3 Stock Sectors, All Tech, Expected to Soar in 2024

Gene editing, artificial intelligence and cybersecurity will be the big equity growth machines for 2024 and beyond, according to a report by State Street Global Advisors.

While the stock market may encounter troubling volatility due to geopolitical turmoil, uncertain interest rates and macroeconomic forces, the “secular industry trends that emerged over the past few years—increased adoption of AI technology, CRISPR gene editing technology and cybersecurity—remain intact and look likely to accelerate in the coming years,” the study concluded.

“This trio stands to deliver attractive long-term growth opportunities,” wrote the report’s author, Anqi Dong, a senior research strategist at State Street.

Biotechnology

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

This stock segment has not covered itself with glory in recent years. The question for biotech investing always has been whether the pace of successful innovations can outlast the available capital. Many biotech products do not pan out or need more time to develop than investors have patience. The SPDR S&P Biotech ETF advanced just 2.8% over the past 12 months, while the S&P 500 shot up 22.8%.

The new CRISPR (clustered regularly interspaced short palindromic repeats) technology likely will elevate biotech firms specializing in this gene-editing capability. Scientists have used it to tinker with genetic codes to develop new diagnostic tools and therapies.

Ample capital has been there for this corner of the biotech realm. In 2021, venture capital firms plugged $1.08 billion into 31 CRISPR startups, an enormous increase from the $173 million invested in 2020, the study stated. Last fall, drug giant Eli Lilly and Co. pledged $600 million to acquire the rights to co-develop base editing programs for cardiovascular diseases from CRISPR-using Beam Therapeutics Inc. The stock, which had been on a downslope typical of biotechs lately, rallied 50% on the news.

Artificial Intelligence

This has been the hot ticket since research outfit OpenAI unveiled its breakthrough last year in generative AI, which can talk and create images. Numerous tech companies, from Magnificent Seven titans such as Microsoft Corp. to smaller startups have touted their AI prowess.

An exchange-traded fund specializing in AI, the SPDR NYSE Technology ETF (ticker: XNTK), has leapt 52% over the past 12 months. Analysts have upgraded the fund’s earnings projections by 10% for this year. This equal-weighted ETF has Mag Seven stocks making up one-fifth of its asset value. The fund’s price/earnings ratio has vaulted to 43, but State Street noted that its multiple is still far below that of Big Tech gargantuans. The Mag Seven member with the smallest market cap, Tesla Inc., has a 72 P/E.

Cybersecurity

The Russia-Ukraine war has shown how cyberattacks are now a staple of warfare. “Although the damage so far has been limited thanks to Western support to strengthen Ukraine’s cyber defense, it has become evident that hybrid warfare is the new reality,” the State Street report pointed out.

Citing stats from Gartner Inc., the tech-oriented consulting firm, companies are expected to boost global cybersecurity spending by 14% in 2024, compared with 2023, a growth rate that surpasses overall corporate IT spending.

State Street’s report did not measure cybersecurity’s stock-price impact for the entire market. Still, one example of a prominent cybersecurity company, ZScaler Inc., has climbed 86% over the past 12 months. As the study maintained, “Given regulatory, technological and geopolitical tailwinds, companies whose products and services are driving security innovation may offer strong growth potential.”