Six D thinking: The two sectors set to deliver investors explosive ‘exponential’ growth
Most investors have a natural bias to investing in their local market and in what they understand. It is not easy to find the time – or cognitive bandwidth – to grasp the potential of new global business models.
The 2020s is set to become a decade of accelerating and unprecedented technology innovation and we think it is dangerous for investors to have a short-sighted and short-term mindset.
We believe that investors need to broaden their knowledge to particularly understand the precise framework of exponential growth through the 6Ds thinking model.
When investors understand exponential growth, they will have a much deeper understanding of the potential for two key sectors – data infrastructure and electric vehicles – and their leading companies (AWS, Filecoin, Tesla) to deliver ‘exponential’ returns to their portfolios over the long term.
The 6Ds of exponential growth
Investors dream of buying a stock like Tesla early, just as it begins to show explosive, exponential growth. The definition of exponential is the nature of something growing at an increasingly rapid pace.
The good news is that there is a pattern to exponential growth – a series of stages or steps – that allow investors to identify its early signs.
The pattern has been explained by the founder of Singularity University, Peter Diamondis. Diamondis is a space tech pioneer, entrepreneur and visionary who coaches businesses how to unlock the potential of abundance thinking. Peter uses a framework called the 6Ds and describes it as;
“The Six D’s are a chain reaction of technological progression, a roadmap of rapid development that always leads to enormous upheaval and opportunity”
The six stages are:
Digitised — It starts with the digitisation of a product or service.
Deceptive — Its potential is tiny at first.
Disruptive — Should the idea have investment and visionary leadership it’s capable of being disruptive.
Demonitised — At stage 4 it benefits from economies of scale.
Dematerialised — It replaces or separates products or services into one new product.
Democratised — And its last layer is its ability to democratise being widely available to everyone.
As you can see, not all of the points on the curve are equal. The arc illustrates both growth as it ‘builds on itself,’ and the speed at which that is occuring accelerates — becoming exponential in its evolution.
Viewed through the 6D framework of exponential growth, we see huge upside potential in both data infrastructure and electric vehicles.
1. The exponential growth of data infrastructure
We have all lived through the birth and adoption of the cloud, the very infrastructure that today underpins our professional and personal lives.
The cloud is a prime example of an innovation that is going through its own exponential growth pattern along the 6Ds’ formula.
A key area of the cloud is data infrastructure, which is midway along the exponential arc. We expect strong returns over the long term are on offer for businesses that build up the curve.
The 6 largest cloud infrastructure providers globally today are Amazon (AWS), Microsoft, Google, Apple, Alibaba and Tencent, our portfolio invests around 25% into digital infrastructure.
While they delivered a combined cloud revenue of US$100B in 2020, over 90% of all data that exists today (referred to as the global ‘dataset’) was created in just the last 2 years. That growth will only accelerate.
The global dataset is expected to surge over 50-fold in the next 15 years. Average annual growth is expected to surpass 100% until beyond 2035, as the global data set surpasses 2,000ZB.
Driving this exponential growth will be IoT (‘The Internet-of-Things’), a platform that enables intelligent devices to communicate with each other. IoT demand is expected to surpass 1 Trillion devices globally by 2035.
The attractive investment opportunity that lies ahead was well supported by recent comments from Satya Nadella, the CEO of Microsoft during their 2020 financial year results announcement:
“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry”.
2. The exponential growth of Electric Vehicles
The second area of exponential growth is electric vehicles.
Interestingly, by far the largest contributor to cloud data storage will be autonomous vehicles. They are each expected to produce 4,000GB of data each day (8 hours driving) — an equivalent amount of data to that produced by 5,000 humans every 8 hours in 2020.
We estimate the Tesla autonomous fleet alone could produce one third of global data set estimates by 2035. If this eventuates, long-term cloud demand forecasts will have to be substantially revised further upwards.
The switch from the internal combustion engine (ICE) to electric vehicle (EV) itself will likely be the largest global investment theme over the next 2-3 decades and will drive exponential growth.
For EVs to succeed, they will require additional large investment in battery storage for the global energy grid, plus new renewable energy sources to reduce fossil fuel dependency. It will also expand demand in edge technologies, such as IoT and data storage.
The enormous scale of our switch in transportation fuels will also require strong financial support from both private and government sources. But as further evidence of accelerating global warming emerges, governments across the world will likely bring forward EV adoption targets that end the sale of all new ICE vehicles by as early as 2030 to 2035.
Over the past 12 months, Holon has built a 30-year EV demand model that captures the 62 largest countries in the world. By 2035, our model indicates there could be 650 million electric vehicles globally by 2035, rising rapidly to 1.3 billion by 2040 and 2.2 billion EV’s by 2050.
With strong brand advocacy and a significant lead over traditional and new EV auto makers, Holon believes Tesla will follow the 6Ds model of exponential growth to expand manufacturing 10-fold over the next 5 years to 5 Million EV’s in 2025.
Accelerating this global manufacturing rollout through building new gigafactories across India, Africa, Latin America, Asia and Europe over the next decade should enable Tesla to reach 14 Million EV’s per year in 2030 and 32 Million EV’s in 2040.
The investment opportunities in broader thinking
As you can see, applying a ‘thinking model’ like the 6Ds to plot businesses and technologies can help guide investors to find and invest in industries, sectors and technology that will be future-proofed.
By expanding our knowledge and adopting new thinking frameworks around exponential growth we can more deeply understand the compelling investment opportunities like progressive new cloud business models and the changing shape of the entire vehicle ecosystem.
And when investors better understand the scale of innovation currently being pursued by leading global technology companies, they will enhance their stock selection, long-term investment performance, and their ability to reach their wealth and retirement goals.