We no longer support this browser. Using a supported browser will provide a better experience.

Please update your browser.

Close browser message

Investing

Which companies will lead the next generation of disruptors?

We explore three key areas where investors can look to capture potential gains.


Disruption is nothing new for the economy—or the stock market.

From the railroads of the late 1800s to the oil giants of the 1900s, to today’s tech behemoths, innovation and technological change have catalyzed secular shifts in markets. Along the way, they’ve delivered tremendous opportunities to investors. 

The pace of change seems to be accelerating. In 2006, no one owned an iPhone, Facebook had just opened up to non-college students, and Amazon sold books. Fifteen years later, Apple, Meta (formerly Facebook) and Amazon, three of the largest companies in the world, are worth almost USD5 trillion, providing dramatic returns for early investors.

What companies might rise to prominence over the next 15 years? Where should investors look to capture the potential gains of the next generation of disruptors? We look for these prospects in our three megatrends of digital transformation, healthcare innovation and sustainability.

Lessons from past disruptors

In looking ahead, it helps to first look back to consider what makes today’s giants so valuable. They not only disrupted massive industries, they also sustained significant growth rates and free cash flow margins across business cycles. We focus here on five of the largest companies in the U.S. market: Amazon, Apple, Google (now Alphabet), Facebook (now Meta) and Microsoft.1

Apple redefined technology hardware and personal communication. (Do you even remember when smartphones were not indispensable?) Microsoft dominated business computing, transitioned to a lucrative and consistent subscription revenue model, and cultivated a growth engine from cloud computing. Amazon disrupted the entire retail sector. Google became the front page of the internet, while Facebook leveraged powerful network effects.

Over the last 15 years, those companies generated a median revenue growth rate of 22.5% (versus 3.1% for the S&P 500)2 with a free cash flow margin that is double the market. Their stocks have outperformed the S&P 500 by ~19 percentage points annually.3

Digital transformation, healthcare innovation, sustainability

Our three megatrends of digital transformation, healthcare innovation, and sustainability offer tremendous potential. Indeed, new entrants are already challenging the current behemoths. Importantly, technological innovation is blurring the lines between traditional sectors, which should lead to a broader opportunity set for investors seeking disruptive businesses.

The automobile industry is one of many examples of digital transformation reshaping a traditional industry. Importantly, models such as Bloomberg New Energy Finance’s suggest a slower pace of adoption for electric vehicles (EVs) than for past adoption of cell phones, microwaves or air conditioning. There are barriers to EV adoption (such as charging infrastructure), but we could be at an inflection point, with traditional manufacturers joining new entrants in focusing on EVs.

A side effect of innovation in the automotive industry: a boom in demand for semiconductors. EVs require up to 19x the semiconductor content of traditional internal combustion engine cars,4 and semiconductor revenue from autos is expected to grow at a 20% compound annual growth rate through 2025.5 Semiconductors are a key enabling input, not only for autos, but for most durable goods that consumers purchase (from phones to dishwashers). As a result, semiconductors could be a key beneficiary of an increasingly digitized world.  

Innovation is also disrupting the healthcare sector. Machine learning and artificial intelligence are accelerating drug discovery. Some companies use software to integrate data and technology into clinical trials to expedite drug development. Precision medicine uses a patient’s full medical profile (including genetic data) to create more customized treatments for individuals. As the aging global population spends more on healthcare, disruptive companies will likely benefit.

Innovation will not only help in the fight against climate change, but also enable us to adapt to a changing world. Estimates suggest that USD4 trillion–USD6 trillion of annual investment is needed this decade6 to keep pace to decarbonize the global economy, almost double the current rate. Areas of focus include electrifying transportation, making buildings and appliances more energy-efficient, renovating electricity grids and developing new low-emission fuels.

In many ways, the three megatrends are interconnected—linked by their ability to harness the power of artificial intelligence and machine learning. From next-generation vehicles to preventative healthcare, to factory automation, to financial technology, computers’ ability to solve immensely complex problems could enable an exponential wave of new technologies that alter our everyday life.

Of course, there is a downside to disruption—what Joseph Schumpeter famously called capitalism’s “creative destruction.” Once-dominant companies can lose share in dramatic fashion. Even as we look to be early investors in disruption’s winners, we want to avoid (or make an early exit from) disruption’s losers.

How to invest in innovation

To invest in potential disruptors, you’ll want to access both private and public markets. In private markets, look for managers that can potentially identify companies at their earliest stages (and lowest valuations). 

In public markets, you’ll want to rely on seasoned active managers. Find those who can differentiate between true secular growth opportunities and superficial growth traps, and identify management teams that have the discipline to maintain impressive balance sheets and cash flows. We think innovative companies offer great opportunities, but we are not willing to pay any price for growth, especially as we move further into the middle of the economic cycle.

Finally, just as companies are focused on new technologies, investors could also consider using new investing methodologies that use artificial intelligence to identify companies exposed to a particular theme.

Even as we think about what the next generation of dominant companies might do, we also acknowledge that investors need to keep an open mind. In 2006, it would have been hard to imagine how ubiquitous Facebook or iPhones would become. Some of tomorrow’s most dominant companies may not even exist yet. Your J.P. Morgan team can help you position your portfolio for the future.

1.Factset. Data as of January 19, 2021.
2.Factset, J.P. Morgan Private Bank. Data as of December 21, 2021.
3.Factset, J.P. Morgan Private Bank. Data as of January 5, 2022.
4.BoFA Global Research. Data as of 2019.
5.Gartner. Data as of 2019.
6.Goldman Sachs, “Green Capex: Making infrastructure happen." Data as of October 2021.

 

Index definition

The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

 

IMPORTANT INFORMATION

Past performance is not a reliable indicator of future results. It is not possible to invest directly in an index.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.

This material is for informational purposes only, and may inform you of certain products and services offered by private banking businesses of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.


Check the background of Our Firm and Investment Professionals on FINRA's BrokerCheck

To learn more about J. P. Morgan’s investment business, including our accounts, products and services, as well as our relationship with you, please review our  J.P. Morgan Securities LLC Form CRS and  Guide to Investment Services and Brokerage Products.

This website is for informational purposes only, and not an offer, recommendation or solicitation of any product, strategy service or transaction. Any views, strategies or products discussed on this site may not be appropriate or suitable for all individuals and are subject to risks. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor's own situation. 

This website provides information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). When JPMS acts as a broker-dealer, a client's relationship with us and our duties to the client will be different in some important ways than a client's relationship with us and our duties to the client when we are acting as an investment advisor. A client should carefully read the agreements and disclosures received (including our Form ADV disclosure brochure, if and when applicable) in connection with our provision of services for important information about the capacity in which we will be acting.

INVESTMENT AND INSURANCE PRODUCTS ARE: • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED

Equal Housing Opportunity logo

J.P. Morgan Chase Bank N.A., Member FDIC Not a commitment to lend. All extensions of credit are subject to credit approval 

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

Please read additional Important Information in conjunction with these pages.