4 Fastest Growing Industries That I’m Investing In This Year

“I skate to where the puck is going, not where it has been.” – famous former ice hockey player, Wayne Gretzky

In the world of investing, there are two distinct styles: Fundamental Analysis and Technical Analysis. The former focuses on the fundamentals of companies while the latter focuses on the price action movements of the stock price. 

Within Fundamental Analysis, there are bottom-up investing and top-down investing. The former focuses on more individual stocks and less on market cycles. The latter focuses on the industry and economy. 

As an investor, I always found it beneficial to be knowledgeable in all areas because it gives me a better perspective on how I should position my portfolio at any given time. 

From my experience, stock returns are also dependent on how attractive an industry is and how well an economy is doing. 

The world has made several industrial transformations through the invention of airplanes, electricity, computers, the internet and so much more. It changed the way we live our lives, consume content, interact, and spend our money.  

(Source: Research Gate) 

The progress in the industrial revolution is reflected by the changes in the top companies in S&P 500. You can see the changes by visiting QAD’s website.

As investors who want to compound our money at faster rates, we must be aware acutely of what products/services the future economy needs. Imagine buying into an industry where its total addressable market keeps growing. You’re more likely to double your money as compared to investing in a slow-growing industry. That was what motivated Jeff Bezos to start Amazon.com in 1994. He saw that the number of web users was growing at 2,300%!

Let’s dive into the top industries to invest in.

Top Industries to Invest In the Next Decade

E-Commerce

Under e-commerce, you have companies like Sea, Amazon.com, Alibaba, and Mercado Libre. 

We can all agree that e-commerce has several advantages such as more selection, product security, and price comparisons. In brick-and-mortar stores, there is limited space for retailers to place their goods. In the online realm, there is limitless shelving.

With e-commerce, you can compare across platforms such as Shopee or Lazada to determine the cheapest price while also looking at reviews of the products.

It is hard to pin down the exact year that e-commerce started. Many people believe the e-commerce space is saturated now and will likely decline in terms of growth rates. It might be true for markets like North America.

But not for Asia. Our e-commerce penetration percentage of total retail is still lower than North America. In Sea’s second quarter results, its number of gross orders on the Shopee platform increased by 41.6% year-on-year. This is on top of the supercharged growth in 2020 and 2021.  

Clean Energy

Under clean energy, you can break it down to energy storage solutions and electric vehicles. There are companies like Tesla, Stem Inc, Fluence, Siemens, NIO, BYD, and Xpeng. 

Despite claims made by world politicians, nobody really knows how much oil reserves the world has. This is frightening because the world runs on energy.

We have read how Europe did not anticipate Russia’s decision to cut off energy supplies to them. With very little power production capabilities of their own, the demand for energy far exceeds their own supplies, causing energy costs to skyrocket. In France, people are predicting €1,000 megawatt/hour of energy by 2023. That is compared to €85 per MWh just a year ago. 

When energy cost is high, consumers will have to cut back on discretionary spending in other areas, which will spiral into an economic slowdown. Energy also becomes a matter of national security because no country wants to be dependent on other countries for its survivability. 

The current energy grids are not suitable for renewable energy sources too. This means it’s likely for countries to overhaul their energy grids with urgency.

If e-commerce is more than 20 years old and still growing at double digits, I expect the clean energy industry to grow at a rapid rate for many years to come.

Semiconductors

Under semiconductors, you have companies like Nvidia, AMD, TSMC, Lam Research, Applied Materials, and ASML. They are part of the fourth industrial revolution. 

In the past, semiconductors were heavily tied to mobile phones and laptops. Depending on consumer demands, it could be cyclical. Things have changed since then.

What is enabling Tesla’s self-driving capabilities? It’s semiconductors.

What is powering the servers of Amazon Web Services or Azure globally? It’s semiconductors.

More importantly, what is powering your internet? It’s semiconductors.

It’s not an understatement to say that semiconductors are a critical infrastructure foundation for modern society today. 

In the past, file sizes we measured in kilobytes. These days, it’s measured in megabytes or even gigabytes. There is a huge explosion in data requirements too. 

Without graphic chips from Nvidia or AMD, metaverse will just be a dream forever. Any artificial intelligence or quantum computing will require sophisticated semiconductors chips too.

In short, strong tailwinds for semiconductors are being driven by the likes of data centres, robotics, and artificial intelligence, to name a few. 

Software

Software is a huge industry consisting of players like Salesforce, Asana, Zoom, Slack, Monday, Workday, Alteryx, ServiceNow, and Palantir. Software enhances productivity for its users. You are able to get more done using lesser hours.

For example, Salesforce helps corporations to organise customer information and create a potential sales pipeline. Alteryx speeds up data analytics work so that data scientists can be more productive.

In some cases, the usage of software could be a competitive advantage for companies. Think about Palantir for a second. Its software Foundry helps its users to make better decisions and prevent costly business failures.

Moving forward, it is natural to expect the world to use more software to improve different aspects of business and personal life. Software companies tend to enjoy high gross margins and recurring revenues. This provides investors with earnings visibility.

Cybersecurity under Software

Under cybersecurity, you have zScaler, Crowdstrike, Okta, SentinelOne, Palo Alto Networks, Datadog, and others.

Since Russia invaded Ukraine, the world is watching to see if China will invade Taiwan. But we all know that war is not confined to military force – there is cybersecurity warfare too. Strong cybersecurity capabilities are needed to counter that. In March 2022, Singapore’s armed forces created a new unit for this specific reason. 

How about the business world? 

In the wake of covid-19, our work habits have changed. Many employees prefer to have a work-from-home option. This means that more business operations are conducted over the internet.

Cybersecurity attacks are getting more frequent too.

(Source: Cybersecurity Ventures)

This trend is unlikely to reverse any time. In fact, companies around the world are equipping themselves to fend off more attacks in the future. As seen from the chart above by Cybersecurity Ventures, the total addressable market for cybersecurity keeps expanding. It is now becoming a necessity.

Summary

I always have this belief – if I choose a good company in a fast-growing industry, it does not take a lot for the company to grow. In fact, the business might still grow even if the management is lazy. It’s like running with the wind at one’s back.

On the other hand, if we buy into companies in industries with lousy prospects, the management must work diligently to produce even the smallest signs of growth. This is called running against the wind.

While the selection of companies is enormously important, the selection of the right industries can be a vital booster to make your life easier as an investor.  

Here are the top industries:

• Clean energy
• Semiconductor
• Software
• E-commerce
• And a few others such as FinTech and payment solutions. 

To generate good returns, it’s not just about looking deep into a company. It’s also about looking at the broader picture. Pick the right waves and ride them.

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