Existing Citi Research clients can follow <a href="https://www.citivelocity.com/t/eppublic/35HLR" data-link-source="tiny">this link</a> to access the full report, which also includes a sector-by-sector look at potential beneficiaries and a discussion of the implications for data-center stocks.

The growth prospects for data-center capacity still seem underappreciated given the growing power demands posed by GenAI. In a new Super-Sector Analysis, Citi Research estimates data centers&rsquo; market size at 33 Gigawatts (GW) in 2023 and forecasts compound annual growth of 17% to 100 GW in 2030.

Data Center Powerplay: The Chips Have to Go Somewhere

Supply Chain

Macroeconomics

Sustainable Investing

Research

In a new Citi Research report, a team led by Lydia Ling looks at how the return of Chinese tourists &ndash; the world&rsquo;s biggest tourism spenders &ndash; is reigniting the global travel market. We draw on our global coverage and an extensive survey by our Innovation Lab to conclude that strong leisure travel demand, beauty premiumization and luxury shopping will continue to reshape the global travel retail market.
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The following is a freely accessible summary of a published Citi Research report.
While Chinese consumers are facing macro uncertainties, experience consumption such as leisure travel remains a top spending category for them. Our Innovation Lab surveyed 2,502 Chinese about their outbound travel plans, spending patterns, preferred destinations, luxury shopping and brand appeal. The results suggest decent travel demand in the next three to six months. And with travel giving Chinese travelers more satisfaction, they&rsquo;re willing to spend on it and explore more diverse activities. China&rsquo;s consumption has been evolving, with a shift toward experience and emotional value. Experience consumption abroad &ndash; a category that includes activities, lodging and dining -- has been gaining traction at the expense of shopping, though shopping remains a top consideration.
Chinese outbound travelers remain a long-term driver of global luxury spending despite a gradual shift in wallet share toward experiential spend, as well as a repatriation of luxury spending to China. We estimate Chinese nationals will return to making a ~35% contribution to global luxury spending in 2024, in line with pre-pandemic levels. Such a return would be a driving force for a sustained recovery of the global travel retail market. We see their onshore/offshore split in luxury spending as ~70/30%, a product of improved variety and pricing of onshore offerings as well as concerns about taxes levied when returning to China.
<h3>Chinese luxury spending still below pre-Covid level</h3>
<img src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/66b09e632d3e324f2111dd9a.png" alt="Chinese luxury spending still below pre-Covid level" width="600" height="300">
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&copy; 2024 Citigroup Inc. No redistribution without Citigroup&rsquo;s written permission. Source: Citi Research, Bain &amp; Company
<h3>Chinese was the top luxury spender with 33% share in 2019 but this was down to 22-24% in 2023E</h3>
<img src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/66b09f1917dbc039b6efd7c5.png" alt="Chinese was the top luxury spender with 33% share in 2019 but this was down to 22-24% in 2023E" width="650" height="300">
&copy; 2024 Citigroup Inc. No redistribution without Citigroup&rsquo;s written permission. Source: Citi Research, Bain &amp; Company
We selected 66 luxury items popular among Chinese shoppers and compared their prices across France, Japan, Korea, Hong Kong and Hainan to assess how much cheaper they are compared with official prices in mainland China. Given the yen&rsquo;s depreciation, Japan is now the most attractive destination for the Chinese for luxury goods and Hong Kong the least. But as brands gradually adjust pricing in Japan, the pricing gap could fade. France is more attractive to China tourists for handbags as well as apparel and footwear. In Hainan, prices are more competitive after factoring in promotional activities. While Hainan still needs to enrich its luxury-brand portfolio, its allure for luxury shoppers is rising as more luxury brands enter the province.
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Our new Super-Sector Analysis, China&rsquo;s Travel Enthusiast Returns, Luxury Brands Set to Benefit, also features stock implications of Chinese tourists&rsquo; return.
Existing Citi Research clients can follow&nbsp;<a href="https://www.citivelocity.com/t/eppublic/3DPun" target="_blank" rel="noopener" data-link-source="tiny">this link</a> to access the full report.

In a new Citi Research report, a team led by Lydia Ling looks at how the return of Chinese tourists &ndash; the world&rsquo;s biggest tourism spenders &ndash; is reigniting the global travel market. We draw on our global coverage and an extensive survey by our Innovation Lab to conclude that strong leisure travel demand, beauty premiumization and luxury shopping will continue to reshape the global travel retail market.

