3 Ways to Invest in a Future Multitrillion-Dollar Graphene Market

This article was originally published Oct. 19, 2014, and updated Feb. 16, 2016.

One of the most exciting discoveries of the past decade has been graphene, a simple two-dimensional sheet of pure carbon atoms. Its production was revolutionized by two scientists at the University of Manchester (who applied sticky tape to a block of graphite, such as that found in pencil lead), who won the 2010 Nobel Prize in physics thanks to the potential implications of the nano-material. 

What's so special about graphene?

Perhaps the better question is what's NOT amazing about graphene, a substance with physical properties that boggle the imagination. 

For example, graphene is the strongest material ever discovered, 100 times stronger than diamond, and 200 times stronger than steel. It's also amazingly flexible, and more conductive than copper, both in terms of heat and electricity. 

Image source: Getty Images.

Why this matters

Graphene possesses some super cool attributes. Is that really going to change the world? Actually, that's exactly what might happen, given the incredible potential applications of this material to the world of electronics, energy storage, telecommunications, renewable power, healthcare, and telecommunications.

Brian Cox, professor of particle physics at Manchester University and a leader on the ATLAS experiment at the Large Hadron Collider at CERN (European Organization for Nuclear Research), believes that graphene has the potential to become a multibillion-dollar or even multitrillion-dollar industry.

Graphene applications in computing 

Now, I know what you're thinking -- "Multitrillion-dollar industry? There better be some REALLY amazing technological applications to back up a claim like that." However, just take a look at what researchers around the world are doing with these flat sheets of carbon.

Graphene could have massive potential implications with regards to advancing computer technology. This is because, according to industry experts, copper wires (which currently conduct electricity in computer chips) will soon reach their miniaturization limit. Similarly, silicon-based chips, which are currently built on a scale of 14-20 nanometers (nm),  are fast approaching their own size limitations of 7 nm, 5 nm, and 3 nm, according to IBM, Intel (INTC 0.64%), and Applied Materials, respectively. Each company differs on how small they think silicon technology can get. 

Graphene, due to its diminutive size and amazing thermal, electrical, and optical properties, will allow for further miniaturization and allow computers to continue on their historical track -- doubling in power every two years (Moore's law). 

In addition, graphene can be used to create local fiber optic networks within an individual computer. This will make for faster, more energy-efficient and cheaper computers. In addition, because graphene is completely non-toxic, they'll be more environmentally friendly as well.

Graphene applications in consumer electronics

Graphene also has the potential to completely disrupt the consumer electronics industry, especially when it comes to smartphones. 

For example, according to the American Chemical Society, "Touch screens made with graphene as their conductive element could be printed on thin plastic instead of glass, so they would be light and flexible, which could make cell phones as thin as a piece of paper and foldable enough to slip into a pocket. ... Because of graphene's incredible strength, these cell phones would be nearly unbreakable."

When can we expect the graphene age to begin?

As with any new and potentially world-changing technology, it will take many years for researchers to discover and refine graphene applications. In addition, a cheap and reliable manufacturing method must be devised to make graphene in massive, industrial-scale quantities, in order for its costs to be competitive with existing materials. 

This is partially why, according to tech site Fudzilla, when Intel CEO Brian Krzanich was asked about the state of Intel's graphene chip research, he said his R&D teams were making good progress but the technology was still a few generations away from commercial application. Specifically this means Intel won't be introducing graphene chips this decade, though it eventually plans to. 

However, despite graphene's potential mass adoption being years away, there might still be a way for long-term investors to cash in. 

Patent gold rush already underway

Data source: U.K. Intellectual Property Office. 

As the above table shows, Samsung is far and away the world's leader in graphene patents, which might be worth billions of dollars in the future. One of the reasons its patent lead is so large is because of its close ties to Sungkyunkwan University, the second-leading patent holder in the world, located in Samsung's home country of South Korea. In fact, Asia is the world's dominant graphene research hub, with China and South Korea holding 43% of global graphene patents (the U.S. has 23%). In addition, six of the 10 top patent holders are located in Asia, with four of those being research universities. 

The other major reason Samsung is so dominant in graphene patents is that it's an industrial conglomerate involved in everything from batteries and smartphones to digital displays and medical equipment. 

This has led the company to be expansive in its patent filings, whereas firms like IBM and Sandisk are more limited in their R&D efforts. While IBM and Sandisk were focused on computer chips and data storage applications (respectively), and IBM recently sold off its semiconductor business, Samsung sees disruptive, synergistic potential across many of its subsidiaries. 

For example, Samsung SDI recently built a $600 million lithium ion battery factory (the largest in the country) in China's Shaanxi province. Graphene's energy storage applications could theoretically allow the company to leap generations ahead of its competitors, such as local rival and fellow battery manufacturer, LG Electronics. 

How big of a potential market is graphene, really?

Despite its incredible promise, the current market for graphene (a speculative technology at this point) is still rather small -- $20 million in 2014 and $24.4 million in 2015. However, this is expected to grow 35% annually over the next decade to $390 million/year.

Given the fact that the global smartphone market alone is expected to reach $837 billion/year by 2016, and wearables could reach $19 billion within five years, it's not hard to see why Cox believes the market for graphene may eventually reach a multitrillion-dollar level.

So how do I invest in graphene?

Given the fact that graphene is still a material technology in its infancy, there is really no direct way for retail investors to get in on the ground floor of this potential world-changing megatrend. Samsung, Sandisk, and Intel are really the only ways for today's investors to attempt to potentially get a piece of the future giant graphene pie.

Of these three companies, Samsung has the most to gain from graphene due to its large presence in the smartphone, battery, consumer electronics, and semiconductor markets. In other words, graphene represents a potential "kicker" to help boost performance -- but investors should realize they represent only an indirect investment in this exciting nano-wonder material.

There is always a chance that these companies' graphene R&D efforts fail. And in the meantime Samsung, Intel, and Sandisk are all facing increasing competitive pressures that threaten the profitability of their core businesses.

Bottom line 

One of the best ways for long-term investors to profit from global economic megabooms is with "pick and shovel" providers of raw materials and services that fuel a major technological paradigm shift. Graphene represents just such a shift -- however, as with any technology that promises to change the world, there is incredible risk involved with directly investing in a public company that represents a "pure play."

In the coming years, there may be several graphene-based IPOs, which may come to market wildly overvalued, and several may go bankrupt. An indirect investment in the likes of Samsung, Intel or Sandisk could prove a much safer long-term investment, however, investors need to realize that even if these tech giants end up becoming the dominant players in the graphene industry, this doesn't necessarily mean that it will translate to solid earnings growth over the next decade or so.

Until the graphene industry begins to show some clarity regarding how companies will be able to monetize its potential applications, investors may be better off just watching from the sidelines.