Page 12 - DIY Investor Magazine | Issue 32

Samsung’s DRAM memory chips are used in everything from PCs to servers, to smartphones and electric vehicles. DRAM is effectively the high-speed, short-term memory of a device and is essential for manipulating and moving data quickly.
As society processes and consumes ever more data, whether for streaming videos or enabling driver assistance aids in a vehicle, demand for DRAM will rise.
We do not need to predict exactly what end markets will look like, or which products or services will ultimately win consumers’ hearts, minds and wallets, to be confident that demand for DRAM will be higher in the future than it is today.
AGGREGATE GLOBAL DRAM DEMAND
‘THIS IS A MARKET WHERE PENETRATION COULD RISE TWENTYFOLD OVER THE NEXT 30 YEARS’
In 2020, EVs comprised 4.6% of global automotive sales; the share will have to get close to 100% to achieve net zero targets, so this is a market where penetration could rise twentyfold over the next 30 years.
It is no surprise that investors will pay higher valuations to invest in companies having the most obvious exposure to growth of that magnitude – such as Tesla, the shares of which, at the time of writing, value the company at around 99 times its expected earnings for 2022.4
However, the most obvious way to play a trend does not necessarily offer the best risk-reward balance for investors; early automotive history is littered with promising companies that did not survive the cut-throat competition of a market whose growth prospects were so obvious as to attract countless new entrants.
GLOBAL ELECTRIC PASSENGER CAR SALES
Source: International Energy Agency and Roland Berger
Source: Gartner, company reports, Bernstein estimates and analysis
POWERING THE ELECTRIC REVOLUTION
A similar argument applies to the incredible growth in electric vehicles (EVs) and the promise of autonomous driving capabilities.
EVs will almost certainly displace internal combustion engine (or ICE) passenger car sales in the next two decades; it
will happen first in markets where there is strong political commitment, such as the UK where the sale of new ICE cars will be outlawed in 2030.
However, we are close to a point where EVs offer a more compelling cost and performance proposition to consumers, even in markets without any policy support.
4 Source: Bloomberg, to 21.01.2022
DIY Investor Magazine · Feb 2022 12