- Mobile phones and cloud services make up the infrastructure for disruption, says Jason Tauber.
- Investing in disruptive technology is like future-proofing your asset allocation, he added.
- Investors should be ready for volatility and be able to hold for at least three to five years.
Artificial intelligence has dominated the conversation when it comes to new technology that has captured the public's imagination, and that's thanks to user-friendly applications like ChatGPT.
AI can be placed under the broad category of disruptive technology, which refers to innovations that change consumers' habits and displace old markets. But it's only a sliver of what's to come in a rapidly evolving world. At the center of all this change is an underlying infrastructure that ties all these technologies together, says Jason Tauber, the portfolio manager who runs the Neuberger Berman Disrupters ETF (NBDS).
There are two key elements that make up the infrastructure. The first one is very simple: almost everyone is walking around with a mobile phone, which is pretty much a supercomputer that's connected to service providers. Then, you have public cloud infrastructure that connects it all together, such as Amazon Web Services or the Google Compute Engine which provides infrastructure as a service (IaaS).
If you have an idea, you can create and scale a company very quickly because of your ability to reach the end user and your access to computing power. These two together are really transformational, he said.
For this reason, instead of taking the approach of creating something as narrow as an AI ETF, the ETF is focused on anything that signals disruption to an entire industry and changes the status quo.
The fund's approach is to remain flexible enough to move across various sectors rather than stick with one type of technology. This diversified exposure avoids getting caught up in the hype which could end up being short-lived, he noted. For example, a few years ago, 3D printing was the exciting new invention everyone was talking about, but it wouldn't have been appropriate to create an ETF just focused on the promise of that printing technology because, in the long term, it would have been overvalued, he said.
Overall, investing in disruption should be seen as a form of exposure to aggressive growth while understanding the increased level of volatility that comes with this class.
"It's sort of future-proofing your asset allocation by trying to invest in companies that are building the future," Tauber said.
Those who choose to bet on this sector should also have a longer time horizon, at minimum, between three to five years, he noted.
The top movers and shakers
Tauber said the ETF includes companies that are gaining market share from their competitors because of the research, developments, and technology they're bringing to their industries. And these new developments could fundamentally shift the way in which even their competitors operate.
The companies listed below are based on the top 10 weighted stocks from the ETF.
Nvidia (NVDA) provides graphics processing units (GPUs), which were originally used for high-performance video games. But at least two decades ago, the company began to develop that same technology for high-performance computing and AI, he said. They also have built a software architecture on top of the hardware which makes it easy for developers to create applications using their hardware. They have a "tremendous" market share in AI applications, and companies are hungry for their products, he noted. Furthermore, Nvidia continues to add new ways to make their products easier to write specific applications on.
"They just have a very significant economic moat in what is now an extremely hot and competitive area," Tauber said. "All of the large internet players out there are spending a lot on their hardware and they're also putting that hardware into their public cloud infrastructure. It's enabling all of these AI startups to access the technology on a public cloud basis."
Advanced Micro Devices (AMD) is another company that provides GPUs. They are extremely important within this ecosystem because they also have significant market share. Long term, they are positioned to gain more of a foothold in the AI space. In the near term, they are gaining significant server market share from Intel. Part of that is because of their strategic manufacturing partnership with Powerchip Semiconductor, which has allowed them to make smaller, more efficient, and faster chips than Intel, he noted.
Analog Devices (ADI) provides technology that can translate atmospheric information into digital data to mean something to the hardware. For example, machines that can self-report the environment around them such as temperature, wind, and sound. The technology has applications for all industries including medical, industrial, and automotive.
Tradeweb Markets (TW) is simply digitizing the fixed-income market.
"Historically, if you wanted to trade a bond, you would actually make a phone call to a broker and get pricing. And now we're slowly digitizing that process. And Tradeweb is creating that digital marketplace," Tauber said.
Intuit (INTU) is bringing AI into the accounting space. Their most notable businesses are Turbotax and Quickbooks. AI is being used to create smarter applications for their platforms, such as AI-driven customer interaction capabilities.
"We actually think that artificial intelligence is going to turbocharge their ability to do tax returns almost instantaneously," Tauber said.
ASML Holding (ASML) is leading the way in the miniaturization of semiconductors so that they can be made smaller and more efficient, he said. This company has monopolized this ability, he added. ASML is basically the bottleneck for the continuation of Moore's Law, which means that the amount of transistors on a microchip doubles approximately every two years, while the cost of computers is cut in half, he said.
DexCom (DXCM) is the technology leader in glucose monitors, the small patches that allow diabetics to continually keep track. This company is the first to market for this product and provides the highest accuracy, he noted. There's a requirement for tens of millions of these censors to be manufactured at scale, which is a challenge DexCom has met, he said. So they have a manufacturing moat for this technology, he added.
Edwards Lifesciences (EW) is a pure medical device company. They are a leading provider for transcatheter valve replacements in the heart that help doctors replace aortic valves in a minimally invasive way.
Danaher (DHR) is an enabler of different healthcare innovations on the biotech side. They are a service and product supplier specifically for cell and gene therapy-based companies.
IDEXX Laboratories (IDXX) is dominating the veterinary healthcare space by continually bringing innovations from the human healthcare side to the animal healthcare space which includes livestock.