The year of 2020 has seen a sea change in the market and economic conditions.
More people are starting their own businesses while others are seeking out investment opportunities that can help them mitigate low interest rates and ride out the volatile stock market.
If you’re looking to start or invest in a company, it’s important to enter a booming industry. So, what are the most profitable and the fastest growing industries in the U.S.?
Here are some of the top industries in the U.S. right now that are on track to becoming the most profitable:
Biotechnology refers to the science that manipulates living organisms to create commercial products.
Many are used in high-growth industries such as health care, food and agriculture, biodegradable plastics, biofuels and other environmental applications. In particular, biotech products are key to the invention of new medicines that stand to save lives for years to come.
According to Grand View Research, the global biotechnology market size is expected to reach $727.1 billion by 2025, at a compound annual growth rate (CAGR) of 7.4%. With such high potential and growth rate, no wonder the industry is attracting many entrepreneurs and investors.
However, with the high reward potential comes elevated risks. Many biotech investment opportunities are speculative and you may be venturing into uncharted territories. If you don’t have a high risk tolerance or prefer to invest in opportunities that have a long and steady record, biotech may not be the best option for you.
2. Artificial Intelligence
MarketsandMarkets forecasts the artificial intelligence (AI) market is likely to reach $190.61 billion by 2025, at a CAGR of 36.62%. From machine learning and predictive analytics to natural language processing and neural networks, AI applications are growing by the minute.
There are many ways to enter this industry. There are opportunities in autonomous vehicles, robotic process automation, logistics and delivery, customer service, chatbots, marketing and advertising, customer relationship management, data analytics, payment services, voice assistant, human resources, manufacturing and more.
There are always higher risks associated with starting businesses or investing in emerging technologies that are fast-evolving. For example, security, privacy and ethical issues are some key concerns about various AI-driven technologies and will evolve as the industry matures. Anyone working with AI should be prepared to stay nimble and adaptive to market and regulatory forces.
3. Green Energy
The new White House administration plans to invest $400 billion over 10 years in clean energy as part of a broad mobilization of public investment. According to the Center for Climate and Energy Solutions, renewable energy is the fastest-growing energy source in the U.S. and has increased by 100% between 2000 and 2018.
Intending to achieve economy-wide net-zero emissions no later than 2050, the government will be taking actions to support green energy solutions such as electric vehicles, solar panels, wind generations, rainwater harvesting systems, energy-smart appliances and technologies that can optimize the use of energy. It also is expected to revive many environmental initiatives that were put on the backburner.
Whether you’re starting a business in green energy or investing in one, it’s important to consider how the solution can be adopted by the mass market. Having a sound business case, a plan to bring the technology to market and a strategy to encourage adoption is the key to achieving long-term success.
4. Real Estate
A low mortgage interest rate means borrowing money to buy real estate is cheap right now, making real estate investments more enticing. You can purchase a piece of property and then rent it out or resell it to generate profits. You also can invest in a real estate fund, which enables you to buy into a trust with other investors and fund a real estate project.
One of the less risky real estate fund options is net-lease real estate investment trusts (REITs), which means a property is leased to a single tenant who pays rent and property expenses. You can expect high dividend yields and rent increases to build your cash flow.
Many real estate investments have a longer-term time horizon so be prepared that your capital may be tied up for a few years before you’ll see significant yields. If you’re buying and renting out properties, you’ll need to carefully evaluate the value of the properties, account for the cost of renovation and invest time and effort in ongoing property management.
5. Environmental, Social and Governance
Businesses that focus on environmental, social and governance (ESG) are gaining traction. More consumers are considering the ecological and social impacts of the products they use and are willing to spend more for brands that are environmentally and socially responsible.
CNBC reported global sustainable funds have experienced inflows of $45.7 billion during the first quarter of 2020, according to data from Morningstar. Since March, the focus on ESG has accelerated as the global pandemic has made many people more aware of how businesses are treating their stakeholders, suppliers, employees and customers.
While making ESG investments, you should strike a balance between ethics and performance. Also, keep in mind that the definition of “socially responsible” can be subjective. Some companies claim to be socially responsible but in practice, they may not meet your expectations. Therefore, it’s important to vet your choices before making a decision.
6. Health Care and Pharmaceuticals
Recent events have once again highlighted how essential the health care sector is. New challenges and diseases will continue to emerge while the aging population in the U.S. and other developed countries will increase the demand for treatments and health-care services for decades to come.
