The history of innovation is littered with technologies that appeared great on the surface but never found an audience. Products like the Microsoft Zune, which just couldn’t compete with the iPod. Or Apple’s Newton that later became the iPad, but just wasn’t quite there yet in the early ’90s.
With new technologies popping up every year, how are investors to know which will live up to their hype and which will flop?
This is the precise question the Gartner Hype Cycle aims to answer for investors. Published by the Connecticut-based technological research and consulting firm Gartner, the Gartner Hype Cycle identifies emerging technologies and when the Gartner team thinks the tech may become mainstream.
“If you open a textbook or magazine, that’s yesterday’s information, but the Gartner group provides great forward-looking information,” says Timothy Kayworth, professor and department chair of information systems at Baylor University’s Hankamer School of Business.
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— What is the Gartner Hype Cycle?
— Five phases of the Gartner Hype Cycle
— How to use the Gartner Hype Cycle
— Gartner Hype Cycle alternatives
What Is the Gartner Hype Cycle?
The Gartner Hype Cycle charts the path of a new technology through five phases, from when it first enters the market to when a typical business is likely to benefit from its adoption. It uses a graph to show the expectations around a new innovation (the x-axis) to the value of that innovation over time (the y-axis), then tracks the innovation as it moves through the five key phases of development.
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The Five Phases of the Gartner Hype Cycle
The Gartner Hype Cycle breaks the life cycle of a technology into five key stages:
— Innovation Trigger: When a breakthrough or new technology sparks innovation and startups begin to flood the market.
— Peak of Inflated Expectations: When the excitement draws in more producers and users, but there is still no evidence that the innovation will live up to its hype.
— Trough of Disillusionment: Failures, product issues and a lack of return on investment start to chip away at public interest.
— Slope of Enlightenment: When early adopters start to see benefits and others find new ways the technology can benefit their organization as second- and third-generation products come to market.
— Plateau of Productivity: When the innovation goes mainstream.
It often takes three to five years for a new innovation to progress through these five stages, but each technology is different.
“Technologies can go through the Hype Cycle at different rates or even drop off the Hype Cycle,” Kayworth says. They can disappear or get replaced on the cycle by a better product.
The Gartner team uses a graph with color-coded dots to indicate how long they believe a given technology will take to reach the Plateau of Productivity. The time period ranges from less than two years to more than 10 years. For example, the team thinks generative artificial intelligence will reach the plateau in two to five years, while neuro-symbolic AI — which combines machine learning and symbolic systems to create more trustworthy AI models — will take more than 10 years to go mainstream as of August 2023.
Gartner Hype Cycles are published for enterprise businesses to help them evaluate technologies, says Ryan Briggs, a former Gartner account executive who noted he does not speak on behalf of the company. The cycles are meant to serve as guides for one- to 10-year planning and budgeting around technology purchases.
While not designed for individual investors, it’s possible to use the Gartner Hype Cycle to help you make more informed investment decisions.
[READ: How to Pick Stocks: 7 Things All Beginner Investors Should Know]
How to Use the Gartner Hype Cycle
“Any person or group looking to invest in a particular technology must consider a number of key factors,” Kayworth says. For example, what’s the market demand? Is there an ecosystem that supports the technology? Is there a possibility that another technology could disrupt the one you’re looking at? If so, to what degree will it be disruptive?
Even government regulations should be considered. For instance, President Joe Biden’s administration and the European Union have each passed regulations around AI. “There may be a company out there that has a great idea for developing an AI tool,” but you might want to think twice before investing if these regulations could affect it, Kayworth says.
The Gartner Hype Cycle is merely one data point to consider when investing in new technologies, but it’s a powerful one.
Individual investors would typically want to pay attention to technologies on the right side of the Hype Cycles, around the Slope of Enlightenment and Plateau of Productivity, Briggs says. This is where solutions have reached 20% to 30% market adoption and market awareness is generally high enough to warrant more offerings.
At the Trough of Disillusionment — when surviving products satisfy early adopters — many players in a given space get acquired by larger companies, he says. So it can be risky to try picking winners before they’ve passed through this Gladiator-type phase.
One potential drawback to the Gartner Hype Cycle is that it’s subjective. “It’s based on the opinions of the analysts, but these are educated analysts,” Kayworth says. Investigating new technologies and determining where to place them on the Hype Cycle is what they do. That said, no one can predict the future.
“While the analysts may do their best job to place a new emerging technology into the Hype Cycle and predict when it reaches maturity, there could be all kinds of external disruptions that could turn that upside down,” Kayworth says.
Gartner Hype Cycle Alternatives
Both Kayworth and Briggs point investors to other tools available through Gartner, such as Magic Quadrants, which you can purchase to analyze the competitors in a given market.
Magic Quadrants can help you differentiate between different vendors’ capabilities, Briggs says. There is also a product feedback forum called Peer Insights where you can find verified product reviews for further insights. But while the summary level of Gartner’s Peer Insights is free, you’ll need an account for full access to the reports.
That said, there are many free ways to research a company. For instance, all publicly traded companies must make their financial reports and Securities and Exchange Commission filings available for free. Before investing, it’s important to do your due diligence with or without Gartner’s help. You can review a company’s financials, history and management to determine if it’s a good fit for your portfolio.
Remember that investing involves risk — especially if you’re investing in new companies or technologies. Never invest money you can’t afford to lose.
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What Is the Gartner Hype Cycle? originally appeared on usnews.com
