Investment Institute
Future Trends

Smart cities: A tech-driven future with stakeholder potential

  • 18 October 2023 (5 min read)

As smart city technologies advance, the U.S. is leaving the trial-and-error phase behind, creating a promising opportunity for investors.

Nearly 90% of the U.S. population will live in urban areas by 2050.1  Smart cities, and the technologies behind them, could deliver an optimized urban future – as well as potential returns for today’s investors.

Smart cities incorporate sensors, data analytics, 5G, Internet of Things (IoT) devices, and other technologies to boost citizens’ well-being, safety, resource efficiency, and infrastructure quality. Some are projects built from scratch, like Masdar City in Abu Dhabi or Songdo in Korea. More commonly, cities integrate existing urban landscapes with specific smart technologies as they become available.

The global smart cities market is on a growth trajectory and potentially presents strong investment opportunities. In 2019, the market was valued at $392.9 billion2  but is predicted to grow as high as $3.7 trillion by 20303  – and North America will likely lead the way, holding 45% of revenue share.4

Smart tech advancements could give investors a path forward

Technology evolution is driving the smart city revolution, meaning investors may find significant ROI in industries that develop, manufacture, or deploy technologies pivotal to connectivity, transportation, and energy efficiency. Investors may find opportunities in areas such as:

  • Sensors: Sensors serve as the eyes and ears of smart city infrastructure, monitoring and gathering data to facilitate informed decision-making. For example, instead of issuing surveys about perceived air quality or noise levels, people could use sensors from companies like Bosch, Airly, and Omron to gather data on pollutants to determine an accurate AQI or measure the decibel levels of noise disturbances. California-based PNI Sensor Corp offers PlacePod, an IoT-enabled smart parking sensors, while Texas Instruments offers a variety of sensors that measure everything from humidity to ambient light. Sensors require semiconductor chips, often sourced from U.S.-based companies like Honeywell International, Inc., Intel, and Nvidia.
  • 5G: 5G connectivity ensures seamless communication between devices and sensors, enabling real-time data exchange, which could make monitoring and improving security, energy use, lighting, parking, and public transportation faster and easier. U.S.-based companies like Qualcomm, Verizon, and T-Mobile offer 5G connectivity solutions. With an $8.1 billion market in 2020, an expected CAGR of 62% between 2023 and 2028,5  and the passing of the Secure 5G and Beyond Act of 2020,6  the global 5G infrastructure market is poised to grow.
  • AI software and data processing: AI-powered software makes it possible to process and leverage a vast amount of data from across smart cities, their citizens, and their devices. Instead of manually organizing and extracting data for everything from air pollution levels to traffic congestion, a process that could take days and be prone to human error, smart cities can rely on AI software and data processing tools to do the bulk of the work. Not only can they aggregate data from multiple sensors across the city, but they can also provide easy-to-comprehend visual representations. For instance, Tableau offers an advanced analytics and data visualization platform, while Microsoft’s Power BI platform can combine multiple sources of information for processing and visualization.
  • IoT and cloud/edge computing: IoT technology is expected to have a global market size greater than $3.4 trillion by 2030,7  while cloud/edge computing is also expected to grow.8  Both technologies are the backbone for data processing and system coordination, allowing smart cities to store and communicate their data. Cisco offers a variety of IoT solutions, including the ability to monitor traffic signals, flooding, water quality, and traffic congestion, while Intel’s IoT processors can help create connected devices.
  • Cybersecurity: Cybersecurity is vital for smart cities to ensure they protect against data theft, intellectual property loss, system or network failure, which can cause disruptions and even physical harm. Top-tier cybersecurity solutions will be invaluable in the smart city future. For example, Palo Alto Networks’ cloud-delivered security services and next-generation firewalls could help protect IoT devices and their data from bad actors, while IBM’s network and cloud security solutions provide significant protection.

Real world smart city use cases

Aging infrastructure is a major issue in U.S. cities today. Outdated transportation, energy, and water systems often fail to meet modern demands, leading to congestion, high prices, and disruptions, like the recent break of a 127-year-old water main under Times Square. In the next 20 years, U.S. municipal governments will invest roughly $41 trillion into solutions, from smart grids that optimize energy transmission and recovery to intelligent traffic management and parking systems.9

Transportation offers investment potential, as a primary focus thus far in smart city development. Electric vehicles (EVs) are revolutionizing personal and public transport, and many companies are on board. Ford is investing over $50 billion in EVs through 2026,10  while Jaguar Land Rover is also investing billions into developing EVs. 11  Meanwhile, autonomous vehicles (AVs) are positioned to reduce emissions and traffic congestion, with self-driving car services already operating in San Francisco. Waymo has a permit for 250 cars, while Cruise runs 100 vehicles every day and 300 at night.12

Integrating sensors in roads, tolls, and traffic management systems to optimize traffic flow and reduce bottlenecks is becoming increasingly prevalent. Not only are ride-sharing platforms like Uber and Lyft hugely popular, but other Mobility as a Service (MaaS) options, such as pop-up bus services, carpool companies, and bicycle and scooter sharing systems, are also taking off. Companies like Cavnue in Washington, D.C., and Streetlight Data in San Francisco develop tech for connected roads, while Optibus offers operations software for New York public transit.

