Independent Thinking^®

Investing in a Digital Future

Kidney disease forecasting, drywall hanging, pizza delivery and crop management: These are just a few examples of activities being transformed through technology. The digital economy (ecommerce, software, tech hardware and so on) now represents more than 10% of the U.S. economy.
 
And there’s more to come. More than half of corporate capital expenditure, or CapEx, is now being invested in productivity-enhancing investments like cloud technology, artificial intelligence and vision technology, as well as robotics and the like. The $700 billion projected to be spent globally over the next decade building cutting-edge software for the cloud may herald exponential growth in related data applications, such as autonomous vehicles and automated manufacturing. At the same time, the investment payoff timeline is accelerating. Investments in robotics, for example, now pay off in half the time that they did 10 years ago.
 
The technology companies are both the beneficiaries and drivers of these trends, as John Apruzzese observes in his article, Powering Up: Technology Continues to Drive the Markets. Amazon spent more on CapEx in the past two years than it did in the previous 20, and Microsoft is working with thousands of organizations around the world to grow and combine their physical and digital worlds, and to explore collaboration opportunities in the metaverse.
 
A few other examples of current new economy investments in general, and digital investments in particular, by companies in the Evercore Wealth Management core portfolio holding include:

• Blackrock’s investments in its Aladdin processing system have increased the productivity of its customers throughout the financial sector;
• Williams Company has entered into an agreement with Microsoft to bring sensor technology and artificial intelligence, or AI, to help in the move toward carbon neutrality;
• McDonald’s has been improving throughput and ameliorating the impact of labor shortages through its investments in digital and process technology;
• United Health continues to ramp up investment in data analysis, driving outcome-effectiveness and cost-saving efficiencies throughout the healthcare system;
• Home Depot continues to invest in the technology underpinning the transformation of its supply chain, significantly increasing the efficient delivery of orders to end customers through a more efficient and reimagined distribution system;
• Federal Express has invested in data technologies that are driving network efficiencies, reducing package touches and providing more accurate delivery time estimates.

As these and other corporations continue to invest in improving their productivity, economy-wide productivity should also increase.
 
Michael Kirkbride is a Managing Director and Portfolio Manager at Evercore Wealth Management. He can be contacted at [email protected].