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.
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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.
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