The disruptive force of technology is killing off older companies earlier and at a much faster rate than decades ago, squeezing employees, investors and other stakeholders, according to a new report.
“The average age of a company listed on the S&P 500 has fallen from almost 60 years old in the 1950s to less than 20 years currently,” a team of Credit Suisse analysts led by Eugene Klerk wrote in a note to investors Thursday.
Average lifespan of an S&P 500 company
Source: Credit Suisse
Increased buyout activity beginning in the 1980s certainly had a hand in shortening that life span, but the increased pace of the disruption by companies like Amazon, Alphabet and Apple today is causing the trend to accelerate even more.
“We argue that disruption is nothing new but that the speed, complexity and global nature of it is,” the report says. “In fact, it is clear that a number of sectors are currently impacted by multiple disruptive forces simultaneously.”
This sea change is playing out in the stock market this year with shares of Apple, Alphabet and Amazon all doubling, and in some cases tripling, the 9 percent return of the S&P 500 in 2017. The Global X Robotics and Artificial Intelligence ETF, which tracks companies leading the automation of older industries, is up more than 30 percent this year.
Automation is the No. 1 “disruptive force,” the report said.
“Sectors our analysts see as being at the epicentre of disruption include Autos, Oil & Gas, Utilities, Financials and Food Retail,” the report says.
Credit Suisse also highlighted companies in major sectors that the firm views as the most likely to survive any coming disruption.
Aerospace behemoth Boeing ranks among those companies Credit Suisse says will survive a “substantial transformation of the relationship” between manufacturers and suppliers.
Multitrillion dollar financial services firm Allianz is one of the most resilient in the insurance group, according to Klerk and his team. The analysts expect the insurance industry to see automotive premiums revenue cut in half as “automated cars lead to fewer accidents.”
In technology, STMicroelectronics on the hardware side and SAP on the software side are two of Credit Suisse’s picks for companies that will survive disruption. STMicroelectronics should see accelerating growth from “semiconductor content growth” in automobiles, Credit Suisse says. The deepening influence of the cloud puts SAP in position to capitalize from what Credit Suisse said is “one of the most disruptive technologies.”
Not all companies will go bankrupt because of disruption. Rather, the report said, there will be an increase in M&A as more of them team up to compete with the disruptors.
This slow killing of corporate America won’t happen without some big social consequences, the Wall Street firm said.
“Personal wealth creation is likely to become ever more challenging, resulting in more polarised societies. The potential fallout raises uncertainty over economic and corporate profit growth,” it said.