Thematic Commentary 28 June

Innovation

Activity within the five innovation platforms contributed to market movement:

• • Artificial Intelligence: AI remained the key focus of market participants with all eyes on semiconductor companies and how the ecosystem will evolve. Palantir, the third biggest contributor for the month, is a prime example of an AI platform play.
  • Robotics: SpaceX continued its series of Starlink missions. Separately, Elon Musk stated that Optimus robots could catapult Tesla’s value in the future. Relating to Tesla, all eyes are on August’s Robotaxi Day.
  • Energy Storage: Investors eyed weak consumer sentiment coupled with the introduction of EV tariffs. However, Tesla’s deliveries reported just after month end exceeded expectations and showed signs of stabilisation.
  • Blockchain Technology: Bitcoin and Ether slid meaningfully during the month, while sparking strong inflows into BTC ETFs.
  • Genomics: Multiomics names – the longest duration of the five innovation platforms – continued to suffer in the current higher for longer However, performance of names was mixed, with Twist Biosciences showcasing that an increase of coverage, strong fundamentals, and/or technology tailwinds can propel stock performance.^1,2

Artificial Intelligence and Robotics

In June, AI and Robotics continued to advance significantly. NVIDIA maintained its leadership in AI training and inferencing hardware, and its Isaac robotics platform gained traction among industry leaders like BYD and Teradyne, the latter having previously announced its partnership. This platform fosters the development of advanced autonomous mobile robots and collaborative robots aimed at enhancing worker safety and production efficiency across sectors. Technological trends highlighted the optimization of AI models through techniques such as Low Rank Adaptation and quantization, making AI deployments more efficient and accessible, particularly for smaller companies and startups entering the AI space. Small language models also saw performance enhancements, broadening the scope of AI applications beyond traditional uses. The competitive landscape evolved with increased global R&D efforts, leading to innovations that promise to reshape industries through automation and intelligent decision-making.^3,4

Genomic Revolution

During June, market movement in the multiomic space was mainly driven by several advancements in drug development and positive study results. For instance, Nurix Therapeutics presented positive phase 1a data of NX-5948, as mentioned under performance highlights. The data is not only the first demonstration of clinical activity in the brain of a targeted protein degrader, but also the demonstration that NX-5948 could be a best-in-class medicine and an important treatment option for patients. CareDx announced the publication in Nature Medicine of study that established the clinical utility of AlloSure Kidney, the simple blood test for kidney transplant organ health, and the added value of AlloView, the AI-enabled risk prediction model, in detecting the presence, activity and severity of allograft rejection.

Meanwhile, Vertex announced longer-term data for CASGEVY, the first and only approved CRISPR-based gene-editing therapy, from global clinical trials in patients with severe sickle cell disease or beta thalassemia, confirming the transformative, consistent and durable clinical benefits of CASGEVY over time. Also, Intellia Therapeutics shared the first-ever clinical data demonstrating that redosing with in vivo CRISPR-based therapy enabled an additive pharmacodynamic effect on the target protein, which enables the pursuit of treatment of other diseases where patients might need more than one dose to reach the desired therapeutic effect.^5,6

Circular Economy Enablers

The UK Circular Economy is experiencing a boom in mergers and acquisitions (“M&A”) activity despite a decline in the broader M&A market. According to accountancy firm BDO, companies with circular business models, which focus on reuse, regeneration, and recycling to minimise waste, saw a 30% increase in deal volume in 2023, marking five consecutive years of growth. Meanwhile, economic headwinds drove an overall 20% fall in UK private equity transactions compared to 2022. Furthermore, the total disclosed investment in circular economy companies reached £GBP 1.3 billion, a 50% annual surge, driven by mid-market private equity’s growing involvement. BDO attributes this trend to the efficiency and profitability of circular business models, which attract investors seeking sustainable and profitable ventures. The report also highlights that understanding key performance indicators (“KPIs”) and preparing businesses for sale are crucial for attracting investment. We believe this positive trend is likely to continue, supported by increased interest from mainstream lenders and private equity backers, as the circular economy remains ripe for significant future investment, driven by the ongoing shift towards sustainability and net-zero goals.⁷

Environmental Impact

Environmental impact companies such as Samsung SDI as well as a plethora of electric vehicle (“EV”) manufacturers including Tesla have long been researching dry-coating technology for battery production. This process aims to replace the energy-intensive wet process used in manufacturing cathode and node electrodes, both key components in EV batteries. There is a pressing need to drive cost curve declines and support environmentally friendly battery production both to meet demand from expanding EV adoption and to enhance competitiveness against China.  The industry is now one step closer with LG Energy Solution Ltd. now planning to commercialise this groundbreaking technology for use in production by 2028. LG’s chief technology officer, Kim Je-Young, revealed that the company started developing this technology a decade ago and aims to complete a pilot production line by the fourth quarter. While Tesla and other companies have struggled with dry-coating, LG’s method applies to both anodes and cathodes. This innovation could substantially decrease energy consumption and production space, giving LG a strategic edge as the EV battery market evolves. The traditional wet coating process involves the costly and energy-intensive steps of dissolving chemicals in toxic solvents that are then dried in a 100-meter-long oven at temperatures of almost 200 degrees Celsius on the battery production line.⁸

