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.
-
Should you invest in UK equities?The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
-
State pension errors: DWP urged to check for mistakes among divorced peopleFormer pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
-
AstraZeneca CEO’s £1.8mn pay rise approved despite shareholder oppositionAstraZeneca hiked its dividend to persuade shareholders to accept CEO Pascal Soriot’s pay rise. Is he worth his salary?
-
Adidas, Nike or Jordans - could collectable trainers make you rich?The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
-
The industry at the heart of global technologyThe semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
-
Three emerging Asian markets to invest inProfessional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
-
What to consider before investing in small-cap indexesSmall-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
-
Why space investments are the way to go for investorsSpace investments will change our world beyond recognition, UK investors should take note
-
Time to tap into Africa’s mobile money boomFavourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
-
M&S is back in fashion: but how long can this success last?M&S has exceeded expectations in the past few years, but can it keep up the momentum?
