Annabelle Miller
Companies with heavy assets and low obsolescence (HALO) are emerging as the next big investment theme, following the disruption caused by AI disruption in asset-light sectors, according to principal, investment at ECP Asset Management, Annabelle Miller.
“In recent years, asset-light companies such as software and services demonstrated the ability to generate revenue and accelerate growth without the need for physical assets and infrastructure.
“AI has proven it can easily disrupt companies built on intangible intellectual property particularly in the software space. But what AI cannot do is disrupt those businesses which monetise services through a scaled physical asset or piece of infrastructure. Think about pipelines, powerlines or businesses monetising large installed bases of equipment,” she says.
Miller says there are several sectors where ‘HALO’ opportunities exist, including logistics and salvage, industrial engineering, life sciences, semiconductors, material and mining and consumer staples.
“As AI continues to disrupt, there are companies which investors should consider that have low risk of AI replication or disruption and high barriers to entry. Furthermore, many of these businesses will benefit from integrating AI tools into their workflows to improve efficiency and productivity of their physical asset base.
“One example in the life sciences space is Sartorius Stedim Biotech (EPA: DIM). The company owns high-security and ultra regulated physical spaces in France and Korea where drugs are manufactured. The company itself doesn’t produce drugs, rather it partners with drug companies at the earliest stages of development to assist in the manufacturing process for an emerging drug molecule.
“From the earliest stages of clinical development all the way through to commercial production, Sartorius’ equipment and consumables are specified in the drug master file for each drug processed in its facility. These drug master files are approved by the relevant regulatory body embedding Sartorius in the manufacturing process and making switching almost impossible.
“This company too is resilient to AI as no matter how many drugs AI formulates, a facility is still needed for production of the physical drugs.”
In the semiconductor space Taiwan Semiconductor Manufacturing Company (TPE: 2330) is an example of a critical utility in the technology landscape. It has a monopoly in the manufacture and development of advanced semiconductors used for everything from smartphones to the next-generation AI data centres, says Miller.
“While semiconductor designs change, the need for a high end foundry does not. TSMC is entrenched in their customer’s product roadmaps, locking them into their physical manufacturing ecosystem.
“The TSMC ‘way’ is grounded in physics and chemistry, developed and refined over years, making it virtually impossible for competitors to replicate and is resilient to AI disruption. More likely we will see the company’s growth accelerate with the growth and expansion of AI.”