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The Big Three: The Innovation Edition (March 2024)

Updated: 7 days ago

In recent weeks stock markets have made new highs, buoyed by the incredible results posted by the largest US companies and by continually easing inflation. At the heart of the long-term growth of the stock market though is not what happens in the ebb and flow of economic data. Rather it is the ability of companies to innovate in ways that can change the world. So, in this special edition of the Big Three, we look at three profound sources of innovation and change affecting investors today.

1 . The end of obesity?

Over the past year, two of the companies delivering the most extraordinary returns have been pharmaceutical stocks Eli Lilly and Novo Nordisk. Over the year to 6 March 2024, Eli Lilly rose by 151% and Novo Nordisk by 73.36%. The reason is that both announced transformational anti-obesity drugs with Zepbound and Wegovy respectively.

Both these drugs have the same active ingredient, semaglutide. It works to stabilise blood sugar. A stable blood sugar level controls appetite but most importantly discourages us from reaching for high sugar fatty snacks.

The effects of these drugs could be profound. A study recorded in the prestigious New England Journal of Medicine showed that those using the drug lose, on average, 15% of their body weight.

The drug is not yet available in a pill and so requires a weekly injection. However, it offers the potential for transformational changes in the rates of obesity, diabetes, cardiovascular disease and even cancer. In reality, obesity interacts with almost all the medical causes of long-term illness and death. The NHS spends around £638 a year on an average non-obese person and £1,375 on an obese person.

One study suggests that in areas of the United States where it has had a high uptake, Walmart can already measure a reduction in fast food purchasing. Here in the United Kingdom, estimates suggest that in the long-term it could significantly reduce the estimated £58 billion cost of obesity to the NHS. The scale of this impact is extraordinary and on a par with the health benefits of for example insulin for diabetes or statins to treat blood pressure.

2 . Will the internet survive?

Much has been written about the growth of artificial intelligence over the past year. It is easy to assume that all big technology companies will be beneficiaries, but this is not obvious. For example, Google parent Alphabet has a big problem to solve.

It has grown as its search engine became utterly dominant globally, however AI promises us that rather than searching for something and scrolling through links we can instead ask for an actual answer to the question we are seeking to address. Analysts argue that consumers will quickly become hooked on ‘answers’ over ‘research’. It is very cheap currently for Google to run each search, about 5c. However, even if it is able to generate a world-leading AI product, it is likely that it will still cost around 40c for it to answer each question. This is partly because of the enormous amount of computer power that AI engines use. This could mean that companies like Google lose some of the incredible profit margin they have enjoyed for two decades. It remains to be seen whether the internet remains the best way to find and use information in a world of artificial intelligence. Is it a permanent feature of human life? Or just a passing phase on our journey? Getting the judgements right on this will be crucial for investors in the years ahead.

3 . The race for electric

Anybody who was coaxed into buying or leasing an electric car in recent years will have experienced the frustration of realising that the cost has fallen sharply since they made the decision. This is largely because the price of the lithium used for car batteries has gone down sharply. More has been found and industry has got better at extracting it more cheaply. However, in the meantime another trend is taking place. China is rushing into the lead of electric car adoption and threatening to become the definitive global leader. Meanwhile, here in the United Kingdom, uptake is slowing as we confront the real difficulty of putting in enough infrastructure. For European and American automakers, the speed of Chinese adoption poses a real threat. Investing in any car maker for us should be done with great caution at the current time. It will be hard for Tesla to defend the growth it has achieved.


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