Technology is experiencing a number of enormous trends that are all converging at once, making it hard for investors to understand which technologies to bet on.
Some of these new technologies, like augmented and virtual reality, are changing the way we experience the world or interact with friends and family. Others, like autonomous cars, may go so far as to revolutionize the way cities work. These are enormous implications and predictions and are not to be taken lightly, and huge amounts of wealth will be created and destroyed, depending on what actually takes place, to what extent and when.
Nearly every company in Silicon Valley -- big or small -- is incorporating some or all of these technologies into their businesses and investors taking notice. The broader Nasdaq has outperformed the S&P 500 this year, with much of the gains coming from companies such as Amazon (AMZN), Alphabet (GOOG), Apple (AAPL), Microsoft (MSFT), and Facebook (FB), but there are a host of others in these fields which have seen a resurgence in investor confidence as well.
Here are five big tech trends that investors can take advantage of:
1. Artificial Intelligence and Machine Learning
Artificial intelligence has been with us for several years, thanks to smart personal assistants such as Siri, but the field has exploded in the past 18 months thanks to a number of events colliding at once.
Companies that run complex algorithms have benefited from using graphical processor units in their data centers to handle the computing power needed for AI and machine learning, technologies in which computers are taught by humans and sometimes, by other computers. It's caused Google CEO Sundar Pichai to say that Google is "AI first," eschewing its "mobile first" mantra and Amazon CEO Jeff Bezos to say that AI will be a huge part of Amazon's growth over the coming years.
Amazon, Nvidia (NVDA), AMD (AMD) and Alphabet are just some of the companies who are likely to see outsized gains in share price performance because of increased focus on AI and machine learning.
2. Autonomous cars
Autonomous and electric cars get lumped in the same group, but they're not always synonymous with each other.
There may be some companies, like GM (GM), Ford (F), Daimler or others that choose to keep a significant portion of their lineups as internal combustion engines, albeit ones that are controlled by computers.
Venture capitalist Ben Evans has posited that the rise of AVs may wind up changing the way how real estate, retail and even entire cities themselves work, because of less need for parking infrastructure.
Autonomous cars have different levels. Currently, most cars that have some level of autonomony are Level 3, but Level 5 would mean the car is entirely capable of being driven and handled without any human intervention whatsoever. Most experts believe we're around 15 years away from Level 5 autonomy, but Tesla's (TSLA) Elon Musk has said it will be sooner than that.
Some companies who already generating AV-related revenue include Nvidia, Tesla and Bosch.
3. Electric Cars
Electric cars are poised to become 35% of the global auto market by 2040, compared to less than 1% today. That's a huge opportunity for auto makers that recognize that EVs are the future.
Electric cars have fewer parts than an internal combustion engine, representing significant wealth being moved from companies that generate revenue from auto repair and auto parts.
Aside from Tesla, which has built its business around electric cars, GM, Nissan and to an extent, BMW all have focused part of their future around electric vehicles.
4. Virtual reality
Virtual reality has become a hot field as tech giants look for the next groundbreaking platform after the smartphone, to mixed success.
Headsets are likely to be the primary way people experience virtual reality, but sales have been relatively modest, due to the expense of the PCs needed to support the headsets. Now, companies are working on headsets that do not need to be attached to PCs, which should help spur growth of the industry, leading to consolidation.
Though there haven't been as many acquisitions in the virtual reality space since Facebook bought Oculus, that's poised to change soon, according to M&A advisory firm Digi-Capital.
Facebook, HTC, Samsung and to a lesser extent, Alphabet should benefit from the rise of virtual reality.
5. Augmented reality
Augmented reality is the lesser known cousin of virtual reality, but it has the potential to be much larger.
At its annual developer conference earlier this year, Facebook Mark Zuckerberg said the company is making the camera the first augmented reality platform, with Digi-Capital noting that the market could have over 1 billion users and $60 billion in revenue by 2021. It's taking what investors saw with Pokemon Go, which became a global phenomenon and still remains a strong trend despite being nearly a year old, and expanding its potential.
Companies likely to benefit from the augmented reality gold rush are Apple, Snap (SNAP), Nintendo and Alphabet.
Digi-Capital also noted that Chinese companies such as Tencent, Alibaba (BABA) and Baidu (BIDU) could also see some benefit from augmented reality.