Citizens want green solutions, with 69% of the U.S. in favor of becoming a carbon-neutral country by 2050.13  Smart cities can also be more sustainable cities. Smart grids, facilitated by companies like Cisco, GE, and Schneider Electric, can help monitor energy flows and quickly adjust to fluctuations in supply and demand, while distributed grids and batteries from companies like Tesla and Panasonic offer energy storage for similar benefits. Tech monitoring can improve waste management or help address resource constraints that hamper growth and livability, such as with water use in the Southwest.

What could hold back smart city progress?

Despite their benefits, the path forward for smart city technologies is complicated. Smart city initiatives can require substantial investments, and projects can face funding challenges. Municipalities often turn to public-private partnerships to bridge the funding gap, such as Siemendsstadt, a Siemens-planned locality of Berlin.

In other cases, regulations or public opinion may hinder innovation. Uber faced opposition, leading to bans and legal disputes in places like Portland, Oregon. Airports also initially resisted rideshare services, with LAX implementing curbside pickup bans to alleviate congestion as late as 2019.

Nonetheless, U.S. cities have made progress through trial and error. Today, there are more proven examples of what smart city implementation can look like, and with sufficient funding, more municipalities will benefit from these game-changing technologies.

A smarter, more connected urban future presents potential investment opportunities

The smart city revolution is underway in the U.S., and investors have a chance to support more innovative, better-connected, and sustainable cities. Technological advancements like IoT devices, sensors, 5G, smart grids, renewable energy sources, EVs, and AVs are making smart cities a reality – and these areas could present investors with an incredible return on investment.

References to companies are for illustrative purposes only and should not be viewed as investment recommendations.

Risk Warning: Investment involves risk including the loss of capital.

