Tech stocks are everywhere nowadays. However, for many investors, the mere mention still conjures painful memories of the dot com crash. Recent eye watering transactions for the likes of WhatsApp and the hype around certain IPOs have drawn parallels with the heady days of the late 1990s.
Should past experience be heeded or is there more to tech today than meets the eye?
The answer is probably yes and yes.
Paying top dollar for an unproven and unprofitable business always carries risk. You’d have to be pretty confident of ‘monetising’ and leveraging the ‘network effect’. Nevertheless, each deal and company should be taken on merit – not all deals should be tarred with the pets.com brush.
Tech has come a long way since the dot com era. In fact, a quiet revolution has been gathering pace in the years since the crash.
Analog to digital
A shift is occurring where we are transitioning from the analog to the digital world. Physical assets are becoming ‘digitised’ and capable of transmitting more and more data.
Connectivity is creating the ‘internet of things’ and with the potential for up to 50 billion ‘things’ to get connected by 2020, big data will get a whole lot bigger. This information can be utilised for a multitude of benefits including improved efficiency and decision making, risk control, and better asset utilisation. Business models will need to adapt to these new systems.
The digital disruption is not just about reading the news and shopping online.
Information in systems
The ability to outsource capital-intensive activities and focus on information content is a competitive advantage for industries that can benefit from the shift to digital technology.
For instance, more efficient pharmaceutical research and development based on genomics, or digitising healthcare, could produce very large benefits to relevant companies.
In a broad sense, the ability to collect and analyse more data has huge promise across the global economy. Systems that deliver productivity gains and better capital allocation should reinforce market share and be a driver of returns. Those companies more reliant on traditional models may struggle to compete.
Checklist for technology change
Source: Lazard Asset Management |
Patrick Noble is a Senior Investment Strategist at Zurich Financial Services and regular investment market commentator with over 15 years experience in financial services. Patrick is responsible for Zurich’s diversified funds including manager selection, asset allocation and chairing the funds’ Tactical Asset Allocation Committee.
