Investors, Get Ready for the Data Decade

Artificial Intelligence, Internet of Things and Augmented Reality are about to reinvent how industries utilise data—and could drive an era of productivity growth.

Over the past 10 years, Mobile Internet has dramatically changed how we communicate, shop, learn and invest.

Now, as the decade of Mobile Internet reaches its apex, a new era is set to begin. A confluence of advanced semiconductor technologies, more pervasive and faster networks, and significant cloud-based data centre expansion are driving the next decade of computing: “The Data Era.”

Since the dawn of computing, each 10 year cycle has brought an even greater increase in access to computers.

Computing Growth Drivers Over Time, 1960-2030E

Katy Huberty, Morgan Stanley New York’s Head of Research for the Technology Hardware Industry, said that as the data-era begins, the focus will likely shift from consumer products back to enterprise-level innovations. “The Desktop and Mobile Internet brought 4 billion consumers online, which drove productivity in how we shop, socialise, and consume content. But, the focus on consumer-oriented technologies over the past two decades coincided with a period of IT underinvestment and declining productivity in enterprises. We now see enterprises reinvigorating their IT spending which will enable greater labour force productivity.

According to Huberty, these technologies could also save industries trillions of dollars in waste, as enterprises embed data technologies into existing business processes reducing inefficiencies, downtime, and human error.

At the heart of this new era are data-harnessing technologies that will change how businesses collect, analyse, and act on information.

“This is the first computing cycle in which multiple technologies are emerging at once¬,” said Huberty. “The Internet of Things connects and collects data from end points, Artificial Intelligence unlocks insights from the growing amount of stored data, Virtual or Augmented Reality allows insights to be viewed in a worker's natural environment, and Automation supplements human work with computers.”

The melding of these technologies could affect almost every sector of the economy and enable the development of new business models.

In health care problems like misdiagnosis or mistreatment could be prevented and the length of drug trials could be shortened. In transportation, self-driving car technology could potentially lead to a reduction in traffic congestion and car accidents. In financial services, data technologies can be applied to risk management, portfolio management and trade clearing, improving efficiency across these functions.

The Next Computing Cycle Could Boost Productivity Off Recent Lows
(U.S. Nonfarm Business Sector Output Per Hour, Y/Y)

For investors, this new Data Era opens up opportunities to generate alpha (the additional return generated by active management) since each new computing era often means a change in the leader board.

“Historically, semiconductor firms lead the way in a new cycle,” said Huberty. “With more computers in more devices, and as entire cities and organisations become more connected, the semiconductor industry will remain a dominant technology force.”

Infrastructure providers are usually next to benefit, in areas like networking, storage, servers and surveillance. Finally, value shifts to software and services providers. According to Brian Nowak, who covers U.S. internet companies for Morgan Stanley Research, internet companies are in a position to leverage the increasing pool of data in new ways. “We believe companies with the largest data sets (users, engagement, purchases, touch points) and the cloud providers are the best positioned internet companies to capture growth in the Data Era.”

Software services will also benefit as businesses take advantage of AI and machine learning to do tasks humans previously performed. “The incorporation of sensors, actuators and connectivity across the factory floor, into cars and into our homes has massively expanded the digital surface area in which software can optimise business and consumer processes,” said Keith Weiss, Equity Analyst covering U.S. software. “This drives the need for more software developers, better tools for developing software, and more efficient platforms to develop software.”

Finally, Morgan Stanley Research notes that IT budget, macro and stock market metrics are indicating that this new Data Era may have already begun and could not only benefit technology companies but the market as a whole. Adds Huberty, “As we enter this era, you can view these innovations from a broader market perspective. Technology advantages will likely permeate more and more sectors as the era develops. The winners will be the industry leaders who best leverage data across their entire value chain.”

For information on investment opportunities in the data technology sector, or to obtain a copy of the original research report, please contact your Morgan Stanley Financial Adviser.