When it comes to investing and making massive gains on the stock market, disruption is the name of the game. The biggest firms on the market right now are all disruptors of their industries. These firms have ushered in new products and used technology to allow consumers to improve their daily lives.
Since the word disruption is well used in stock market discourse, a brief history lesson is in order. The term disruptive innovation was popularized by the late Harvard Business School professor Clayton Christensen. Despite being widely used, disruption innovation is far from being a widespread effect. In essence, while all disruptive innovation is innovation, not all innovation is disruptive innovation. To understand how, consider an HBR article co authored by Professor Christensen. In it, the authors share that "too many people who speak of “disruption” have not read a serious book or article on the subject."
Truly disruptive firms end up anticipating the needs of customers that larger incumbents ignore, believe Christensen and his compatriots. This enables the entrants to establish a foothold in the market, after which they upscale their products to also target the customers that incumbents are focused on. However, a firm doesn't have to be an entrant in its industry to be a disruptor, as the authors point to the iPhone's success in leveraging existing business processes that truly reshaped the course of the world.
Consequently, in order to analyze the stock market returns offered by disruptive innovation, a good place to start would be to see the share price of firms that Professor Christensen believes are disruptors. The article provides two examples; one is of the firm responsible for the iPhone and the other is of the company that is dominating the global streaming market.
Starting from the former, its shares are up by a whopping 209,000%+ since they started trading on the NASDAQ exchange. The latter is a relatively newer entrant to the stock market. The stock started to trade in 2002, and since then, it has gained 61,000%+. Mind you, both of these are calculated after stock splits. Safe to say, disruption is rewarding, but to understand its impact on the share price of the former company, we'll have to dig in slightly deeper.
Using post split stock prices, before the launch of the iPhone, the shares had gained roughly 3,800%. Since the launch of the iPhone, the stock is up by almost 4,600%, despite the higher base effect of the higher share price and the global stock market disruption during the 2008 Great Recession and the COVID 19 recession. In today's AI driven market, the firm is one of the most valuable companies in the world courtesy of its $3.51 trillion market capitalization.
Since disruption often occurs on market fringes, it's hard to predict which firm will be the next one to shake things up. Using Christensen's criteria, the world's preeminent AI GPU manufacturer whose shares are up 727% since OpenAI publicly released ChatGPT isn't a disruptor. This is because it offers its products and services to customers that it serves already, while true disruptors are those that might end up gaining market popularity by catering to customers that are ignored by large incumbents due to profitability or other factors.
Another great example of disruption, or what Christensen terms as 'big bang disruption' is in the gaming console market. For years, two gaming consoles, namely the Xbox and the PlayStation have dominated the market. Within these, the PlayStation is the original disruptor and a device that dealt a deadly blow to the arcade industry. In American culture, Pinball holds a pivotal place, especially for those who were growing up in the pre internet era.
Data from Harvard shows that Pinball sales in the US peaked at roughly 1.3 million units in 1993, despite the fact that arcade video games had already become available since 1978. However, from the 1.3 million units in 1993, the sales dropped to less than 5 million in just a couple of years in 1997. This was because the PlayStation was launched in 1994, and by 1997, its sales had surged to 20 million. A key differentiating factor for the console that enabled its meteoric rise was its popularity. The PlayStation at the time was available for $299 while Pinball machines could cost as much as $7,500. The console also offered more video game variety, and it allowed children and adolescents to enjoy gaming from the comfort of their homes. In short, the video game console served the needs of players ignored by Pinball (those who wanted to play at home), and its 'big bang' occurred when the console caught on with the broader Pinball market.
Therein lie the secrets to disruption. With these details in mind, let's look at UBS' latest list of firms that can use technology to disrupt their industries. The bank believes that "these are leading disruptors in sectors undergoing technological transformation, which should lead to consequential and enduring impact" to allow them to deliver "superior earnings growth."
Our Methodology
To make our list of stocks that will use technology to disrupt their industries, we divided the 29 stocks in UBS latest report into two categories. The first lists OTC stocks by their year to date share price gains, while the second ranks US listed stocks by the number of hedge fund shareholders during Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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Oracle Corporation (NYSE:ORCL) is primarily a software company that is known for its enterprise resource planning (ERP) software. In the AI age, the firm has also capitalized on the market shortage of NVIDIA's GPUs to develop a business division that caters specifically to the needs of customers who need these GPUs to train and operate their AI models. This business is Oracle Corporation (NYSE:ORCL)'s Oracle Cloud Infrastructure (OCI), and it promised more than 100,000 NVIDIA Blackwell GPUs for customers in 2025. This will make Oracle Corporation (NYSE:ORCL) one of the first in the world to get access to these hot chips. The firm is also the second largest player in the ERP market courtesy of its 18.4% market share. This lends the firm a stable business with not only recurring revenues but also customers which are hesitant to switch vendors unless absolutely necessary.
Janus Henderson mentioned Oracle Corporation (NYSE:ORCL) in its Q2 2024 investor letter. Here is what the fund said:
“Enterprise software company Oracle Corporation (NYSE:ORCL) was a top contributor to relative performance. The company reported revenue and bottom line metrics that were in line to slightly below consensus; however, it also reported record bookings for new business. This accelerating revenue growth outlook is being driven by AI cloud infrastructure deals and boosted sentiment in the stock.”
Overall ORCL ranks 9th on our list of UBS' top tech based disruptive stocks for 2030. While we acknowledge the potential of ORCL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ORCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
