The Rise of Digital Disruption

Digital technologies continue radically to transform the world of business. In many cases, new companies are disrupting the structure of industries, seizing market leadership from those that have dominated for generations. Incumbent competitors in many sectors will either rise to this digital challenge or suffer decline and perhaps destruction.

Citi analysts believe there is much more digital disruption to come. Fresh digital technology hubs are opening up, particularly in China, where the government aims to turn the nation into a tech superpower. And yet, there remain many businesses and industries still only in the early stages of digital disruption.

These are just some of the reasons why Citi analysts believe digital disruption represents an unstoppable trend and a major, long-term

investment theme. Citi analysts consider the importance of three digitally disruptive technologies – artificial intelligence (AI), robotics and automation, and blockchain – as well as the opportunities and risks they may create for your portfolio.

Artificial intelligence - Transportation

Artificially intelligent technologies – those that perform work by developing and applying human-like reasoning – are tackling a growing number of complex tasks.

Big data is enabling AI’s rise. Some 90% of the data in existence today has been created only in the last two years (chart 1).

The benefits of AI’s ongoing advance are likely to be far-reaching. The McKinsey Global Institute believes that AI could create as much as $5.8 trillion of value annually, with the largest potential gains available in retail, transport and logistics and travel.

While Citi analysts expect AI to disrupt many areas within the economy, certain industries look likelier to be affected, to a greater extent, and sooner than others. For example, personal mobility might be on the verge of its biggest disruption since the advent of the motor car due to autonomous vehicles – those that can drive themselves without the intervention of a human controller thanks partly to AI. Citi estimates that the total RoboTaxi market in the US alone may be worth some $900bn in revenues. Citi also estimates that each fleet of autonomous vehicles with 100,000 subscribers might be able to generate gross lifetime profits of $2.5bn.

Artificial intelligence - Healthcare

Another industry that Citi believes may reap the benefits of AI and other disruptive technologies is healthcare. Detecting disease, analyzing scans, processing insurance claims, and ensuring patients are in the right place at the right time are just are few of the present and potential uses. Quicker, cheaper, and more accurate diagnosis could improve and save lives, as well as limiting rising healthcare costs.

Citi analysts believe that applying AI to big data could help perform predictive diagnosis, estimating the probability of a patient having particular condition. This would involve AI rapidly analyzing a far greater volume of historic data worldwide than a human practitioner could do in several lifetimes, and using this information to predict diagnoses. The healthcare data resources upon which AI could draw have already grown exponentially in recent times. Between 2013 and 2020, healthcare data production is forecast to have grown from 153 Exabytes to 2310 Exabytes.

Blockchain

Blockchain is a distributed database, in which information is shared among all users of the network, rather than being held and  controlled by a central administrator. All users can store their own copy of the database and all are required to validate new information added to it. Its core characteristics include immutability, validation by consensus, and security.

Citi analysts see blockchain’s characteristics as adaptable to multiple uses across the economy and society. These include automating manual checking processes, eliminating many layers of intermediate steps and middlemen. The recording, storage, and processing of data could thus become simpler, streamlined, cheaper, more accurate, and more trustworthy. As a result, companies across various sectors – as well as governments – are currently looking at how blockchain might help boost their revenues, cut costs, reduce risk, and enhance their processes and output.

Robotics

Robotics adoption is proceeding rapidly. Global sales of industrial robots reached a new record of 387,000 units in 2017, up 31% from 2016. Much of the growth is occurring in China, Japan, and South Korea. Among industries, the automotive sector – which has long been a heavy user of robotics – continues to account for both growth, along with the metal, electrical and electronics, and food industries.

The economic and human benefits of increased robotics deployment might be particularly great in medicine. Robotic involvement in invasive surgery is still in its infancy, covering only 2% of applicable procedures. However, Citi analysts believe that surgery and invasive diagnostics is poised to see an acceleration in adoption. By 2030, it forecasts that robotic deployment may be more than five times greater than today, growing the medical robotics market from $4bn to $18bn.

Prepare your portfolio for digital disruption

Citi analysts believe the unstoppable trend of digital disruption has far to go, however, their effects upon businesses may take longer to make themselves felt fully.

As well as the uncertainties associated with new technologies and how companies use them, there is greater volatility and drawdowns that typical investments in early-stage digital disruptors often entail.