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.
-
Half of UK homeowners will need to tap housing wealth to pay for retirementUnlocking property wealth could inject £21 billion each year into UK economy by 2040, according to new research
-
When will M&S take online orders again?Shoppers have not been able to place orders on the M&S website for more than two weeks, following a cyberattack. Meanwhile, the retailer’s share price has plummeted by 15%. When will things get back to normal?
-
Who will be the next Warren Buffett?Opinion There won’t be another Warren Buffett. Times have changed, and the opportunities are no longer there, says Matthew Lynn.
-
Will Comstock crash – or soar?Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
-
'As AGMs go digital, firms must offer a new form of scrutiny for shareholders'Opinion Technology has rendered big AGM meet-ups obsolete, but the board still needs to be held to account, says Matthew Lynn
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
'Technology will determine tomorrow’s top stocks in emerging markets'Opinion John Citron, investment manager of the JPMorgan Emerging Markets Investment Trust, tells us where he’d put his money
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Three British mid-caps that could make 'attractive' investmentsOpinion Charles Luke, manager of the Murray Income Trust, highlights three UK-listed mid-cap companies, as he tells us where he'd put his money
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
