Investment Institute
Future Trends

Smart cities: A tech-driven future with stakeholder potential

  • 19 March 2024 (7 min read)
Cities are harnessing new technologies to improve infrastructure and quality of life
Smart cities can also offer more sustainable options
We see potential investment opportunities in companies that create or use solutions including connectivity, transport and energy efficiency

Nearly 90% of the US population will live in urban areas by 2050.1   Smart cities, and the technologies behind them, could deliver an optimised urban future – as well as potential returns for today’s investors.

Smart cities incorporate sensors, data analytics, 5G, Internet of Things (IoT) devices, and other technologies to boost citizens’ wellbeing, safety, resource efficiency, and infrastructure quality. Some are projects built from scratch, like Masdar City in Abu Dhabi or Songdo in Korea. More commonly, cities integrate existing urban landscapes with specific smart technologies as they become available.

The global smart cities market is on a growth trajectory and potentially presents strong investment opportunities. In 2019, the market was valued at $392.9bn2  but is predicted to grow as high as $3.7trn by 20303  – and North America will likely lead the way, holding 45% of revenue share.4

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Smart tech advancements could give investors a path forward

Technology evolution is driving the smart city revolution, meaning investors may find significant return on investment in industries that develop, manufacture, or deploy technologies pivotal to connectivity, transportation, and energy efficiency. Investors may find opportunities in areas such as:

  • Sensors: Sensors serve as the eyes and ears of smart city infrastructure, monitoring and gathering data to facilitate informed decision-making. For example, instead of issuing surveys about perceived air quality or noise levels, people could use sensors from companies like Bosch, Airly, and Omron to gather data on pollutants to determine an accurate air quality index or measure the decibel levels of noise disturbances. California-based PNI Sensor Corp offers PlacePod, an IoT-enabled smart parking sensors, while Texas Instruments offers a variety of sensors that measure everything from humidity to ambient light. Sensors require semiconductor chips, often sourced from US-based companies like Honeywell International, Intel and Nvidia.
  • 5G: 5G connectivity ensures seamless communication between devices and sensors, enabling real-time data exchange, which could make monitoring and improving security, energy use, lighting, parking, and public transportation faster and easier. US-based companies like Qualcomm, Verizon, and T-Mobile offer 5G connectivity solutions. With an $8.1bn market in 2020, an expected compound annual growth rate of 62% between 2023 and 2028,5  and the passing of the US Secure 5G and Beyond Act of 2020,6  the global 5G infrastructure market is poised to grow.
  • Artificial intelligence (AI) software and data processing: AI-powered software makes it possible to process and leverage a vast amount of data from across smart cities, their citizens, and their devices. Instead of manually organising and extracting data for everything from air pollution levels to traffic congestion, a process that could take days and be prone to human error, smart cities can rely on AI software and data processing tools to do the bulk of the work. Not only can they aggregate data from multiple sensors across the city, but they can also provide easy-to-comprehend visual representations. For instance, Tableau offers an advanced analytics and data visualisation platform, while Microsoft’s Power Business Intelligence platform can combine multiple sources of information for processing and visualisation.
  • IoT and cloud/edge computing: IoT technology is expected to have a global market size greater than $3.4trn by 2030,7  while cloud/edge computing is also expected to grow.8  Both technologies are the backbone for data processing and system coordination, allowing smart cities to store and communicate their data. Cisco offers a variety of IoT solutions, including the ability to monitor traffic signals, flooding, water quality, and traffic congestion, while Intel’s IoT processors can help create connected devices.
  • Cybersecurity: Cybersecurity is vital for smart cities to ensure they protect against data theft, intellectual property loss, system or network failure, which can cause disruptions and even physical harm. Top-tier cybersecurity solutions will be invaluable in the smart city future. For example, Palo Alto Networks’ cloud-delivered security services and next-generation firewalls could help protect IoT devices and their data from bad actors, while IBM’s network and cloud security solutions provide significant protection.
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Real world smart cities

Aging infrastructure is a major issue in US cities today. Outdated transportation, energy, and water systems often fail to meet modern demands, leading to congestion, high prices, and disruptions, like the recent break of a 127-year-old water main under New York’s Times Square. In the next 20 years, US municipal governments will invest roughly $41trn into solutions, from smart grids that optimise energy transmission and recovery to intelligent traffic management and parking systems.9

Transportation offers investment potential, as a primary focus thus far in smart city development. Electric vehicles (EVs) are revolutionising personal and public transport, and many companies are on board. Ford is investing over $50bn in EVs through 2026,10  while Jaguar Land Rover is also investing billions into developing EVs.11  Meanwhile, autonomous vehicles (AVs) are positioned to reduce emissions and traffic congestion, with self-driving car services already operating in San Francisco. Waymo has a permit for 250 cars, while Cruise runs 100 vehicles every day and 300 at night.12

Integrating sensors in roads, tolls, and traffic management systems to optimise traffic flow and reduce bottlenecks is becoming increasingly prevalent. Not only are ride-sharing platforms like Uber and Lyft hugely popular among consumers, but other Mobility as a Service (MaaS) options, such as pop-up bus services, carpool companies, and bicycle and scooter sharing systems, are also taking off. Companies like Cavnue in Washington, DC, and Streetlight Data in San Francisco develop tech for connected roads, while Optibus offers operations software for New York public transit.

Citizens want green solutions, with 69% of the US in favour of becoming a carbon-neutral country by 2050.13  Smart cities can also be more sustainable cities. Smart grids, facilitated by companies like Cisco, General Electric and Schneider Electric, can help monitor energy flows and quickly adjust to fluctuations in supply and demand, while distributed grids and batteries from companies like Tesla and Panasonic offer energy storage for similar benefits. Tech monitoring can improve waste management or help address resource constraints that hamper growth and liveability, such as with water use in the Southwest.

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What could hold back smart city progress?

Despite their benefits, the path forward for smart city technologies is complicated. Smart city initiatives can require substantial investments, and projects can face funding challenges. Municipalities often turn to public-private partnerships to bridge the funding gap, such as Siemensstadt, a Siemens-planned locality of Berlin.

In other cases, regulations or public opinion may hinder innovation. Uber faced opposition, leading to bans and legal disputes in places like Portland, Oregon. Airports also initially resisted rideshare services, with LAX implementing curb side pickup bans to alleviate congestion as late as 2019.

Nonetheless, US cities have made progress through trial and error. Today, there are more proven examples of what smart city implementation can look like, and with sufficient funding, more municipalities will benefit from these game-changing technologies.

A smarter, more connected urban future presents potential investment opportunities

The smart city revolution is underway in the US, and investors have a chance to support more innovative, better-connected, and sustainable cities. Technological advancements like IoT devices, sensors, 5G, smart grids, renewable energy sources, EVs, and AVs are making smart cities a reality – and these areas could well present a new range of potential investment opportunities.

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    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

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