Global Sustainable Infrastructure

The recent collapse of the Baltimore Bridge has starkly highlighted the crumbling state of America’s infrastructure, once the envy of the world, sparking a nationwide introspection about the resilience and safety of our structural backbone. This incident, while rare, underscores a broader, alarming trend of infrastructure neglect that risks public safety, economic stability and national prosperity. The American Society of Civil Engineers has given the nation’s infrastructure a “C-” in its 2021 report card, noting an infrastructure investment gap of nearly $2.6 trillion needed this decade. Without addressing this gap, the U.S. could face $10 trillion in lost GDP by 2039​, meaning this is not merely a matter of inconvenience but a critical economic issue that could stunt growth and competitiveness for years to come. Sustainable development and public-private partnerships are a vital part of the solution, leveraging private sector innovation and capital to expedite projects. Another involves emphasising green energy, efficient transport, and smart water management, thereby transforming infrastructure into resilient and inclusive networks. This overhaul presents vast opportunities for sectors like construction, transportation, and technology, showcasing companies like Ormat Technologies, SBA Communications, and American Water Works as key players in bridging the investment gap.⁹

Sustainable Future of Food

John Deere is a major agricultural machinery manufacturer that was founded in 1807 and has long been known for its tractors, harvesters and construction equipment. Its modern leadership and innovation in agricultural technology is well documented. The company has consistently integrated technological innovations into its equipment, leading to advancements in autonomous machinery and precision farming. In June, the company announced it is laying off 610 production staff at plants in Illinois and Iowa by the end of August 2024. This decision follows a challenging period  which has seen declining revenues driven largely by lower crop prices and higher production costs. The move forms part of a broader strategy to optimise operations and control costs, including shifting the manufacturing of skid steer loader, a versatile piece of construction equipment, to Mexico by 2026. Despite the challenges, these measures aim to improve efficiency and strengthen its competitive position over the longer term with an ongoing commitment to innovation and sustainability. This demonstrates why Deere continues to be a leader in the AgTech industry, driving the evolution of agriculture towards a more data-driven, efficient and environmentally conscious future.¹⁰

Cybersecurity and Data Privacy

June saw CrowdStrike’s ascent into the S&P 500 on the 24th, marking a notable development for the cybersecurity industry. This followed Palo Alto Networks’ addition in June last year. Meanwhile, there was a high profile cyberattack with CDK Global (“CDK”), one of the leading providers of integrated technology and digital marketing solutions to the automotive industry, falling victim to a major ransomware operation. CDK’s software is critical for integrating sales and operational tasks at around 15,000 U.S. automobile dealerships. To give a sense of the scale, the market for dealer management systems (“DMS”) is dominated by two major players including CDK and Reynolds and Reynolds. The outage forced dealerships to revert to manual operations, significantly impacting Volkswagen and Audi dealers and affecting major car retailers like AutoNation and Sonic Automotive. The promotion of Crowdstrike to a major market benchmark and the attack on one of America’s largest car dealerships emphasises the cybersecurity sector’s growing importance and investment potential, acknowledging the strong financial performance and growth prospects whilst highlighting cybersecurity’s essential role in modern business operations and national security.¹¹

Digital Payments Economy

Digital payments have many advantages including convenience, speed, security, and accessibility, reducing the need for physical cash and enabling seamless transactions across various platforms, but there’s another benefit that is often overlooked. The European Digital Payments Industry Alliance (“EDPIA”) has published an Oxford Economics white paper highlighting the lower environmental impact of digital payments compared to cash. Based on Life Cycle Assessments in Finland, Germany, and Italy, the study found that digital payments are significantly more eco-friendly. A single cash payment emits as much CO2 as 2.1 digital payments in Italy, 5.9 in Germany, and 23.5 in Finland! These differences correlate with each country’s digital payment infrastructure maturity. The study adhered to International Organization for Standardization guidelines and was peer-reviewed. EDPIA members, including Aircash, Nexi, Teya, Viva Wallet, and Worldline, have proposed a roadmap for policymakers and the industry to reduce the payment sector’s carbon footprint further. They advocate for greater adoption of digital payments as part of the European Union’s climate action, aiming to enhance environmental sustainability within the payment value chain.¹²