BofA_Thematic Investing The World in 2030_20250121pdf
BofA_Thematic Investing The World in 2030_20250121pdf
Page 1 of 670
Tyler Durden shared this file. Want to do more with it?
  1. Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies.>> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions.BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Refer to important disclosures on page 65to 67. Thematic InvestingThe World in 2030Thematic InvestingFrom macro to micro, from QE to AIThe 2020s kicked off with interest rates at 5,000-year lows. The second half of the 2020s begins with equity, crypto & gold at record highs, bond yields at 15-year highs, “US exceptionalism”globally accepted, and the onset of one of the most transformative technological revolutions in human history. We think micro themes will dominate macro in the coming5years: tech transforming our economy against a backdrop of populism,AI resource bottlenecks,generational shifts in power and wealth, and a return of government fiscal discipline.10 themes for the next 5 years1.“Technology is eating the world”: Agentic AI + Reasoning+ Rich Simulations + Embodied AI = Industry 6.0which is minimizing human intervention. 2.Peak Monopoly:Dominance of the “Magnificent 7”peaks as AI benefits broaden & politics pressures mega-caps via taxation and regulation.3.Digital Insecurity: Ending the decade withthe “death”of privacy, job market disruption, 10deepfakesfor every person on the planetand cybercrime as the 3rdlargest GDPin the world. 4.More!Exponential growth of tech requiring more resources like infrastructure,compute, bandwidth, human capital, energy, water, skills and data centres. 5.Rebuilding Everything: US$94tn of funding needed by 2040 to rebuild ageing assets and expand the infrastructure supporting tech.6.The End of “ABB”:Self-driven or market-imposed, era of government fiscal excess ends, reversing the primal “Anything but Bonds”theme in asset markets.7.Populism:“incumbents”were voted out in 26 of 32 elections in ‘24...populism means less globalization, immigration, and central bank independence.8.War & Peace:Protectionism to continue; but “forever wars”set to end & America First policies to spur Asian & European stimulus & reform.9.Rise of the Zoomers...and Boomers! US Boomers’net wealth = c.80% of world GDP. In 2030, over-65s and Gen Zs could spend c.US$28tn combined.10.Health The New Wealth:10mn global health worker shortage by 2030. Ageing population stretching resources. solution -Infusion oftechnology in biology.21 January 2025EquityGlobalThematic InvestingMerrill Lynch (Israel)Haim Israel>>Equity StrategistMerrill Lynch (Israel)+972 3 607 2007haim.israel@bofa.comMichael HartnettInvestment StrategistBofAS+1 646 855 1508michael.hartnett@bofa.comMartyn Briggs>>Equity StrategistMLI (UK)+44 20 7996 7442martyn.briggs@bofa.comElyas Galou>>Investment StrategistBofASE (France)+33 1 8770 0087elyas.galou@bofa.comFelix TranEquity StrategistBofAS+1 646 556 0731felix.tran@bofa.comLauren-Nicole Kung>>Equity StrategistMLI (UK)+44 20 7996 1045lauren-nicole.kung@bofa.comAnya ShelekhinInvestment StrategistBofAS+1 646 855 3753anya.shelekhin@bofa.comMyung-Jee JungInvestment StrategistBofAS+1 646 855 0389myung-jee.jung@bofa.comAcronyms:ABB = Anything but BondsQE = Quantitative Easing AI = Artificial Intelligence Accessible version
  2. 2Thematic Investing| 21 January 2025ContentsDid you know?310 themes for the next 5 years42024 vs 2030. Who will benefit?5“Macro”to “Micro”in the next 5 years61. “Technology is eating the world”102. Peak Monopoly173. Digital Insecurity214. More!275. Rebuilding Everything336. The End of “Anything But Bonds”377. Populism418. War & Peace459. Rise of the Zoomers...and Boomers!4910. Health The New Wealth57Appendix I: Key Projections Summary63Appendix II: Section Authors64
  3. Thematic Investing| 21 January 20253Did you know?In 2025, there will be more silicon transistors on the planet than human cells.1In 2025, the costs of cybercrime are set to hit US$10.5tn, making it the world's 3rd largest 'economy’.2In 2025, narrow quantum advantage could beachieved.3By 2026, data centres will consume more energy than Japan.4By 2026, 30% of large companies will have publicly shared their cyber goals (vs less than 2% in 2021).5By 2027, global coal demand will plateau.6By 2028,theglobal wellness market could reach c.US$9tn, almost equal to the GDP of Japan + Germany + Switzerland.7By 2030, cars could have c.300mnlines of code. A modern fighter jet has only about 25mn lines.8By 2030, the Gen Z population could reach 2.6bn, making it as large as the current total population of China, the US, Indonesia, Pakistan and Nigeria combined.9By2030, the land required for all the public data centres in the world will be larger than Singapore.10By2030, globally, over-65s could spend almost US$15tn a year –that’s almost the size of China’s current GDP.11By2030, we could reach a population tipping point. Global fertility could go below replacement rates, and 1 out of 6 people in the world will be over 60 years old.12By 2040, Gen Z’s total income could be US$74tn, roughly 3x current US GDP.13Sources: 1Quantum Motion, Intel; 2Cybersecurity Ventures, World Bank,UN;3SEEQC; 4IEA; 5Gartner; 6IEA; 7Global Wellness Institute, World Bank, UN;8McKinsey, Roland Berger; 9BofA Global Research, Worldometer, UN; 10ABI Research, Worldometer; 11Ageing Analytics Agency, Brookings, World Bank and UN data; 12IHME, WHO; 13BofA Global Research, Euromonitor, World Bank, UN
