ADOPTION: Tech stocks are 40% of the S&P 500 index. This is double the weight in the rest of the world. It has been the biggest driver of the US’s dramatic 13-year outperformance of international markets. Today’ tech stock ‘winter’ has been driven by sharply lower valuations and pandemic growth payback, and is pushing layoffs. Yet analysis of 300,000 US companies shows tech adoption still has a long way to go. This is a key support for suppliers across robotics (like ABB), cloud (AMZN), AI (PLTR), and software (ORCL). Additionally valuation pressures are likely to ease as inflation falls. Tech adoption is also a big dividing line between companies as they grapple with wage and productivity pressures. See @CloudComputing, @5GRevolution.
TECH: A deep-dive study of US company adoption of new technologies, including AI, robotics, specialized software, and cloud computing, shows take up is still relatively low. This implies a long growth runway for tech suppliers. Adoption is heavily weighted toward large (and young) firms, at the expense of small caps and older firms. This is shown to give adopters a significant 11% productivity benefit, which will be more important as labour costs and recession risks rise. The constraints to tech adoption are led by perceived lack of applicability, followed by the cost.
DIFFERENCES: The data also shows a wide adoption gap across different sectors. Those setting the pace are IT, finance, professional services, and healthcare. This reinforces their competitiveness ‘moats’ and generally higher profit margins. Whilst those adoption laggards include commodities, construction, retail, and transport. This represents a productivity opportunity medium term but will only drive the widening profitability gap with others for now.
All data, figures & charts are valid as of 31/11/2022