How to ride the $300 billion 'contactless economy' megatrend, according to Citi

Published Tue, Sep 22 20202:49 PM EDT

(This story is for CNBC Pro subscribers only.) The coronavirus pandemic is propelling a paradigm shift toward a contactless society, which created a golden moment for a handful of stocks at the forefront of advanced technology, including 3D sensors, speedy connectivity and AI processors. Citi estimated that the global contactless economy will double to $300 billion by 2024 as the pandemic disrupts human touch in daily life and accelerates distanced interactions between the physical and digital worlds. "The next stage, underway years before Covid-19 but likely to be accelerated by it, will be arguably the most revolutionary of all, in that it will remove physical contact from the equation," Citi analyst Arthur Lai said in a note. "The contactless economy is already underway, of course, but is only in its infancy relative to its potential and trends already visible." The Wall Street firm highlighted a number of stocks as prime beneficiaries of rapid developments toward a booming contactless economy. Semiconductor catch-all As the engine of AI computing, sensing and connectivity, semiconductors are essential to the shift to a contactless world. Citi identified a few leaders in the space that are suppliers to the world's largest tech companies. ON Semiconductor takes advantage of the fast-growing sensor market as the company is one of the biggest suppliers to a variety of end markets from automotive to handsets. Citi estimated that ON Semiconductor now generates about 15% of its revenue from sensors and expects it to grow in the double-digits going forward. Meanwhile, Texas Instruments supplies "a wide swath of smart devices," and is a key supplier to leading touchless economy providers such as Apple, Samsung, and Sony, Citi analyst said. Additionally, STMicroelectronics has also gained significant experience in the 3D sensing space from supplying the sensor that enables FaceID on Apple devices. Unmanned stores As self-service kiosks became more prevalent in retailers during the pandemic, Citi said we are a step closer to the inevitable unmanned stores. "The ultimate touch-less shopping experience is the unmanned store," Lai said. "In recent years, pilot programs have been launched by leading internet companies and some startup companies have also pioneered the unmanned shelf which then transforms into a smart vending machine." The analyst said Amazon Go's no-checkout stores are the most well-known of these contactless projects. Meanwhile, Chinese JD had opened its first unmanned convenience store in Beijing in 2017, which used facial and image recognition to track retail activity Tech hardware Citi views Apple as a "leading innovator" in tech hardware across many ubiquitous technologies. Particularly, the tech giant offers the full package of product, software and service, which puts the company in a unique position. "We see Apple shares as attractive given the revenue diversification, unique product + service set and potential for strong cash flow generation and shareholder returns," Lai siad. Shares of Apple came under pressure this month, falling about 13%, amid a broad rotation out of highly-valued technology names. Still, the stock is up more than 50% this year. Another leading player in the tech hardware space is Logitech , which continues to benefit from the secular trends of working from home and the move to digital, according to Citi. Shares of Logitech have soared more than 45% in 2020. "The company continues to demonstrate strong operational execution despite several moving parts," Lai said. "We continue to recommend LOGI shares given portfolio diversification strategy coupled with strong cash flow generation to support organic investments and tuck-in acquisitions." AI ecosystem Artificial intelligence is the most important technology for the touchless era as remote controls and voice recognition started to merge into the surroundings, wearables and devices. "Devices that are interconnected can enhance collaboration with each other and change the way users interact with a system," Lai said. "The physical interface is likely to be simplified and integrated into a unified dashboard, and devices that can control other devices with AI will play a more important role in automation." Citi's top picks in the space are Iflytek, Xiaomi, Luxshare and Omron. These stocks are listed on Asian exchanges.

Humanoid robot "Prepper" stands on April 2, 2020 at the cash desk of a supermarket of the Edeka retail chain in Lindlar, Germany, to explain protective measures and to promote solidarity with each other, amid the novel coronavirus / COVID-19 pandemic.

Ina Fassbender | AFP | Getty Images

(This story is for CNBC Pro subscribers only.)

The coronavirus pandemic is propelling a paradigm shift toward a contactless society, which created a golden moment for a handful of stocks at the forefront of advanced technology, including 3D sensors, speedy connectivity and AI processors.

Citi estimated that the global contactless economy will double to $300 billion by 2024 as the pandemic disrupts human touch in daily life and accelerates distanced interactions between the physical and digital worlds.

"The next stage, underway years before Covid-19 but likely to be accelerated by it, will be arguably the most revolutionary of all, in that it will remove physical contact from the equation," Citi analyst Arthur Lai said in a note. "The contactless economy is already underway, of course, but is only in its infancy relative to its potential and trends already visible."

The Wall Street firm highlighted a number of stocks as prime beneficiaries of rapid developments toward a booming contactless economy.