  4. 4Thematic Investing| 21 January 202510 themes for the next 5 yearsExhibit 1: Illustrating 10 themes for the next 5 yearsWhat’s next?Source:BofA Global ResearchBofA GLOBAL RESEARCH
  5. Thematic Investing| 21 January 202552024 vs 2030. Who will benefit?Exhibit 2:2024 vs 2030The World in 2030Source:BofA Global Research; Generations Forecasts; Bluefield Research; Statista; Cybersecurity Ventures; Omdia; WHO; World Data Lab; UN; Ageing Analytics Agency; Brookings; ABI research; BNEF; World Obesity FederationBofA GLOBAL RESEARCHExhibit 3: Beneficiaries of the 10 themes over the next 5 yearsAnalysing the beneficiaries from our 10 themesThemeBeneficiaries“Technology is eating the world”Tech Hardware, Semis, Telecom Equipment, CloudPeak MonopolyEqual-weighted equity indices, Value stocks, International stocksDigital InsecurityCybersecurity, Cyber InsuranceMore!Semis, Tech Hardware, Data Centres, Energy, Grid Tech, Energy Storage, Communications Networks, Utilities, MiningRebuilding EverythingInfrastructure, Materials, Industrials, Automation, Utilities, Building Products, Construction, TransportationThe End of "ABB"Bonds, REITs, Commercial Real Estate, Small Cap stocks, Emerging Markets, BanksPopulismTIPs, Gold, Crypto, Main Street Consumer stocks, European & Asian Defence stocksWar & PeaceCommodities, China & European equities, Space ExplorationRise of the Zoomers...and Boomers! Ageing:Healthcare (Hearing Aids, Dental Care, Vision Care, Biotech, Pharma, Genomics), Aged Care & Healthcare REITs, Financials (Life Insurance, Asset Management), Consumer (Travel, Beauty, Leisure)Gen Z:New Media, Big Tech, Consumer (Luxury, Leisure, eCommerce, Wellness, Beauty, Pets, Gaming), EdTech, FintechHealth The New WealthPharma/Biotech, Consumer (Nutrition, Beauty, Sports)Source:BofA Global Research. NOTE: REITs = real estate investment trust. CRE = commercial real estate. TIPs = Treasury inflation-protected securities BofA GLOBAL RESEARCH
  6. 6Thematic Investing| 21 January 2025“Macro” to “Micro” in the next 5 yearsThe last 5 years: a very macro worldThe firsthalf of the 2020s started with a global pandemic that forced 4.5bn people into lockdown, historical QE (Quantitative Easing) in aUS$30tn policy response from governments and central banks, a nominal GDP boom (US nominal GDP up 50% in the past 5 years), an inflation shock (>10% inflation for 2bnpeople), and a rates shock (0% to 5% rise in bond yields), alongside war (Russia/Ukraine/Israel/Hamas) and the emergence of AI. This all translated into 563 rate hikes, US$7tn in quantitative tightening, US$11tn incumulative US deficit, US$36tn of US national debt, and US$1.2tn in US annual interest payments.But the biggest change in asset prices is unarguably the secular inflection in bond yields, ending a 40-year bond bull market and ushering in the 3rdGreat Bond Bear Market of the past 240 years. The return of 10-year US Treasury yields to their long-term average from a 5000-year low hit in March 2020 (Exhibit 4) has led to frequent booms and busts in asset prices, with the former more concentrated than the latter. Ultimately, macro has dominated over the past five years.Exhibit 4: Interest rates since 3000BCThe biggest change of the 2020s so far...bond bear marketSource:The Public Domain Review, Staatbibliothek BerlinBofA GLOBAL RESEARCHThe next 5 years: the era of microThe next five years will see micro developments take centrestage, as the pace of technological disruption accelerates amid widespread adoption of AI in businesses and societies. Productivity growth will have to rise in turn, to justify expensive tech sector equity valuations and prices (US tech stocks hit a 100-year high relative to the rest of the US equity market last year). Any detrimental impact on employment will be met by greater regulation and taxation as populist-led governments shield their electorates. Moreover, powering AI and ensuring productive implementation in every aspect of our lives will require more of everything –from resources to infrastructure –and a significant improvement of existing assets.These huge funding requirements could not come at a less opportune time: record government debt and populist policies will prioritize breaking the inflation cycle in the US and reviving stagnant growth at the heart of Europe (Germany). Consequently, AI as a major technological/economic/social disruptor will face backlashes throughout the rest of this decade. Ultimately the Zoomerswill have a major say in the government response and the extent to which AI disrupts our societies and the labour market, as well as how government debt is managed.0%3%6%9%12%15%18%3000BC3001720175517901825186018951930196520002035Short-term ratesLong-term rates
