Given the magnitude and pace of change in technology, the early identification of companies with exceptional growth potential is vital. We seek out innovative companies taking advantage of megatrends in technology. These include cloud computing, the Internet, and the penetration of technology into areas such as factory automation and robotics, the automotive industry, health sciences, and aerospace.
Regardless of the debate over whether the pace of acceleration will eventually slow, it is clearly sweeping across every sector at a rapid rate, upending entire industries. Not only is disruption separating winners from losers, but it is concentrating nearly all the rewards in the hands of the former – resulting in a ‘winner take all’ environment.
Cloud computing involves the outsourcing of technology infrastructure, meaning companies are closing data centres and outsourcing to service providers – including Amazon Web Services, Microsoft Azure Cloud Services, and Alibaba’s Alicloud. While these companies are benefiting from the shift, a number of hardware firms that have historically been involved in building enterprise data centres for clients are poorly positioned. The cloud is also disrupting the software industry, allowing providers to offer online access on a subscription basis rather than selling pre-packaged programs to be installed on a company’s servers.
A similar dividing line is present in firms’ use of the Internet. Falling broadband prices and higher connection speeds have enabled Internet-focused businesses to disrupt traditional companies in a way that was not possible when Internet access was slow or intermittent or costly. Amazon, for instance, has taken share away from brick-and-mortar retail concerns, while Priceline’s growth has come at the expense of traditional travel agencies. It is a story repeated frequently – and it is accelerating as the large Internet companies gain scale.
We believe electronic content will proliferate into vast new areas and applications – robotics, industrial, automotive, medical, factory, and home automation. Tesla, for example, is reinventing the automotive market.
Protecting company networks from intrusion or attack has become a high-priority spending area because security breaches are so detrimental. The industry changes rapidly, but we have invested in select security software companies that have durable positions and are on the leading edge protecting against cyberattacks.
Artificial intelligence (AI)
This is a relatively new theme enabled by the widespread availability of processing power. AI is making companies with already good products even better and smarter, giving those with the scale and technology savvy to invest in it a competitive advantage.
This industry will likely be the key driver of consumer technology in the next decade, in our view. Gaming is taking share of the entertainment and leisure dollar from TV, film, and other media. The growth of gaming has been further stimulated by the transition to online delivery, which is driving recurring revenues – through digitally licensed content – and higher margins.
Josh Spencer, Global Technology Equity Fund manager, T. Rowe Price