Chinese Tourists’ Return Should Benefit Luxury Brands

In our new Super-Sector Analysis, a team led by Pierre Lau looks at what may lie ahead for investment in global solar installations. We&rsquo;re revising our global solar installation forecasts down by 3% to 455 Gigawatts (GW) for 2024 (up 16.7% year over year) and by 4% to 530 GW for 2025 (up 16.5% year over year), from previous forecasts for 470 GW and 550 GW, respectively.
Our revisions are prompted by concerns about bottlenecks for power grid transmission and distribution, and center on the U.S., China and Europe; in the last of these, 14 national transmission system operators (TSOs) plan to lag national solar targets by 89 GW in total, and only five countries have more ambitious targets (representing 66 GW in aggregate) in their TSO plans. China will remain the biggest contributor to global installations, representing ~54% of the total in 2024 and 2025.
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More global grid investments are essential for spurring more renewable installations. We expect China&rsquo;s national grid capex growth to accelerate to at least 7% year over year in 2024 from 5% in 2023. According to one forecast for Europe, around 173 GW of solar could hit gridlock by 2030, suggesting grid congestion will persist or grow worse over the coming decade. In the U.S., interconnection wait times have increased from less than two years for projects built in 2002&ndash;2007 to more than four years for those built since 2018, with more than 2,600 GW in the queue. And transformers, switch gear and substation equipment are all in short supply in the U.S.
We also see more demand for grid reinforcement and energy storage systems. The more renewables are integrated into the system, the more on-grid stability comes under pressure, as negative power prices from excess renewable supply during low-demand periods increasingly become part of the new normal. Energy storage helps balance daily fluctuations in output from solar and wind generation; by one estimate, energy storage capacity in Europe needs to grow 7.6 times to 156 GW by 2030.
Factors at work in our downward revisions to global solar installation forecasts include more prominent grid-consumption issues in China as grid construction lags behind renewable-capacity growth. We expect spending of Rmb230 billion on construction of Ultra High Voltage power transmission lines, as well as more investment in the power distribution network. In Europe, we see structural constraints such as longer permitting processes and underdeveloped networks and interconnectors. The current grid capacity also needs to be reinforced for more renewable consumption; RePowerEU has estimated that around &euro;180 billion in investment in high-voltage grids is needed to achieve the EU&rsquo;s target of 45% renewables share in 2030.
In the U.S., we expect a challenging environment for residential solar in the near term, with headwinds including high interest rates and California&rsquo;s Net Energy Metering (NEM) 3.0 solar billing structure. Interconnection is the key bottleneck for U.S. renewable projects, which regulators have recently sought to address.
Turning to the solar supply chain, its geographical concentration in China intensified in 2023, according to the International Energy Agency. China accounts for more than 90% of cell, wafer and polysilicon manufacturing. For modules, China has around 80% of planned and existing capacity, with the U.S. and India far behind at 5% and Europe accounting for just 1%. The global manufacturing capacity for major solar components increased dramatically by as much as 114% year over year in 2023, with the highest growth seen in the polysilicon and module segment. This steep rise in capacity and excessive supply have led to fierce price competition. And foreign trade restrictions remain a major headwind for China&rsquo;s solar module companies.
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Our new report, Global Renewable Energy: Grid &amp; Electrical Equipment Suppliers Gaining From More Solar Use, also includes forecasts for India and equity-strategy recommendations. It&rsquo;s available in full to existing Citi Research clients <a href="https://www.citivelocity.com/t/eppublic/38BqS" target="_blank" rel="noopener" data-link-source="tiny">here</a>.

Inside Our Revised Forecasts for Global Solar Installation

We lower our global solar installation forecasts by 3% for 2024 and by 4% for 2025 amid concerns about grid bottlenecks, with more capex to be spent on adding capacity, reinforcement and energy storage systems.