  7. Thematic Investing| 21 January 20257The years of exponentiationMega-trends and themes are transforming markets and businesses as never before, and we’re only just getting started. The exponential growth of data (doubling every 2-3Y), cheapening computingpower (Moore’s law reincarnated) and the rise of a connected world (IoT, mobile devices, social media) will bring about the fastest transformation in human history. And the rate of change will accelerate even further from here due to ‘techtanglement’–the interconnectedness of technologies. For example, AI also relates to e.g., robots, simulation and communications. These connections and interactions of technologies create a feedback loop. As AI-enabled products offer better capabilities, as AI is used asa tool for fuelling more innovation and as it creates demand to improve existing technologies, our world becomes ever more infused in this AI era.Widespread adoption of AI is expected to lift productivity growth by creating a virtuous cycle of innovationat the heart of an era of exponentiation. Per our US Software team’s report ‘AI Revolution: A Polymath in Every Pocket’, GenAI may catalyse a revolution in corporate efficiency that boosts S&P operating margins by 200bps (US$55bn) over the next 5 years. Per the BofA Research Investment Committee team, ‘Transformational AI’can drive productivity growth to 3% by 2030, double the historical average and an economic boost on a par with the introduction of electricity and computers.Exhibit 5: Innovation waves are speeding upThe waves of innovation have increased from 60+ years to 25 years todaySource:Visual Capitalist, Edison InstituteBofA GLOBAL RESEARCHExhibit 6: US business sector labor productivity (5-year annualized rate) and period averagesAI could power the next productivity boomSource:BofA Research Investment Committee, PIIE, Bloomberg, BLS, BEA, Kendrick (1961)BofA GLOBAL RESEARCHDisruption always wins. What once seemed long-term, distant technologies are approaching faster than ever. However, humans typically underestimate this acceleration, failing to accurately assess the near-term potential of new or new forms of technologies and their impact on society. Consequently, understanding the technologies that may arrive much sooner than expected and identifying which will become disruptive is key –especially given returns are predominantly driven by a small share of disruptive companies. In fact, since 1926, US$55tn in shareholder wealth has been created, but just 3% of companies accounted for that entire amount (source: Bessembinder). 0%1%2%3%4%5%6%7%194519611977199320092025Electricity2.8%Computers3.2%Transformational AIMarginal AIAvg:1.7%Avg:1.4%
  8. 8Thematic Investing| 21 January 2025Exhibit 7: The top percentage of firms that generated shareholder wealth between 1926 and 2022 (by share of net wealth created) Just 3% of all companies have generated net wealth in the US stock market since 1926Source:Bessembinder BofA GLOBAL RESEARCHExhibit 8: % of total US firms that accounted for 50% of net wealth in each time periodThe percentage of firms that accounted for 50% of net wealth has decreased by 10ppts over a 6-year timeframe -that's 18 companiesSource:Bessembinder BofA GLOBAL RESEARCHLife expectancy of incumbents keepsfallingThe displacement of incumbents is growing by the day. In 1958, the average 7-year rolling lifespan of a company on the S&P 500 was 61 years. By the 1980s it had dropped to 30 years; by 2016, it was 24 years; as of 2021, 16 years (source: McKinsey). In 2020, the same McKinsey study stated that 75% of companies on the index would disappear. If we continue on this road, by 2027 companies could last just 12 years as they increasingly become disrupted (source: Innosights, S&P 500).Exhibit 9: Average company lifespan on Standard and Poor's 500 Index from 1965 to 2030, in years (rolling-7-year average) and decade averagesIncumbents are getting disrupted even quickerSource:Innosight based on S&P500 data; Statista.BofAGLOBAL RESEARCHThe costly price of tech disruptionThe quest for AI dominance has sparked a massive rerating of stocks involved