At GAM Investments’ Weekly Investment Meeting held on 20 March 2019 the speaker was Mark Hawtin, who provided a fascinating insight into the latest developments in the technology arena.
Some of the ongoing opportunities we continue to focus on in the technology space are in disruptive growth, areas such as cloud adoption, software as a service (SaaS) and social networking. We believe these are structurally more attractive than traditional deep technology sectors such as semiconductors and hardware that tend to be more cyclical.
There are many companies which are disrupting multiple industries, and we are particularly interested in how that disruption creates a polarisation between the winners and losers. Over a five-year timeframe in cloud infrastructure, for example, companies such as Amazon and Microsoft have been the big winners versus the more traditional providers of IT infrastructure like Dell, Juniper or IBM. We have observed similar trends in advertising, where Google and Facebook have been the winners and most traditional advertisers have paled by comparison. While there is typically a “network winner takes the most” scenario, within many sectors you can find losers not only in incumbent companies, but also in some of the smaller, less able internet companies.
One of the themes we are looking at going forward is Transport as a Service (TaaS). We have seen passenger and car sharing companies such as Uber and Lyft take market share, albeit Lyft does not look like it will be profitable any time soon. It is possible to be disruptive and also earn money. While there are no pure TaaS companies in the market just yet, there are some which are supplying the sector, such as Infineon in Germany and Monolithic Power in the US, which we believe stand to benefit. Car companies, meanwhile, are the natural losers in our view. This continues to demonstrate that disruption causes major shifts in market share that is then reflected in share price performance.
Research has been carried out from a macro perspective on the likely size of this opportunity in TaaS. There are some estimates that by 2030 the market could be as much as 90% TaaS penetrated; most of us will likely be using ride sharing facilities rather than owning a vehicle. Not only will there be a shift from car ownership, which is extremely uneconomical, but there will be far better utilisation of vehicles and an increase in the number of passenger miles actually driven from 4 trillion in 2015 to 6 trillion in 2020. The cost of delivering those miles will also decline significantly because cars will be used a lot more intensively. That should drive a decline in the size of the US vehicle fleet from 247 million cars in 2020 to 44 million in 2030, an 80% reduction.
Technology adoption is happening at a faster rate than ever before, and we believe all the parts of TaaS together could represent a USD 8 trillion opportunity. That equates to around 10% of total global GDP. This could therefore be the biggest disruptive change we have seen to date, bigger even than social networking or smartphones.
Within existing themes we invest in we see plenty of further opportunities in the adoption of cloud infrastructure and software as a service (SaaS), as well as the disruption of retail and advertising. Retail in particular is fascinating; it is no longer sufficient to purely be an online retailer. Five years ago companies were commanding a huge premium as fast growing, online retail brands. Now, online is just another route to market – it is essential to have an omnichannel presence, which is why we have seen companies such as Amazon buying Wholefoods. The combination of all the different channels to market makes a huge difference and we believe there is no reason to pay a significant premium for a pure online retailer, hence why companies like Asos, which do not have an omnichannel strategy, have struggled recently.
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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator of current or future trends. The companies listed above were selected by the author to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the author.