Global Renewable Energy

A new Super-Sector Analysis by a team led by Martin Wilkie, Co-Head of Industrial Tech &amp; Mobility at Citi Research, explores five tectonic shifts that are transforming industry norms in Germany, and looks at the strategies companies are turning to by way of a response.
For openers, we note striking differences between the U.S. and German stock markets. NVIDIA&rsquo;s market cap, at ~$2.9 trillion, is higher than the entirety of the German stock market at ~$2.6 trillion. The five largest U.S. companies by market cap are, on average, less than 40 years old; in Germany the average age of the top five is more than a century. This speaks volumes, both about the durability of Germany&rsquo;s industrial champions but also about the lack of new corporate goliaths.
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How Germany&rsquo;s industrial champions respond to major shifts could have major effects on investment allocations and M&amp;A. The five trends we see as increasingly disruptive forces for Germany&rsquo;s industrial and auto sectors are:
<ul>
<li>Rising national protectionism in other regions, especially China and increasingly the U.S.;</li>
<li>the long-term impact of the Russia&ndash;Ukraine war, especially on energy and defense markets;</li>
<li>the fallout from the pandemic on business models, notably supply chains;</li>
<li>technology disruption, most recently from AI;</li>
<li>and Europe&rsquo;s Green Deal.</li>
</ul>
And the strategic responses we expect can be summarized as digitization; decarbonization; defense, diversification globally; and deconglomeration.&nbsp;
<img src="/rcs/v1/media/citigpa/akpublic/storage/retrieveMediaFile/66e422104d586a720792d75a.jpg" alt="" width="870" height="668">
Digitization: Germany&rsquo;s &ldquo;Industry 4.0&rdquo; strategy is aimed at driving digital manufacturing and consolidating Germany&rsquo;s leading position in many manufacturing and engineering markets. We see the sudden surge in AI investment as adding new urgency to this push; our view is that vertical industry expertise and the installed base of industrial edge devices that control and gather information should form an AI &ldquo;moat&rdquo; for most industrial companies, with a further push into software to protect this moat. An aspect we see as worth watching is the digitalization of the car, with sharp development of cars&rsquo; electronic architecture, computing power and software to drive functionality. Historically, none of these domains has been a strength of the auto industry, leading to significant competitive disadvantages and long delays in new-model launches. This has led Volkswagen, for one, to invest in firms in China and the U.S.; we expect many more such tech-driven investments.
Decarbonization: We see two major industrial drivers of this trend for investment. The first is support for Germany&rsquo;s energy-intense industries, which are currently at a structural global disadvantage due to high relative energy costs. Such cost disadvantages look set to persist, but in order to prevent an industry exit, Germany&rsquo;s government is providing subsidies to these industries in return for reducing emissions during production. The second driver is the need for the German auto industry to future-proof itself against the rise of China battery electric vehicles (BEVs). Elements of this strategy include a need to make huge investments in manufacturing, government policies aimed at speeding consumer adoption of BEVs, and potential EU tariffs on China BEV imports.
Defense: Increased U.S. isolationism and potential policy changes under a Trump presidency have increased expectations for German defense spending and detoxified an end market that some industrial companies had spurned. An increasing number of German businesses have lifted self-imposed bans on supplying the defense industry; meanwhile, Germany now aims to spend 2% of its GDP on defense later this decade, an unprecedented policy change following three decades of underspending.
Diversification globally: U.S. domestic content credits and/or high import tariffs could incentivize local U.S. production to serve the U.S. market. This would mean U.S. domestic assets could be needed to serve U.S. demand, with such assets becoming more appealing as a hedge against isolationism. We also think past dependence on China for growth and earnings will be reappraised. That would mean a balancing act for the auto market, as China has been the key growth driver for the industry for more than 20 years and generates nearly 30% of global auto demand, making this important market hard to give up. As part of the China reappraisal, we expect other markets (such as India) to become targets for growth.
Deconglomeration: This trend isn&rsquo;t new, as industrial conglomerates arguably had their global heyday in the 1980s and 1990s; General Electric was the world&rsquo;s most valuable company in August 2000. Since then, dismantling conglomerates has been the trend, with sector companies simplifying and decentralizing at an increased pace over the last decade. In autos, descending valuations have often meant group valuations substantially below their sum-of-the-parts value. This has driven some management teams to either spin off some group companies or create IPOs for them.
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Our new report, Industrial Technology &amp; Mobility: How disruptive forces are driving the M&amp;A landscape in Industrials; Focus on Germany, also includes stock conclusions and a discussion of how Germany might respond to changes in EU industrial and competition policies. It&rsquo;s available in full to existing Citi Research clients <a href="https://www.citivelocity.com/t/eppublic/3IQiG" target="_blank" rel="noopener" data-link-source="tiny">here</a>.

In a new Super-Sector Analysis, we look at five tectonic shifts remaking industry norms in Germany and the strategies that German companies are employing in response.

