The knowledge effect, excess returns of highly innovative companies

May 11, 2015

Report by Gavekal Capital. Drug companies spend billions yearly testing new compounds, seeking the right molecular combinations.

Researchers rely on existing  human knowledge and on semiconductors to discover new knowledge. As the performance of semiconductors improves, the rate new discoveries can be uncovered accelerates.

Similarly, as the stock of human knowledge increases, the rate new discoveries can be found accelerates. When the inventory of human knowledge increases and the rate of semiconductor performance improves, the rate of new discoveries moves into what inventor Ray Kurzweil describes as a double exponential rate. Thanks to the continuous binary logic processing of the semiconductor, we are living in a time of accelerating new discovery.

credit | iStock

44 years into the semiconductor era, general purpose technology is pervasive. Health care innovations like DNA sequencing and the genomic revolution are leading to huge improvements in patient quality of living and longevity.

Smartphones and mobile communications transformed how business is structured. In manufacturing industry, sensors, robotics and automation have led to massive increase in industrial productivity and quality.

The energy industry has been revolutionized by 3D seismic and computer controlled fracking technologies. Retailing and entertainment are up-ended by digital distribution technologies.

The heart of new products and processes is the semiconductor, the engine of growth for the last half century. […]

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