The writer is a senior portfolio manager at Tudor Investment Corporation
The modern world is defined by data use, a superpower that is creating new entrepreneurial opportunities and disrupting business. At a time of historically high valuations, investors need to ask themselves which companies will be disrupted by the data tide next — and when.
2020 proved to be a year of inflection for digital businesses. Trends such as remote working spurred growth that is likely to persist as the economy reopens. The use of data enabled companies to use their digital “store fronts” to offer their products to the right customers at the right time, and at the right price.
The success of today’s internet giants offers a glimpse into this disruption. The ‘FANG’ companies — Facebook, Amazon, Netflix, Google — created more than $4tn in market cap over the past 20 years. The next big opportunity will be the ‘fang-isation’ of everything else.
Companies with a digital and data-first foundation will challenge incumbents in healthcare, industry and transportation. In the technology sector, data infrastructure software will emerge as a pre-eminent category.
Application software will become industry specific, disrupting existing vendors. Unit demand for chips that store, transmit and analyse data will grow exponentially, and the semiconductor industry will gain an increasing share of the economy.
The scale of future growth in the use of data, spurred by wireless connectivity, is immense. One way to broadly estimate it is to look at the growth of sensors measuring and collecting data in industrial equipment, vehicles and other internet-connected devices.
Based on this approach, our research indicates data collection is likely to grow by more than 100 times over the next 10 years. Annual data creation is on track to reach what is known as one yottabyte before the end of this decade. One yottabyte is equivalent to 1tn terabytes of data (with each terabyte equivalent to about 85m pages of data).
Furthermore, these projections only include observable human and machine data, and are thus a conservative blueprint. They do not take into account data generated by computers through simulations or derivatives of other information. We are clearly heading for the Yotta age.
A new generation of digitally native businesses has now begun to use the FANG playbook. One example is Lemonade, an insurance company founded in 2015, which has used its data insights from homeowners and selling rental insurance to optimise insurance premia and risk, as well as diversify into pet and life insurance.
Data will also disrupt the tech industry itself, including software. Most software-as-a-service offerings are a means to organise information, rather than optimise it. Marketing software is being reimagined by companies like Appier. Rather than just summarising customer data, their software has an open data architecture which includes all uniquely relevant data to boost customer conversion and upsells.
Industry focused software will become more important by taking advantage of specific data across all workflows. For example, in construction, Procore uses its data repository to help customers improve material selection and workforce deployment through real-time information. In life sciences, Benchling has created a cloud-based research and development platform for researchers to design and run experiments, as well as share and analyse data collaboratively.
As companies capture, store and analyse data, data infrastructure software will emerge as the largest software category. Data warehousing vendors like Snowflake and Databricks, as well as real-time data platforms like Confluent, will see increased demand for their solutions.
Importantly, this all provides a huge tailwind for the semiconductor industry, which produces the necessary hardware to handle data. The more data that needs to be processed, the higher the demand for semiconductor components. This will make semis increasingly important to economic growth and of higher strategic geopolitical significance.
In turn, the increased data use will require increased governance and stewardship services, including support to ensure compliance with security and privacy laws.
While awareness of the importance of data usage has been rising, it is still under-recognised compared with the likely impact. Increasingly, investors must evaluate companies through a prism of their data assets and how they use them. They need to prepare for the Yotta age.
Tudor might hold interests in some of the companies mentioned