Today, I want to talk about my favorite chart when it comes to investing in a new technology.
When I say “chart,” you’re probably thinking of a stock chart. But this chart explains the maturity, adoption and social applications of different technologies.
As an investor, it shows me exactly when to invest in the hottest tech trends.
In today’s Market Insights video, Steve Fernandez and I discuss how to pinpoint the part of a technology’s hype cycle where the biggest gains are made.
(If you’d prefer to read a transcript, click here.)
Ian King: Hey everyone. Ian King here with your weekly Smart Profits Daily YouTube webinar. And joining me this week again, Steve Fernandez. Steve, how’s it going?
Steve Fernandez: I’m doing great.
Ian: Cool. So, today we’ve got something special for you. I want to talk about my favorite chart when it comes to technology investing, and it’s probably not what you think.
You know, when I say the word “chart,” you’re probably thinking about a stock chart or the chart of a bond price. But I’m actually talking about the chart of what’s known as the Gartner Hype Cycle.
The Gardner Hype Cycle is basically a presentation that was developed by an American research firm named Gartner. And it explains the maturity, adoption and the social applications of different technologies.
So, it starts with what’s known as an Innovation Trigger, and that’s there at the bottom left of the chart. This could be something like the internet or cryptocurrencies. What happens is the hype around a new technology just increases exponentially. And then it gets to a point where it peaks.
The peak usually happens when everyone is just so bullish about the new technology and so convinced that it’s just right around the corner. And you see this manifest itself in things like stock prices that go up exponentially or when the price of a cryptocurrency goes up.
When it peaks, then you have what’s known in the stock market as a bear market. People don’t believe that the technology is right around the corner, and they’re sick of it. Then you get to the Trough of Disillusionment.
But then at some point, you start to see real-world adoption of the technology. And here comes a Slope of Enlightenment. As an investor, this is where I like to invest. I like to invest when a new technology feels like it’s gone by the wayside and people are doubting its future because those are where the biggest gains are to be made.
Hype Cycle In Technology
Now, Steve, let’s give some real-world examples of this. What’s a great example of how this hype cycle has played out in a given technology?
Steve: Sure. So, I think the most obvious one that comes to mind is the dot-com bubble.
It was a little bit before my time. But from what I understand to be true, anybody with a dot-com in their company name, their stocks were soaring, and then there was a huge crash. I think the Nasdaq may have been down 80% at one point, and people were starting to question whether the internet was a legitimate technology.
I’ve seen quotes where people had kind of bashed the people that created the internet or believed in it and called them foolish, essentially. But, obviously, we know what the internet has done today and how our society has evolved.
So, you know, if you look at the hype cycle, obviously the dot-com bubble was that Peak of Inflated Expectations, and stock prices mirrored the drop in the Hype Cycle to the Trough of Disillusionment.
And, you know, we kind of went 10 years or so where we had social media, e commerce and these big-picture trends. But we’re really starting to see an acceleration in the internet now, especially when you consider, like, the evolution of cryptocurrencies and the metaverse.
So, there’s plenty of examples of the Hype Cycle playing out.
Electric Vehicles Hype
What other types of technologies do you see that occurring in now?
Ian: Yeah, it’s a great question. I think the most interesting one right now is electric vehicles (EVs).
If you go back a couple of years ago when Tesla first announced that it was going to have the Model 3 and that the car was at some point going to be cheaper than gas guzzlers, it started to get a lot of people excited.
Remember, we recommended Tesla for our readers in Strategic Fortunes way back in 2019. And, you know, there was a mania around EVs where anything that had to do with electric vehicles or battery makers just went bananas earlier this year. And then we sort of went into this bear market.
But I believe now that we’re starting to see us get out of the Trough of Disillusionment and back onto the Slope of Enlightenment. And I’m going to give you a couple real-world examples about this for context now.
No. 1, only 4% of cars in the world sold today are electric vehicles. And by the end of this decade, experts predict that it’s going to be 50%. I think it’s going to be more because I think that as soon as the cost of producing an EV becomes cheaper than a gas guzzler, it’s just lights out for gas cars. I mean, why would you ever buy a car that’s going to cost more in maintenance, costs more in fuel and doesn’t accelerate as quickly over buying an EV?
And we’re already seeing that demand start to occur. Ford got 100,000 preorders for its F-150 Lightning in three weeks. The GMC Hummer electric vehicle sold out in 10 minutes. You’ve got Volkswagen’s ID.4 selling well. There’s Ford Mustang Mach-E, which is the Car and Driver EV of the year. An Tesla’s Model Y is sold out for, like, six months in the U.S. and Canada.
So, these are just some examples of this demand that we’re starting to see in the electric vehicle market. Steve, what’s your take on that?
Steve: I agree completely. Like you said, it doesn’t really make sense to buy an internal combustion engine vehicle or a gas guzzler if you can get pretty much the same exact vehicle as an electric vehicle, obviously. And if it’s cheaper, per se, to manufacture, it generally will be cheaper on the retail side as well for consumers to purchase.
And performance specs have been better. In the case of, say, the Tesla, it’s going to smoke a Ferrari, I believe. So, it just goes to show you that you don’t have to sacrifice performance for an electric vehicle.
Ian: Yeah, I don’t think these are your dad’s old golf carts that we’re talking about here.
One other thing, too, is that for investors, I mean, this market is only 4% of total auto production right now. It could be 50%, and I think much higher, by 2030. I think it’s going to be close to 90%.
The other thing to keep in mind here is it’s not just the auto companies that profit from it. It’s all the component makers and suppliers of the other types of materials that go into these batteries. I mean, think about how big this market is. The EV market could be at a minimum of $1 trillion a year by the end of this decade. This is for cars, and the battery is 25% of the cost of the car. So, you’re talking about a $250 billion battery market.
And then we’ve got to talk about all the charging stations that are going to be popping up all around the world, right? So, we’re also replacing our entire network of how we provide energy for cars with charging stations and solar power. This is going to accelerate more green energy trends as well, with also the development of cheaper lithium-ion batteries.
So, I think just on a whole, it seems like all of these sorts of new energy companies win out by the race to create a cheaper electric vehicle.
Steve: Sure. I think that the less obvious trade is kind of like you described, the material-type companies. I think those have the most upside over the next decade or so.
When you think about some of the valuations on the electric vehicle stocks, they’re already pretty high. I mean, you have companies that have yet to produce a vehicle that are almost as expensive as Ford.
Am I saying that those stocks won’t do well? Not necessarily. But I think that the less obvious trades that have a long-term catalyst and should see steady growth, I think they have the most to gain.
I know that we’re really focused on that aspect in Strategic Fortunes. You recommended Tesla in the past, and that one worked out really well. And, obviously, I think we have our eyes set on a different subset of the market now.
Ian: Yeah, I think it’s going to be a really exciting couple of years here with the rollout of all these new EVs.
So, Steve, let’s leave it there. For myself and Steve, I want to thank you all for tuning in. Have a great weekend. We’ll see you next week. “Same bat time, same bat channel.” Thanks again.
Editor, Strategic Fortunes