A Brave Nanotech World

This broadly defined emerging technology essentially relates to the control of matter on a molecular level where the rules of quantum physics reign. Increasingly, scientists and researchers are creating and using devices and materials that are too small to even be seen by high-powered microscopes–consider that one nanometer represents one one-billionth of a meter. One sheet of paper is about 100,000 nanometers thick, and a human hair is 80,000 nanometers wide.

Supporters of nanotechnology believe that the successful manufacture and application of products developed at such an incomprehensibly minuscule scale will have a dramatic and revolutionary impact on virtually every industry–with particular significance in healthcare, information technology, manufacturing, materials science, and energy. On the other hand, skeptics complain that nanotechnology is a costly pipe dream that promises exciting new products, but will actually deliver very little.

Jack Uldrich, president of NanoVeritas Group, a technology consultancy, cautions that investors should not view nanotech as an “industry”–rather it’s more like an omnipotent technology like the internet or electricity, which may provide substantial benefits to all other industries. This is one reason why it’s so hard for investors to get a grip on the true value and implications of nanotechnology. Nonetheless, Uldrich expects global corporations spending about $11-billion on nanotech research and development in 2007, up from about $10-billion last year.

Peter Hebert, co-founder and chief executive officer of Lux Research Inc., a research and advisory firm that specializes in emerging technologies, says he has witnessed an “increasing adoption by large corporations of nanotechnology, which is driving product sales and innovations across their business lines.” Hebert estimates that revenues from uniquely nano-enabled products will rise to about $2.6 trillion by 2014 (representing 15% of total global manufacturing output) from just $13 billion in 2004.

While some are skeptical of these projections, Uldrich thinks they are valid, citing Wilbur Ross, the billionaire financier who acquired Nano-Tex, which is developing innovative nano-particles in textiles, to make them stain-resistant. “Ross said nano-enhanced textiles will generate $11 billion in sales this year,” he notes. “But this figure is expected to balloon to $120 billion by 2012. Similarly, according to another consultancy group, nanoparticle-based drug delivery devices is currently only a $3.9 billion industry. But by 2012, this is expected to increase to $26 billion, then skyrocket to $220 billion by 2015. And there are many similar examples of nanotech companies forecasting exponential growth. Add all these individual companies together, and nanotech could indeed represent a multi-trillion business.”

Hebert adds that many foreign countries, particularly emerging economies like China and Brazil, are committed to nanotech research. “They have to leapfrog into new technologies if they wish to sustain competitive advantages,” he says. “They’ve recognized that nanotech is the ‘next frontier’ and they want to be ahead of the pack rather than play catch-up.”

Hebert cautions that while nanotechnology has extraordinary potential, as an investment vehicle, the field is littered with high risk–because nanotechnology is still in its early stages, many of the best companies remain venture-backed, limiting access to few investors. Lux estimates that of the more than 1,200 nanotechnology “pure-plays,” that is, companies which rely solely upon nanotech-enabled products, fewer than 5% are publicly traded.

So, how can investors get in on this bewildering new theme? Investing in individual nanotech stocks would be far too risky for most investors, given the field’s relatively new and unproven status.

Curious investors seeking exposure might consider the PowerShares Lux Nanotech Portfolio (PXN), exchange-traded fund, the only nanotech investment vehicle available to U.S. investors. This ETF invests in the Lux Nanotech Index, which comprises 25 stocks engaged in “developing, manufacturing and funding nanotechnology applications.”

The Lux index consists of companies that make tools used to develop nanotechnology, plus well-established large-cap firms which are using nanotechnology in their existing product lines. For example, General Electric (GE) is heavily invested in carbon nano-tube research; while and IBM (IBM) and Intel (INTC) have made improvements in semiconductors through the use of a new thermal insulating nanomaterial that will result in a 20% drop in power consumption. BASF (BF), the German chemical giant, spent $220 million to establish a nanotech research facility in Singapore–by 2011, this site is expected to generate revenues of $60-billion and $70 billion in new products.