Technology, gaming, and renewable energy were three great growth sectors for investors in 202o. Predicting what sectors might ‘win’ 2021 is difficult, not least because of the impact of the pandemic, but I have some I’m confident in.
Growth sector 1: hydrogen
According to analysts at Berenberg, industry sources estimate that the fuel cell market will record a 24% compound annual growth rate between 2016 and 2024. Fuel cells are an increasingly relevant solution to the intermittency and capacity issues the electricity grid will face in the coming years, with electrification and the rise of renewables.
Share prices have already risen in this industry as governments have put money into hydrogen research as a tool in the fight against climate change. Shares in ITM Power, for example, rose by over 500% in 2020.
Other potential companies to invest in with links to hydrogen are Ceres Power and AFC Energy, as well as the bigger and more diversified Johnson Matthey.
However, the risks with this industry seem to be twofold, in my view. One is the possibility shares are already inflated as investors cotton onto the potential. Secondly, is that hydrogen might not turn out to be the best renewables solution. Another technology could come along and overtake it.
Sector 2: graphene
The global graphene market size was estimated at $78.7m in 2019. It’s also expected to expand at a compound annual growth rate (CAGR) of 38.7% from 2020 to 2027. Increasing demand for renewable, lightweight, and flexible materials that offer durability is expected to drive the product demand.
When it comes to graphene, listed UK companies include Versarian and Directa Plus.
Again, graphene investing doesn’t come without its risks. It’s still quite a small market showing there’s a lot of work to be done to increase its usage.
Sector 3: artificial intelligence
The IDC Worldwide Semiannual Artificial Intelligence Tracker shows worldwide artificial intelligence (AI) revenues surpassing $300bn in 2024, with a five-year CAGR of 17.1%.
I like the look of IXICO and RenalytixAI when it comes to investing in AI. Blue Prism is also well established, but only the former is currently profitable.
Again one of the biggest risks here is around adoption and trust of AI. It could be a few years before it really takes off. It’s an improving technology, but it has been involved in controversies in the past, which could hold it back. It also means it faces more threat from regulation than either graphene or hydrogen.
If you’re interested in investing thematically, renewable energy could carry on its momentum from 2020. However, I think hydrogen, graphene, and AI are all primed for huge growth, perhaps this year, and very likely beyond. The key, as always, is to pick the best shares within the sector. Then pay a reasonable price for future growth.
All these sector and companies come with risks. Some are pre-revenue, and some technologies just won’t pick up in the way expected. That said, I’ll likely add some of these sectors to my portfolio over time to give it greater growth potential.
