5 Technology Investing Trends for 2023

Dec 19, 2022

Companies and investors are watching five technology trends around the exchange of data in industrials, insurance, healthcare, digital infrastructure and resource planning.

Key Takeaways

  • A number of industries need technology solutions that facilitate the widespread exchange of data, creating opportunities for public and private investing and M&A.
  • Industrial companies are investing in technology that manages, digitalizes and automates their physical assets.
  • Technology developments in insurance may lead to the next fintech.
  • Healthcare providers are seeking solutions that improve productivity and patient outcomes.
  • Digital infrastructure will evolve to support massive and growing data needs.
  • Artificial intelligence, cloud and security are trends to watch in enterprise resource planning and human resources.

 

Interoperability—software platforms’ ability to communicate and share data and information—is the next frontier for technology innovation. Technology companies are increasing their customer bases with products that connect disparate data for consumers, creating a seamless experience. At Morgan Stanley’s recent Technology, Media and Telecom (TMT) Conference in Barcelona, the firm’s investment bankers discussed five key themes in this space that point to investment opportunities.

“We’re in the very early innings of a multi-decade development in data, analytics capabilities and software within specific industries,” said Lauren Ares, a Morgan Stanley banker specializing in B2B information services and data analytics. “Businesses are vying to become top-three market leaders in the sectors where they are focused, and investors are looking where to place their bets.”

  1. 1
    Industrial Companies: Early Stages of Digital Connectivity

    Industrial companies in the automotive, energy and construction sectors are just starting to use systems that offer help managing physical assets and that connect disparate parts of value chains.

     

    There are numerous opportunities for industrials to increase efficiency with such solutions. For an energy company, for example, helpful connectivity solutions might offer an overview of all physical assets as well as features such as pipeline safety notifications that automatically assign workers to investigate and address issues, said Bjoern Crombach, a Morgan Stanley banker who specializes in industrial software. For a car manufacturer, technologies might automate reordering paint once supply runs low to help the company keep up production.

     

    “Industrial companies are demanding software that helps manage their different stages of day-to-day business,” Crombach said. Private companies are offering a number of promising solutions, and thus attracting the attention of large public companies interested in acquisitions, he said.

  2. 2
    Insurtech: The Next Fintech?

    Compared to industrials, technology is in further stages of development for the insurance sector (known as “insurtech”) as proliferation and use of software applications in the industry has been growing for five years, Ares said. “A significant number of businesses have emerged in insurtech with meaningful revenue growth and attractive profitability,” he said.

     

    Investors are interested in whether insurtech could be the next fintech. Insurtech technology spans data analysis, Internet of Things (IoT)—i.e., physical devices—and AI, and it aims to facilitate cost savings and efficiencies in processing claims, evaluating risks and underwriting policies. With mainstream adoption of open banking and payments apps in the last decade, fintech has become the poster child proving the value of networks that connect and manage various sources and forms of data, “an incredibly sticky proposition for any industry,” Ares said. Companies offering tailored technology solutions in verticals such as insurance are betting that apps and online platforms can catch on, similar to how they did in consumer banking and financial services.

  3. 3
    Healthcare Technology for the Continuum of Care

    Healthcare is an industry lagging behind in its adoption of technology, so opportunities abound to improve patient outcomes and accessibility to healthcare amid caregiver labor shortages and the rising cost of care in Europe and the U.S. One method is complete data sharing between patients’ doctors and care locations (i.e. clinics and labs): “Data-centric healthcare requires technology embedded throughout the continuum of care,” said Marie-Gabrielle Bui, a Morgan Stanley banker who specializes in healthcare technology. “A patient’s doctors and patients themselves should be able to easily access secure data that is privacy-compliant across care locations.”

     

    Another lever is to move chronic patients from emergency care, which is extremely expensive, to preventative care, which is more affordable, Bui said. One example is healthcare technology that helps diabetic patients by continuously monitoring their glucose levels, warning them when levels are too high and scheduling doctors’ appointments and follow-up when necessary. Other avenues include artificial intelligence (AI)-backed symptom checkers and gamified apps for patient engagement or chatbots providing tools for psychological support, such as cognitive behavioral therapy.

    Given wide demand for healthcare technology, companies are looking to acquire businesses that offer healthcare software or digital health tools because M&A—even across country borders—may cost less than fully developing solutions in-house, Bui said. In particular, European companies are interested in acquisitions to capture more geographic market share, despite different local regulations.

  4. 4
    Trends in Digital Infrastructure

    Data consumption by businesses and consumers is continuing to grow exponentially, driving demand for all types of digital infrastructure—notably fiber, data centers and mobile towers. In recent years, this has also driven high levels of M&A activity and valuations, with lower-cost capital providers becoming increasingly comfortable with future growth prospects.

     

    Nevertheless, the current macroeconomic environment is a test for the asset class, said Max Thiele, a Morgan Stanley banker who specializes in digital infrastructure: “While the investment case for digital infrastructure continues to be very strong and demand for quality assets is high, companies and investors are carefully scrutinizing the impact of inflation, power prices and the risk of recession, including if and how certain cost drivers can be passed through to customers.”

     

    In addition, market participants are searching for the next adjacent infrastructure growth and capital deployment opportunities, Thiele said. “This includes investments in tier 2 cities and markets, infrastructure deployments in preparation of new exciting use cases, such as edge computing, and also asset classes that have historically not been considered classic infrastructure but have proven highly predictable and economically resilient.”

  5. 5
    Cloud and AI for Resource Planning and HR

    Companies across industries are looking to technology to streamline internal functions such as enterprise resource planning (ERP) and human resources (HR), said Leila Harestani, a Morgan Stanley banker who specializes in ERP and HR technology.

     

    In ERP, one of the biggest trends is cloud for deployment, in which software is hosted on vendors’ servers and accessed through a web browser, generally at a lower cost than the alternative on-premises software, which is installed locally on a company’s computers or servers. As cloud-based ERP proliferates, more small- and medium-sized businesses may adopt these solutions, but vendors will have to prove they have prepared for security risks, such as who can access sensitive data and potential data theft by malicious actors, Harestani said. Another important theme is the use of AI to identify and learn from data patterns, which offers widespread applications for forecasting and modelling, supply chain tracking and customer service.

    In HR, AI is useful for recruiting, onboarding and employee engagement, and companies are also investigating how the blockchain could enable better data security through encryption, according to Harestani.

     

    Emerging private companies are the frontrunners offering these ERP and HR capabilities, and that has led to M&A interest from bigger companies, Harestani said. “The more innovative and advanced technology solutions are coming from start-ups, and existing players in the market—larger companies and private equity firms—may look to acquire them.”

Looking Ahead

Emerging technology in industrials, insurance, healthcare, digital infrastructure and enterprise resource planning is enabling the exchange of data across value chains, and investors are monitoring companies that help connect data across disparate sources in specific sectors. Given demand for these solutions, big companies and private equity firms are on the hunt for acquisitions to increase their market share within industry verticals.

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