Digitalisation is a multi-decade investment theme – a megatrend ushering in the unparalleled adoption of digital products and services. The theme encompasses everything from social media and cloud-computing to machine learning and digital commerce. The coronavirus crisis, which is bringing firms’ digital capabilities to the fore, will accelerate these developments.
The cost of bandwidth, computing and storage has been falling for decades. As a result, the barriers to digital innovation have collapsed. With an array of digital tools and services at their disposal, entrepreneurs are embarking on a frenzy of creative destruction, challenging the old industrial economic order.
Technology investing is commonly perceived to be a one-horse race, with the FAANGs expected to dominate the world, but this could not be further from reality. The acronym stands for tech giants Facebook, Amazon, Apple, Netflix and Alphabet (formerly Google). Tech is an immensely varied and creative sector, with pockets of specialisation so extreme even the FAANGs struggle to compete. The current wave of historically unparalleled innovation is creating a broad range of investment opportunities.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Seeking the sweet spot
Instead of investing in the FAANGs of today, we are trying to find the FAANGs of tomorrow. While you could make a decent return investing in Google today, you are unlikely to enjoy the same growth as in the time before Google became a household name. Focusing on the winners of the past can also mean missing out on the winners of the future. We seek to capitalise on digitalisation by investing in smaller and medium-sized companies with compelling long-term growth prospects. Between high-risk stocks and the maturing FAANGs is a sweet spot where we can find established firms with great potential.
Tomorrow’s tech titans
The digitalisation theme comprises more than 300 potential investment opportunities. They can be found in several areas – not only in foundational sectors such as semiconductors, towers, data centres and computing hardware, but also in IT, operations, HR, data analytics, sales, supply-chain management and communications, as enterprise reinvents the way it does business. Lastly, there are companies using technology to completely redefine industries.
One company at the forefront of the digitalisation trend is cloud-computing group ServiceNow (NYSE: NOW), which provides work-flow automation services. ServiceNow’s offering enables massive cost savings for companies, in some cases allowing them to halve their workforce.
Another company likely to become a major tech player over the long term is Splunk (Nasdaq: SPLK), a data-analytics group producing software for extracting and analysing big data. Its products can be especially useful in the face of hacking threats, allowing companies instantly to detect warning signs across global networks of servers.
Zendesk (NYSE: ZEN) is another company that’s rapidly becoming ubiquitous. The customer software-service business creates chatbots for e-commerce websites. These are being widely adopted as consumers retreating from traditional in-store shopping increasingly seek a personalised experience.
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
-
What does Rachel Reeves’s plan for growth mean for UK investors?Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
-
How to find quality and profitability in financial companiesOpinion Julian Cane, manager of the CT UK Capital & Income Trust, picks three financial companies that drive cash flow, dividends and asset value
-
Luxury stocks rally after Richemont sales boom – is there hope for the sector?Cartier owner Richemont’s robust results have boosted sentiment about luxury stocks – but are investors getting carried away?
-
Transformed companies displaying momentum and top-quality growthAlex Savvides, manager of Jupiter UK Dynamic Equity Fund, highlights three companies as he tells us where he'd put his money
-
Should you add Straumann Holding to your portfolio?Straumann Holding is a global leader in the premium dental-care market
-
What’s the outlook for the shipping industry in 2025?All we know for certain about the year ahead is that it will be volatile. But the container shipping sector thrives on choppy waters
-
How to find top-quality companies with sustainable and growing dividendsIan Mortimer, portfolio manager of Guinness Global Equity Income Fund, shares where he would put his money for sustainable and growing dividends
-
Why Wise could be worth a lot more than its share price impliesForeign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
-
Can The Gym Group pump up your portfolio?Gym Group was one of the best UK small-cap stocks in 2024 and will beef up your profits this New Year
