Sometimes it seems as though we can’t keep up with technology due to the rapid pace of advancements. Some investors grapple with the question of whether these developments lead to greater productivity. Government data seems to suggest that productivity rates have decreased in recent years. However, we at Alger believe in the power of technology to enhance economic growth. When we look at the bigger picture, both innovation and productivity are growing strongly.
According to our research, government statistics often understate productivity due to an inability to properly measure quality improvements inherent in technological advances. Additionally, these statistics often only account for a handful of industries or practice areas, skewing the data.
Alger’s research indicates that innovation, and the increased productivity that accompanies it, has improved at a solid clip. We believe that we’re in the midst of a new industrial revolution driven by accelerated growth in data and digital technologies, a topic I explored in a recent blog post. Innovative technology is being developed more quickly and gaining wider reach than ever before, impacting economic growth and investment across all industries
In health care, for example, next-generation sequencing (NGS) technology is disrupting and improving drug development and disease research. The cost of genetic analysis has already decreased drastically since 2001 and is expected to fall further. Health care technology companies that develop NGS technology or that supplement NGS may soon become attractive to investors.
In the automobile industry, companies are racing to lead technological disruption—even when they’re disrupting themselves. Tesla recently improved a car’s stopping distance using only an over-the-air software update, further solidifying itself as an automated software pioneer in addition to its other areas of expertise.
Innovation is not only improving and revolutionizing established industries; it’s creating new markets as well. For example, eSports is growing into a larger industry by the day due to ongoing improvements to digital streaming platforms. Today approximately 300 million people worldwide watch eSports and that number may grow even more quickly than the adoption rate of other technological innovations, such as virtual and augmented reality, because eSports may be more easily monetized with viewers paying to watch others play video games. By 2020, the eSports viewing population is predicted to reach or exceed 500 million.
Innovation and increased productivity persistently drive corporate earnings over time. Given its crucial influence across diverse industries, we at Alger believe that innovative disruption is, and will remain, an invaluable key to progress and investment performance.
Dan Chung is CEO and chief investment officer of Alger Funds.