According to the U.S. Bureau of Labor Statistics, employment in health-care occupations is projected to increase 15% from 2019 to 2029 and add about 2.4 million new jobs to the economy. Besides businesses that directly deliver healthcare services, companies that support these professionals are also expected to blossom.
However, there are some risks associated with entering or investing in the health-care industry. For example, the shifting insurance policies and Medicare single-payer system, the large number of uninsured Americans, the need to control costs, the myriad of regulatory controls and the increasing influence of consumerism can pose challenges now and in the future.
The pandemic has accelerated the shift toward telemedicine. Both patients and physicians are now recognizing the convenience, cost-savings benefits and ability to improve treatment outcomes offered by this option. Not to mention, telemedicine lowers the cost for insurance companies so we can expect them to be promoting virtual consultations for years to come.
A report by Frost & Sullivan found that demand for telehealth will increase by 64.3% in the U.S. in 2020 as the COVID-19 pandemic has disrupted the delivery of healthcare. Meanwhile, the telehealth market displays a staggering seven-fold growth that is expected to result in a 5-year CAGR of 38.2%.
Because telemedicine is a relatively new discipline, practitioners and technology providers are still ironing out the kinks. In particular, with more stringent industry regulations (e.g., Health Insurance Portability and Accountability Act, or HIPAA), it could become increasingly costly to enforce data privacy, control prescription of certain drugs and stay compliant with new guidelines.
The accelerated pace of digital transformation coupled with the rising cost of data breaches means the demand for cybersecurity will continue to climb for the foreseeable future. Not to mention, no matter how the economy is performing, the need won’t go away.
According to Gartner, the global information security market is forecast to grow at a five-year CAGR of 8.5% to reach $170.4 billion in 2022. There are many types of cybersecurity products and services you can offer, such as cloud security, endpoint security, network security, infrastructure protection and more.
If you decide to enter the industry, be prepared to invest substantially in increasing your team’s capabilities and expertise to stay current with fast-changing regulations, business environment and cybersecurity threats. Also, expect some tough competition. It’s important to find your unique positioning in the market.
9. Cloud Computing
As the need to facilitate remote working and real-time collaboration has increased, companies require technologies that will enable work to be done efficiently from anywhere and at any time. Coupled with advantages such as scalability, flexibility, and enhanced security, cloud computing is now the de facto solution.
The Economic Times reported that cloud traffic is projected to represent 95% of global data center traffic by 2021 and the graph from Grand View Research below shows that the cloud computing market is projected to expand at a CAGR of 14.9% from 2020 to 2027. You don’t have to build a cloud platform to enter this industry. Information technology (IT) support that specializes in cloud networking and infrastructure is in high demand and offers many business opportunities for those with the right knowledge and expertise.
However, cloud computing’s popularity also makes these platforms a prime target for hackers. Any cloud provider or consultant must be prepared to invest more in IT security, data protection and privacy measures in the coming years to stay relevant and competitive while avoiding potential liability issues.
10. Internet of Things
Applications for Internet of Things (IoT) devices are growing rapidly. Besides IoT’s heavy integration in the consumer electronic market, IoT subsystems such as industrial internet and connected cities are emerging quickly to automate factories and urban areas. Meanwhile, digital virtual assistants such as Amazon’s Alexa and Google Assistant are becoming ubiquitous.
According to Statista, the global market for IoT end-user solutions will reach nearly $1.6 trillion by 2025. There are IoT opportunities everywhere you look — from medical devices and supply chain management to manufacturing and retail, the number of IoT use cases is growing exponentially and the demand for support or new solutions will continue to increase.
This relatively new field comes with its own set of challenges. For example, consumer-grade IoT devices often create security liabilities, the fragmented IoT technologies can result in connectivity or integration issues and many solutions have still yet to achieve long-term usability.
Choosing the Right Industry to Enter
No matter which industry you decide to enter or invest in, it’s important that you do your due diligence to understand the business environment and market landscape as well as your capabilities or those who are leading the company.
You should thoroughly analyze the competitors or industry participants, distribution patterns and purchasing behaviors. When you conduct market research, use different resources to help you gain a comprehensive understanding of an industry. These can include trade associations, online resources, government guidance, community organizations, financial and business service firms, and more.
Lastly, don’t forget to consider the larger social and economic context as well as how unexpected events could impact an industry and your business in the future so you can ensure long-term success.