The most highly valued semiconductor company in the world owns no fabrication facilities and the largest taxi service owns no vehicles. The trend toward asset-light business models is not new and has been gaining traction for decades. In 1980, companies within industrial-related sectors accounted for 59% of the market value of the S&P 500 stock index; today that is just 16%. Over the same period, the value of technology and healthcare companies rose from 19% of the S&P 500 market value to 54% today. Moreover, industrial companies are investing greater resources into technology and software to run more efficiently and design better products. Advancements in artificial intelligence are also driving an acceleration in software investment across every sector of the economy. On the other hand, production bottlenecks, labor shortages, and geopolitics, are driving renewed interest in reshoring manufacturing capacity. Like the law of diminishing returns, perhaps there is a point at which an economy becomes too light.
Source: Morgan Stanley, July 2024