6 July 2017

Benefiting from today’s technology megatrends

Back in 2007, in our good old ReadWriteWeb days, I wrote an article on Amazon’s then-nascent cloud initiative entitled Why Amazon’s HaaS (Hardware as a Service) Strategy is a Winner. I was comparing Amazon’s then potential success to Google’s advertising business. In a nutshell, the point was that if Google had gained so much value by monetizing the revenue side of the internet, then Amazon had an equally significant chance at success by monetizing the costs side (represented by the graphic below).

Since then, Amazon’s stock price has appreciated more than 2000% in less than a decade. Paying $50K+/month for AWS with my company’s infrastructure needs, and reading Alex Iskold’s eye-opening articles on RWW, you had to be blind not to see the opportunity. Anyone who invested $50K in $AMZN that day would’ve ended up with $1MM today. Not a bad profit, given the near-zero interest rates that we see today.

Amazon is an exceptional company, led by a phenomenal visionary Jeff Bezos. And with its $13.4B Whole Foods bet, it is not displaying a single sign of slowing down. But it isn’t the only one. Times have changed, and today there are new megatrends that are changing our world; namely AI, AR/VR, and blockchain. Let’s take a look at public companies that will be reaping the benefits of these changes.

Infrastructure

Once called graphical-processing-units for their amazing graphics capabilities with video games, GPUs today empower a wide range of technologies, including the flaming hot AI, AR and blockchain. On the other hand, a newcomer, Google, is also known for its TPUs that are set to challenge the GPU technology. But as Nvidia CEO Jensen Huang put it in his latest earnings call, TPUs are only good at inferencing because of their ASIC based design, and the bulk side of AI processes, in regards to learning and training, will still take place with GPUs. Also, as Greg Diamos from Baidu Silicon Valley AI Lab puts it, our existing AI algorithms are nowhere to exploit full capabilities of Nvidia GPUs yet.

Today priced at $140, Citi set Nvidia price forecast at $300. We will see how it will play out.

As for Intel, their divestiture of McAfee and acquisitions of Nervana and Mobileye were aimed at giving investors a signal that they exist in AI, but they’ve been mostly left in the dust by ARM Holdings eating their lunch in Intel’s core line of business, CPU.

Content

The impact of VR and AR on the content world will be tectonic. Movies, games will become even more immersive. And with fewer jobs in mundane tasks, more self-driving cars, there will be more free time and more demand for content/entertainment consumption. The primary beneficiaries will be the companies that dominate the world of addictive content. One company that owns such majestic brands is Disney, with its library of Marvel Comics, Star Wars, Pixar and more.

There was a rumor that Apple would shell out $237B to buy Disney which jumped Disney’s share price to $120, but it never materialized. On the other hand, Warner Bros’ (part of Time Warner) list of digital assets includes Batman, Matrix, Harry Potter.

Similar to content, gaming companies will benefit from our increasing spare times. Gaming companies will surely be a winner, hence the latest steady price increases of Electronic Arts, Take-Two Entertainment, and Blizzard.

Online Platforms

Google, Facebook, Baidu, Yandex, Netflix are directly benefiting (and contributing to) the changes in AI for a good reason; all their customer data/behavior are digital and ready to feed neural networks from day one. Hence, it’s the easiest for them to harness that data and customize their services for even more personalized and compelling offerings.

Enterprise Software

Not only bigtech and content companies are the beneficiaries of these new megatrends, but over time, as their success stories make it to the cover of business magazines, we will see more and more old-school enterprises adopting AI, blockchain, and VR with their core businesses as well. When that time comes, they will go to their existing software partners whom they’ve been trusting and doing business with for decades. Hence enterprise software behemoths which get these new technologies, like IBM and Microsoft, may earn a new flow of income from such companies.

Investors

The Japanese SoftBank is building one of most interesting investment plays ever, with its Vision Fund, where it takes a balanced approach with a mix of venture capital and infrastructure investments that share the same core thesis of a new world enriched with IoT (internet-of-things), AI, robotics, biotech and fintech innovations.

SoftBank funds and investments are:

(a) The $32B acquisition of British ARM Holdings.

(b) The $4B stake at Nvidia

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