Our recent trip to Silicon Valley showed us clearly that companies in the US are increasingly working on their digital strategies. What was thought of a year ago as “important” but not the top priority, has suddenly become topic number one in every industry. Which services can be offloaded to the cloud, how data can be used to offer better products, or even whether the entire business model must be adapted, are becoming the key questions for top management. Technology is a strategic weapon again, and we expect next generation toolmakers to profit disproportionately from this powerful trend over the coming years.
Indeed, what we think could be the biggest trend of 2015, the data harvesting opportunity, is something which only now, with the latest technology, can be addressed efficiently. This development is being treated as a “gold rush” in data; companies can now profile customers and offer superior customised solutions – often in real time.
We see there are two ingredients of the success of this revolution. Firstly, the Cloud allows people to access data in a distributed way, in multiple locations. Secondly, there is now new software to exploit the data. The open source framework Hadoop – funnily named after the name of the toy elephant of the founder’s son – is used to store and process large data sets. It’s specific attractiveness lies in the fact that it is done on low-cost commodity hardware and can address also unstructured data (such as emails).
Clearly, the incumbents selling higher end hardware are on alert as their business models may become threatened. Hadoop was originally developed by Yahoo, not a hardware vendor, and Google worked on significant improvements. Whereas before crunching big data was expensive and could only be run in-house using limited supercomputing resources, now the capacity to do these massive calculations can be outsourced, shared and rented at will.
We now see companies from all type of sectors, from retailers to banks, trying to figure out how to position themselves in this new world. If one thing is becoming clear, it’s that technology is being used as one of the keys tool for repositioning, since the new infrastructure allows new business models (think Uber, AirBnB) or can lead to massive increases in productivity (think Kiva robots at Amazon). Yes, the Nasdaq has hit all-time highs again, but we see this is real business and not a dream as was the case with the 2000 bubble.
QUARTERLY OUTLOOK
We have seen last year’s big trade – buying PC-related names – start to reverse in the first weeks of 2015, as PC sales weaken again. Apple shares on the other hand, have shot up on the back of the success in its core product, the iPhone 6. But most importantly, we have seen encouraging signs in the newer technology names, which are generally reporting very healthy numbers, in contrast to many incumbents.
We see technology increasingly as a strategic weapon and with IT spending beginning to tick up, we feel that the outlook for the Fund is potentially (or potentially becoming brighter) bright for the coming years.