Five Tectonic Shifts for German Industrials and Autos

A new Super-Sector Analysis from a Citi Research team led by biotech analyst Yigal Nochomovitz offers an overview of antibody conjugates (ADC), which have become critical weapons in the war against cancer. ADCs combine the potency of chemotherapy with the precise cancer-targeting capabilities of monoclonal antibodies, resulting in a safer and more effective package. Sales of currently FDA-approved ADCs are seen growing to some $18 billion in the U.S. by 2030, up from around $5 billion in 2023.
That&rsquo;s impressive growth, but we think ADCs are still in their infancy. Technological advancements in ADC components are overcoming key limitations, allowing for further innovations, and big pharma companies are investing heavily through deal-making: in 2023 Pfizer acquired Seagen in a $43 billion deal, while Merck and Daiichi struck a $22 billion deal to collaborate.
An overview of ADCs
Introduced in the 1940s, chemotherapy offers a potent way to kill cancerous cells. But it&rsquo;s a very imprecise and toxic way to attack cancer, causing significant damage to noncancerous areas in the body. Monoclonal antibodies emerged in the 1980s as an advance in immunotherapy: the idea of using the body&rsquo;s immune system to attack cancer cells. Monoclonal antibodies are Y-shaped proteins that bind to cell surface markers primarily found on cancer cells and then can activate and guide the immune system straight to the cancer. The problem is that they don&rsquo;t offer direct, intrinsic cancer-killing capabilities.
Enter ADCs, which are monoclonal antibodies with very small amounts of highly potent chemotherapy chemically attached to them via a &ldquo;linker.&rdquo; (This attachment process is called &ldquo;conjugation,&rdquo; hence the name antibody drug conjugate.) Once locked onto a target protein, an ADC enters a cancer cell via a process called internalization. Its linker is then clipped by enzymes, freeing the cytotoxic payload and killing the cancer cell. The stability of the linker is a critical factor in ADC design: An unstable linker can release its payload prematurely, resulting in less drug reaching the tumor and more systemic toxicities.
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Target selection for ADCs is critical to avoid systemic toxicities. Another important consideration of target selection is internalization dynamics &mdash; higher ADC internalization rates mean larger amounts of cytotoxic payload delivered into tumor cells.
Typically, ADCs carry cytotoxic payloads too potent to be safely dosed systemically in their free form. These payloads are in the range of 100 to 1,000 times more potent than those used in small-molecule chemotherapies; a small amount of drug delivered directly to a target cell should be sufficient to induce cytotoxicity. In theory, ADCs can be far safer than chemotherapy and offer a wider &ldquo;therapeutic window&rdquo; in which dosages fall between ineffectiveness and excess toxicity.
ADCs&rsquo; potential
Since 2011, 11 ADCs have been approved and are currently on the market. Many approved and discontinued ADCs faced significant safety challenges, mainly due to limitations in the engineering of proteins, linkers, conjugation and chemo payloads. But all these technologies have improved dramatically in recent years, allowing for more stable ADCs and increased efficacy and safety. These improvements have advanced ADCs&rsquo; promise and accelerated research and investment interest from biotech and pharma. Eight of the 11 available ADCs were approved between 2018 and now, highlighting this acceleration.
A key commercial advantage of ADCs is their design complexity. They include multiple components, each with its own intellectual property, and so may be difficult for generic competitors to replicate. This could give ADCs long, uninterrupted commercial lives in comparison with easier-to-replicate oncology agents. Pfizer cited this dynamic as a key reason for the price it paid to acquire Seagen, and we expect ADCs to be a growing contributor to big pharma topline revenues.
R&amp;D efforts around ADCs remain very robust, with continued innovations. Hundreds of ADCs are now in development for oncology, and we believe continued innovation will be driven by substantial M&amp;A activity around them, as well as by collaborations and partnerships such as that between Merck and Daiichi. Other variations of ADCs are being rapidly commercialized and clinically developed, such as radiopharmaceuticals that use radioactive isotopes instead of cytotoxic payloads; immune-stimulating ADCs; and ADCs for use outside of cancer, such as treatment of autoimmune or infectious diseases.

Our new report, Citi&rsquo;s Global Healthcare Conference Innovation Series &ndash; Edition 1: Antibody Drug Conjugates, also includes a list of our favored ideas for investors seeking exposure to ADCs and an exploration of upcoming catalysts. It&rsquo;s available in full to existing Citi Research clients <a href="https://www.citivelocity.com/t/eppublic/3I6U7" target="_blank" rel="noopener" data-link-source="tiny">here</a>.

Citi’s Global Healthcare Conference Innovation Series

Antibody drug conjugates (ADCs) are becoming critical new weapons in the war against cancer. Ahead of December's Global Healthcare Conference, Citi Research kicks off a series of looks at healthcare innovations with an overview of ADCs, which combine the potency of chemotherapy with the precision of monoclonal antibodies in a single therapeutic package.

Antibody Drug Conjugates

Research through the lens of broader peer analysis that cuts across traditional industry lines.