Investing in Exponential Technologies: Building Stronger Portfolios for The Future

By: Katie Klingensmith, Chief Investment Strategist

The global economy has a strong track record of delivering continuous improvements in many aspects of our daily lives. Televisions get cheaper and better every year, cars get safer and more fuel efficient, smartphones get more powerful and better cameras. Investments in the companies that produce those goods are the foundation of our globally diversified portfolios, and we are confident they will deliver long-term growth to help meet your financial goals.

At the same time, as we are investing in those incremental growth opportunities, we anticipate that the future is shaped by exponential technologies – innovations that advance quickly and transform our everyday lives seemingly overnight, sometimes driving outsized returns in certain companies or sectors.

At Edelman Financial Engines, the core of our investment approach is rooted in deep technical expertise, with innovation embedded in our legacy. One of our founders – a Nobel Prize winner – built the patented approach to investing that helps our clients reach their long-term goals. We have also brought investment vehicles focused on exponential technologies to market, stepping in to build solutions for our clients when the right option wasn’t readily available. We continue to be dynamic and forward-thinking investors in this area.  

The innovations that defined previous decades are now either widely adopted or well into their maturation cycles, so the challenge is to find opportunities in the next generation of technological disruption. Artificial intelligence, autonomous driving, health care innovation, advances (and concerns!) in cyber and physical security and so much more are reshaping markets and the global economy. For investors, this creates tremendous opportunity. Keeping portfolios poised to take early advantage of emerging technologies is critical to capturing the growth associated with innovation.

Innovation is nothing new, but the resulting technologies always are. We moved from landlines to mobile phones, from pagers to smartphones. Beneath these changes in the hardware came whole new ecosystems of businesses. Carrying a supercomputer in our pocket, for example, gave rise to ride services, the gig (or freelance) economy, global person-to-person marketplaces, mobile payments and countless other industries. The companies that thrive change over time thanks to these evolving technologies.

The rise of artificial intelligence and autonomous vehicles is sending ripple effects through supply chains, infrastructure, defense and labor markets. We believe that the AI story is just beginning. While the last few years have seen a massive investment in the development of AI, the next phase will be about more fully integrating it into how we work and live, and with that, we anticipate a wave of companies built entirely with these new tools. Supporting this shift will require enormous investment in data centers semiconductors and power systems – an ecosystem-wide transformation that is likely to drive growth for years to come. At the same time, the explosion of data makes cybersecurity more critical than ever, creating opportunities for the companies that provide it.

Capital Expenditures by Sector
Q1 2025

Source: Bloomberg Intelligence, as of June 25, 2025. Individual company data sourced from financial statements, and amount removed from their respective GICS sector in calculations above.

Capital expenditure refers to funds used to acquire or improve long-term assets like buildings, equipment or land. Unlike operating expenses, which cover daily operations, capital expenditure is a strategic investment recorded as an asset on the balance sheet, supporting future growth.

At Edelman Financial Engines, we believe that innovation in areas like AI, energy and cybersecurity are more than passing trends – they represent lasting shifts that will shape the economy for decades to come. Our pioneering approaches have long combined technology and human expertise to help clients make better financial decisions. Our enduring philosophy continues to apply to exponential technologies: identifying the opportunities that matter, integrating them thoughtfully by balancing potential return and risk, and making sure they fit into a client’s overall plan.

The key is balance. Exponential technologies can bring exciting opportunities, but they must be approached with discipline. By investing across a broad range of innovative companies, rather than chasing headlines, clients can benefit from potential growth while keeping their investments aligned with long-term goals. Spotting the next wave of disruption, not just maturing trends, takes creative thinking and forward-looking analysis. We integrate those insights into a systematic and rigorous approach to investing. For clients, this means participating in the future of the global economy while maintaining well-diversified portfolios designed to meet your personal goals. 

We have long had a strong conviction in exponential technologies, and we see our clients are well-served by having a dedicated portion of their investments in the new themes and technologies that will define the next generation of innovation and companies. Just as Edelman Financial Engines has always embraced innovation to serve clients better, we are committed to ensuring that portfolios evolve with the world around them. Investing in exponential technologies is about helping clients build stronger, more resilient portfolios for the years to come.