and Mid Cap range, Big Data features companies offering products and services that facilitate the implementation and integration of cloud solutions and companies developing cloud-enhancing applications (e.g., data analytics provider Teradata, SI-Score: 100).
Also benefiting from this trend are Compute Power companies that ad-
dress the growing market for specialized production equipment for the semiconductor manufacturing industry, among them, Axcelis Technologies (SI-Score: 100). Finally, the Small- and Mid Cap range is also where Advanced Materials innovation revenues are concentrated.
Capturing Value Beyond Mega Cap Tech
Because the enabling technologies underlying applied innovations are in constant flux, there is considerable value in a dynamic approach to innovation screening. The analysis above shows that to fully benefit from powerful applied innovations, such as Artificial Intelligence, investors must look beyond the Mega Cap space to access the highly attractive opportunities outside that narrow universe. For example, as Robotics and Artificial Intelligence transform industrial processes, we may soon see a flurry of spin-offs from the industry behemoths or witness disruptive companies banking on their innovation potential and being propelled to Mega Cap status.
One thing is certain: Applied innovation generates value across value chains beyond Big Tech, as is evidenced in the unfolding reindustrialization trend. Investment strategies based on TSG’s Applied Innovations Screening offer investors diversified exposure across the range of technologies that enable new products and services today. These unique capabilities will drive extraordinary growth in these innovative companies, positioning them to become the mega caps of tomorrow.
About The Singularity Group
The Singularity Group (TSG) quantifies applied innovation for investors in listed equities. TSG is the initiator of the Singularity Index™ (Bloomberg ticker: NQ2045), a global, all-sector benchmark and gold standard for applied innovation. The Singularity Strategies include The Singularity Fund (UCITS Lux), Singularity Reshoring(UBS AMC), and the Singularity Small&Mid (UBS AMC). The Swiss investment advisory boutique works closely with the Singularity Think Tank, a network of entrepreneurs and academics with deep insights into innovation value chains. Their input forms the foundation of TSG’s proprietary innovation scoring system that quantifies the engagement of companies within a set of curated Singularity Sectors worldwide across all market capitalizations and industries. The Singularity Innovation Score (SI-Score; see below) defines how much value listed companies are generating through applied innovation.
More: www.singularity-group.com
The Singularity Innovation Score (SI-Score): A company’s SI-Score represents the percentage of its revenues associated with innovation. It reflects a company’s ability to create innovation- versus commoditized -business and -cash flows, and its ability to participate in technological evolution. Changes in the SI-Score are just as important as the absolute value. A company’s SI-Score relative to its overall GICS sector can say a lot about the competitive standing and ability to gain and maintain market share. Regional SI-Scores can be used to evaluate the innovation power of markets as well as to gauge companies’ standing in different regions.
Innovation Revenues: 4% of a 74 trillion USD global market: In 2022, the total revenues generated by the World’s listed equities amounted to USD 74 Trillion. TSG’s unique expert-led innovation screening and scoring methodology allows us to divide that amount into innovation revenues and non-innovation revenues. In 2022, roughly 4% (USD 3 Trillion) of global revenues qualified as innovation revenues.