in this “arms race”in the first half of the 2020s. It has led to much market bullishness that a 4thindustrial revolution is underway that will structurally boost productivity growth and increase profits.This optimism on AI has driven a tremendous reallocation of capital to tech, which remains the leading sector in the world and particularly US equity markets (US$1.2tn inflow to US equity funds decade-to-date –Exhibit 10). This concentration of liquidity among a few names associated with AI has risen to extremelevels (the ‘Magnificent 7’group of companies make up 36% of the S&P500 index market cap). Conversely, bears point out that from steam power to the internet, there has always been a lag between 0.01%0.04%0.08%0.15%0.26%0.43%0.70%1.13%1.88%3.44%0400800120010%20%30%40%50%60%70%80%90%100%Top number of firms0.35%0.32%0.26%0.00%0.05%0.10%0.15%0.20%0.25%0.30%0.35%0.40%1926-20161926-20191926-202205101520253035401965196719691971197319751977197919811983198519871989199119931995199719992001200320052007200920112013201520172019202120232025202720291960s1970s1980s1990s2000s2010s2020s29.325.525.317.321.518.3
  9. Thematic Investing| 21 January 20259innovation and widespread social, corporate and economic adoption. In addition, the quickest way for AI to increase productivity is via a significant rise in unemployment, something governments and policymakers will be keen to avoid. They are likely to actively try to counter this via greater regulation and taxation (the tech sector is among the least regulated in the US).Exhibit 10: Decade-to-date inflows to equity funds (US$bn): US vs Rest-of-WorldBig allocation to US equities in the 2020sSource:BofA Global Investment Strategy, EPFRBofA GLOBAL RESEARCH$1200bn$215bn-2000200400600800100012001400'20'21'22'23'24'25USRest-of-World (Europe/Japan/EM)
  10. 10Thematic Investing| 21 January 20251. “Technology is eating the world”Summary:Technology is moving us to a new phase in the next 5 years. Powered by the AI revolution, we will watch technology prices plummet. We will see AI’s integration in all aspects of our lives. We will witness its game-changing role in leap-frogging innovation. Agentic AI will influence the job market, rich AI simulations will develop new products in healthcare, industrials and financial services. Furthermore, AI will interact with the physical environment, enabling the next generation of automation. At the same time, we are likely to see a tech war “arms race”between the Superpowers, complicated by accelerated deglobalization and tech protectionism, as well as privacy and demographic concerns.Exhibit 11: Illustrating the next tech trends over the next 5 yearsTrends include falling tech costs, reasoning AI, enriching simulations, agentic AI, embodied AI, tech wars, AGI and quantum computingSource:BofA Global ResearchBofA GLOBAL RESEARCHWelcome to Industry 6.0 –minimizing human interventionThe AI large language model(LLM) revolution has accelerated the adoption of Industry 5.0, which aimed to build on the Industry 4.0 digitalization era by integrating “human-centric”approaches into industrial processes. Industry 5.0 emphasized collaboration between humans and advanced technologies, such as AI-driven robots, to optimize workplace processes. We are now seeing AI integrated in every aspect of our economy and our lives, and “humanizing”automated processes. This is moving usfrom the humanization era (Industry 5.0) to Industry 6.0, which aims to minimize human intervention by creating a fully integrated, intelligent manufacturing systems based on the next generation of technologies.1. Tech-onomy: Technologies powering themselves towards lower prices Investments in automation, AI and tech are reducing prices across the board and increasing returns. For example, while drive capacity has risen by more than 20,000x in the past 20 years, the price per gigabyte has fallen by >99%.More technology gets deployed to satisfy demand, leading to falling prices. Then these technologies become cost-effective in new applications, feeding increased demand again. Tech costs are falling dramatically:
