What a Rapidly Aging World Population Means for Your Long-Term Portfolio
Global demographics are undergoing a profound transformation. As life expectancies grow and birth rates decline in many parts of the world, the proportion of the elderly population is increasing at an unprecedented rate.
The World Health Organization (WHO) forecasts that by 2030, 1 in 6 people in the world will be aged 60 years or over. In 2030, the share of the global population aged 60 years and over will have increased from 1 billion in 2020 to 1.4 billion people. By 2050, the world’s population of people aged 60 years and older will double to 2.1 billion people. Longer term, the number of persons aged 80 years or older is expected to triple between 2020 and 2050 to reach 426 million.
A significant rise in the global overall life expectancy is driving this trend. On average, life expectancy rose from around just 52.5 years in 1960 to 72.5 years by 2020.
Getting investments right for that changing demographic is a major concern for pension funds, which manage about $50 trillion globally, and that must align investment strategies to ensure they meet liabilities to future retirees.
But our rapidly aging global population should also be a concern to retail investors who are investing for long-term goals, such as retirement.
Investors often think of demographics as a slow-moving “train,” but it’s not. That “train” is moving toward us faster than we think. Our goal should be to not get run over by the demographics train.
So what can you do to avoid this “train”? You should make changes in your long-term portfolio.
Changes Are Coming to the Macro Economy
Of course, no one knows the exact course of the future, given variables such as immigration flows, and advances in technology, automation, and power sources.
Nevertheless, here are my thoughts…
The impact on financial markets will be felt across all asset classes, and there’s no one-size-fits-all solution. But the strategies being put in place to invest in the graying of the world’s population should reflect inflationary concerns.
This world of a larger elderly population will translate to higher government healthcare spending, and bigger deficits, leading to inflation that will remain stubborn.
As birth rates fall and populations age, companies will have to fight for workers in a smaller labor pool, boosting wages. This means positioning for interest rates — and bond yields — that will likely be higher in the coming years than Wall Street currently expects.
That would make longer-term Treasuries no longer a “risk-free” asset, but actually quite risky. They do not belong in a long-term portfolio. Keep in mind that when Fitch downgraded the United States’ sovereign debt rating last year, it cited the costs of an aging population among its reasons.
FYI: short-term Treasuries are as good as cash, and are fine. Overall, a long-term portfolio should contain fewer bonds, more stocks, and more commodities like gold.
“Silver Economy” Investing
This inflation case is built on the simple idea of more old people spending, fewer young people producing. Given that view, certain asset classes should attract your attention.
In an environment where we will have long-term inflation expectations at a higher level than previously, long-term portfolios will want more exposure to assets that might help mitigate the effects of inflation – namely, stocks and commodities, as well as real estate.
This shift I’ve been talking about is creating the “Silver Economy” — a new area of economic growth linked to the needs and activities of aging populations. As the number of older people increases, their needs and preferences will have an increasing impact on shaping both the economy and society.
The term “Silver Economy” originated in Japan, a country that has the most people aged 60 and over.
As people age, their lifestyles, interests, and needs change. They may need healthcare services that cater to specific age-related conditions, or want to find comfortable and accessible living arrangements (including home healthcare), or want technology that is easy to use and meets their needs. For instance, Japan has been developing robots to care for older people for over two decades.
One obvious sector to invest into is the aforementioned healthcare group, from medical devices to treatments for cancer and other diseases. Healthcare stocks are trading at valuations where future demand is not fully baked in.
Another sector ripe for investment is senior living. This includes various housing options for older adults, like retirement communities and assisted living facilities. As more people age, there’s a more significant need for places where seniors can live comfortably, with access to the care they need.
Fortunately, there are a number of Real Estate Investment Trusts (REITs) specializing in senior housing. The largest of these is Welltower (WELL), which is up 46% year-to-date and 58% over the last year.
The issue really isn’t that investors are completely unaware of the growing elderly population around the globe. The issue is that the impact on assets and markets will be larger and far more pervasive than most investors anticipate.
So, prepare now for the graying of the global economy.
Where Will Dell Technologies Stock Be in 3 Years?
However, a closer look at the chart tells us that Dell stock has simply taken off from the beginning of 2023. More specifically, shares of the company that’s known for selling personal computers (PCs) and server equipment have shot up 212% since the start of last year. Dell was struggling before that on account of the weakness in the PC market, alongside a decline in the global server market.
However, the arrival of artificial intelligence (AI) has supercharged both these end markets and has lit a fire under Dell stock. But will the company be able to sustain its red-hot momentum and deliver more upside to investors over the next three years?
Dell’s infrastructure business is reaping the benefits of AI
Dell operates through two business segments, the largest one being the infrastructure solutions group (ISG). This division includes sales of its server, storage, and networking solutions. The ISG business has been in fine form of late thanks to the huge investments being made in AI servers.
In the second quarter of fiscal 2025 (which ended on Aug. 2), Dell reported record server and networking revenue of $7.7 billion, an increase of 80% from the same period last year. Its overall ISG revenue increased 38% year over year to $11.6 billion, accounting for 46% of the company’s overall top line of $25 billion.
It is worth noting that Dell’s ISG business has generated $20.8 billion in revenue in the first six months of fiscal 2025, growing 30% year over year. The revenue from sales of servers and networking equipment grew at a much faster pace of 62% during this period to $13.1 billion. So, Dell’s server and networking business is currently clocking an annual revenue run rate of $26 billion.
According to one estimate, the global AI server market could be worth an estimated $40 billion this year. At the same time, the AI data center networking market is forecast to generate $15 billion in revenue in 2024. The combined size of these two end markets could be $55 billion this year based on the two estimates.
If Dell manages to clock $26 billion in revenue this year from the server and networking market, it will end up controlling a nice share of the AI-focused opportunity on offer in this space. That would be great news for Dell investors, as the size of the AI server market in 2028 is expected to hit $115 billion, while data center AI networking could generate $25 billion in revenue. That would present a $140 billion addressable market for Dell.
The good news is that Dell is witnessing strong order inflow for its AI server solutions, which should help it build a solid revenue pipeline and capitalize on the significant growth opportunity on offer. The company shipped $3.1 billion worth of AI servers in the second quarter of fiscal 2025, and it received fresh orders for another $3.2 billion. The company ended the quarter with a server order backlog of $3.8 billion.
More importantly, Dell’s sales pipeline of AI-optimized servers increased last quarter, and the company points out that it is now worth “several multiples of our backlog.” So, the secular growth of the AI server and networking market should help the company sustain the impressive growth in the ISG business over the next three years.
Double-digit earnings growth should lead to impressive stock price upside
Dell’s earnings in the first six months of fiscal 2025 have increased by 4% year over year on an adjusted basis to $3.16 per share. For the full year, analysts are expecting Dell to report $7.86 per share in earnings, which would be a 10% increase over the previous year. However, as the chart tells us, Dell’s bottom-line growth should accelerate over the next couple of fiscal years.
As Dell’s earnings start growing in the healthy double digits thanks to the growing adoption of AI servers, it won’t be surprising to see the market rewarding it with a higher earnings multiple. The company currently has a price-to-earnings ratio of 23 and a forward earnings multiple of 13, which means that it is quite attractively valued right now.
But if Dell trades at 30 times earnings after three years — in line with the Nasdaq-100 index’s forward earnings multiple (using the index as a proxy for tech stocks) — because of the acceleration in its growth, its stock price could hit $323. That would be a 158% increase from current levels, which is why investors looking to buy an AI stock right now should consider loading up on Dell Technologies, considering its attractive valuation and earnings growth potential.
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