  • PGEgaHJlZj0iaHR0cHM6Ly9vdXJ3b3JsZGluZGF0YS5vcmcvZ3JhcGhlci91cmJhbi1wb3B1bGF0aW9uLXNoYXJlLTIwNTA/dGFiPWNoYXJ0JmFtcCI+Y291bnRyeT1+VVNBO091ciBXb3JsZCBJbiBEYXRhIChuLmQuKTogU2hhcmUgb2YgdGhlIHBvcHVsYXRpb24gbGl2aW5nIGluIHVyYmFuIGFyZWFzLCAxNTAwIHRvIDIwNTA8L2E+
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuc3RhdGlzdGEuY29tL3N0YXRpc3RpY3MvMTI1NjI2Mi93b3JsZHdpZGUtc21hcnQtY2l0eS1tYXJrZXQtcmV2ZW51ZXMvIj5TdGF0aXN0YSAoMy8zLzIwMjMpOiBTaXplIG9mIHNtYXJ0IGNpdGllcyBtYXJrZXQgd29ybGR3aWRlIGluIDIwMTkgYW5kIDIwMzA8L2E+
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuZ3JhbmR2aWV3cmVzZWFyY2guY29tL3ByZXNzLXJlbGVhc2UvZ2xvYmFsLXNtYXJ0LWNpdGllcy1tYXJrZXQiPkdyYW5kIFZpZXcgUmVzZWFyY2ggKERlY2VtYmVyIDIwMjIpOiBTbWFydCBDaXRpZXMgTWFya2V0IFNpemUgV29ydGggJDMsNzI4LjMgQmlsbGlvbiBCeSAyMDMwPC9hPg==
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuZ2xvYmVuZXdzd2lyZS5jb20vZW4vbmV3cy1yZWxlYXNlLzIwMjMvMDQvMTgvMjY0OTU5Mi8wL2VuL1NtYXJ0LUNpdHktTWFya2V0LWVzdGltYXRlZC10by1hY2hpZXZlLVVTRC02NzgyLUJpbGxpb24tYnktMjAzMi1Ob3J0aC1BbWVyaWNhLXRvLWJlLWluLXRoZS1sZWFkLU1hcmtldC11cy1SZXBvcnQuaHRtbCI+R2xvYmFsIE5ld3MgV2lyZSAoNC8xOC8yMDIzKTogU21hcnQgQ2l0eSBNYXJrZXQgZXN0aW1hdGVkIHRvIGFjaGlldmUgVVNEIDY3ODIgQmlsbGlvbiBieSAyMDMyLCBOb3J0aCBBbWVyaWNhIHRvIGJlIGluIHRoZSBsZWFkPC9hPg==
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuZXhwZXJ0bWFya2V0cmVzZWFyY2guY29tL3JlcG9ydHMvNWctaW5mcmFzdHJ1Y3R1cmUtbWFya2V0Ij5FeHBlcnQgTWFya2V0IFJlc2VhcmNoIChuLmQuKTogR2xvYmFsIDVHIEluZnJhc3RydWN0dXJlIE1hcmtldCBPdXRsb29rPC9hPg==
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuY29uZ3Jlc3MuZ292L2JpbGwvMTE2dGgtY29uZ3Jlc3Mvc2VuYXRlLWJpbGwvODkzIj5Db25ncmVzcyAobi5kLik6IFMuODkzIC0gU2VjdXJlIDVHIGFuZCBCZXlvbmQgQWN0IG9mIDIwMjA8L2E+
  • 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
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cuc3RhdGlzdGEuY29tL3RvcGljcy8xNjk1L2Nsb3VkLWNvbXB1dGluZy8jdG9waWNPdmVydmlldyI+U3RhdGlzdGEgKDYvNy8yMDIzKTogQ2xvdWQgY29tcHV0aW5nIC0gc3RhdGlzdGljcyAmYW1wO2FtcDsgZmFjdHM8L2E+
  • PGEgaHJlZj0iaHR0cHM6Ly9zbWFydGFtZXJpY2Eub3JnL3RlYW1zL3NtYXJ0LWNpdGllcy11c2EvIj5TbWFydCBBbWVyaWNhIChuLmQuKTogU01BUlQgQ0lUSUVTIFVTQTwvYT4=
  • PGEgaHJlZj0iaHR0cHM6Ly9tZWRpYS5mb3JkLmNvbS9jb250ZW50L2ZvcmRtZWRpYS9mbmEvdXMvZW4vbWVkaWEta2l0cy8yMDIxL2VsZWN0cmljLXZlaGljbGVzLmh0bWwuaHRtbCI+Rm9yZCAobi5kLik6IEZvcmQgRWxlY3RyaWMgVmVoaWNsZSBTdHJhdGVneTwvYT4=
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cucmV1dGVycy5jb20vYnVzaW5lc3MvYXV0b3MtdHJhbnNwb3J0YXRpb24vamFndWFyLWxhbmQtcm92ZXItcGxhbnMtaW52ZXN0LTE1LWJsbi1wb3VuZHMtZWxlY3RyaWMtcHVzaC0yMDIzLTA0LTE5LyI+UmV1dGVycyAoNC8xOS8yMDIzKTogSmFndWFyIExhbmQgUm92ZXIgYm9vc3RzIGludmVzdG1lbnQgdG8gY2F0Y2ggdXAgaW4gRVYgcmFjZTwvYT4=
  • e2h0dHBzOi8vd3d3Lm5wci5vcmcvMjAyMy8wOC8xMC8xMTkzMjcyMDg1L3Nhbi1mcmFuY2lzY28taGFzLWxvdHMtb2Ytc2VsZi1kcml2aW5nLWNhcnMtdGhleXJlLWRyaXZpbmctZmlyc3QtcmVzcG9uZGVycy1udXRzIzp+OnRleHQ9QXJ0JTIwJTI2JTIwRGVzaWduLSxCYXklMjBBcmVhJTIwZmlyc3QlMjByZXNwb25kZXJzJTIwYXJlbiUyN3QlMjBoYXBweSUyMGFib3V0JTIwdGhlJTIwaWRlYSxmcm9tJTIwcG9saWNlJTIwYW5kJTIwZmlyZSUyMGRlcGFydG1lbnRzLjtOUFIgKDgvMTAvMjAyMyk6IENhbGlmb3JuaWEgYWxsb3dzIHJvYm8tdGF4aXMgdG8gZXhwYW5kIGFuZCBlbWVyZ2VuY3kgcmVzcG9uZGVycyBhcmVu
  • PGEgaHJlZj0iaHR0cHM6Ly93d3cucGV3cmVzZWFyY2gub3JnL3Nob3J0LXJlYWRzLzIwMjMvMDgvMDkvd2hhdC10aGUtZGF0YS1zYXlzLWFib3V0LWFtZXJpY2Fucy12aWV3cy1vZi1jbGltYXRlLWNoYW5nZS8iPlBldyBSZXNlYXJjaCBDZW50ZXIgKDgvOS8yMDIzKTogV2hhdCB0aGUgZGF0YSBzYXlzIGFib3V0IEFtZXJpY2Fuc+KAmSB2aWV3cyBvZiBjbGltYXRlIGNoYW5nZTwvYT4=
Investment Institute

Our experts and investment teams outline their key convictions

Visit the Investment Institute


    This document is being provided for informational purposes only. The information contained herein is confidential and is intended solely for the person to which it has been delivered. It may not be reproduced or transmitted, in whole or in part, by any means, to third parties without the prior consent of the AXA Investment Managers US, Inc. (the “Adviser”). This communication does not constitute on the part of AXA Investment Managers a solicitation or investment, legal or tax advice.  Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    © 2023 AXA Investment Managers. All rights reserved.

    Are you an IFA or other Professional Investor ?

    Are you a financial advisor, institutional, or other professional investor?

    This section is for professional investors only. You need to confirm that you have the required investment knowledge and experience to view this content. This includes understanding the risks associated with investment products, and any other required qualifications according to the rules of your jurisdiction.