  11. Thematic Investing| 21 January 202511•In the past 30 years, the price of batteries has plummeted by 97% (source: Ziegler and Trancik). •For solar panels, each doubling of installed capacity has led to the price of solar modules dropping on average by 20.2%. •Solar cells made from perovskites (materials with strong light absorption and electric change properties) can propel solar efficiency and halve costs. In fact, perovskite solar cells have increased in efficiency from 3% in 2009 to 26% in 2024. •The cost of sequencing a full human genome has come down by 99.99% in the past 20 years. The cost of computer memory chips has dropped by 640% every 5 years.Exhibit 12: Lithium-ion Learning Curve: 18.9% between 1992-2016Comparing Price per kilowatt-hour (kWh) vs cumulative lithium-ion cell capacity shows prices fell 18.9% for every doubling of installed capacitySource:Our World in Data, Micah Ziegler & Jessica Trancik (2021); prices adjusted for inflation given in 2018 US$/kWhBofA GLOBAL RESEARCHExhibit 13: Priceper Watt of solar photovoltaics (PV) modules (logarithmic axis)The price of solar modules has declined by 99.6% since 1976Source:Our World in Data based on data from Lafond et al and IRENA Database. The reported learning rate is an average over several studies reported by de La Tour et al in Energy. The rate has remained very similar since then. The prices are adjusted for inflation and presented in 2019 US$.BofA GLOBAL RESEARCHExhibit 14: Cost of sequencing a full human genome (US$; log scale)The cost of sequencing a full human genome has decreased from US$95mn in 2001 to US$525 in 2022 -that's a decrease of 99.99% in the last 20 yearsSource:National Human Genome Research Institute, Our World in Data. NOTE: the data is not adjusted for inflation BofA GLOBAL RESEARCHExhibit 15: Cost of computer memory and storage (US$ per terabyte, TB)Since the 1950s, the cost of computer memory chips has come down by 640% every 5 yearsSource:McCallum; Our World in Data. NOTE: the data is expressed in US$ per terabyte (TB), not adjusted for inflationBofA GLOBAL RESEARCH2. “Reasoning AI”: adding the human element, one step before AGI AI model capabilities are expanding to include tasks that require reasoning. All LLMs thus far have used algorithms for tasks that can be solved with rapid thinking, with increasingly sophisticated versions owing to their emergent properties. However, the new versions of models, like OpenAI’s o1 and o3 models, can now break down complicated problems into separate tasks and hypothesis, using “reasoning”to get to a solution –like human thinking. 95,263,0705251101001,00010,000100,0001,000,00010,000,000100,000,00020002005201020152020
  12. 12Thematic Investing| 21 January 2025Thinking like a human?AI systems are going next and is the way to move intelligence levels forward for AI models. This is demonstrated in OpenAI’s o1 model.It demonstrated better capabilities than the average human level at solving maths problems (increased accuracy of answers from 13% to 83%), coding capabilities (11% to 89% accuracy), and even outperforms humans at PhD-level science questions (78% with the AI model vs 70% human). Adding “intelligence” and human thinking mechanisms into the modelsAdding “intelligence”and human-thinking mechanisms into the models means the AI model is learning during training time but also at the usage stage, as demonstrated in OpenAI’s o1 model that has increased the relative capabilities of its models beyond that of GPT-4. This has implications for the silicon market for AI,with several players vying to dominate the inference market in the way that Nvidia has dominated hardware for AI model training thus far.“The bottleneck of humanityis not to replace drivers, workers, lawyers or accountants. It’s not to produce the next doctors, farmers or programmers...It is to come up with the next Albert Einstein, Marie Curie, Galileo, Issac Newton and Rosalind Franklin.”Amnon Sahashua, founder of MobileyeExhibit 16: From System 1 to System 2 thinkingAI capabilities are expanding to more tasks and hypothesis; OpenAI’s o1 model demonstrated expanding accuracy in math, coding, and PhD level science questionsSource:Steve Brown BofA GLOBAL RESEARCHExhibit 17: Training vs InferenceIncreasing relative performance of AI models has implications for the way compute happens, increasing compute at inference stageSource:Steve Brown BofA GLOBAL RESEARCH3. Agentic AI: A world of 100bn AI agents working alongside usAgentic AI is the next big trend in commercializing AI models. It is able to use reasoning capability and build upon that to choose and use the right tools to complete the tasks it is set. At our Transforming World Conference, Steve Brown gave examples such as a marketing plan or a travel booking. He described using AI agents as a way to scale an organization and transform a company’s workforce, as well as their ability to interact with other AI agents, e.g., to obtain an approval or review (e.g.,legal or compliance). This doesn’t mean human workers would be completely out of the loop, in his view, but that AI agents could be partners or subordinates that work for humans.
We use cookies to provide, improve, protect and promote our services. Visit our Privacy Policy and Privacy Policy FAQs to learn more. You can manage your personal preferences, including your ‘Do not sell or share my personal data to third parties’ setting using the “Customize cookies” button below.