- Corporations have started to allocate more funds for big data tools to potentially save costs or generate revenues from new sources.
- Digital data can offer a solid long-term investment opportunity.
- There are two broad ways to participate in the digital data wave.
The boom in digital data provides solid long-term growth opportunities, in our view. This is how investors can participate in the data wave.
The prices of technology devices including smartphones, tablets and PCs have been falling rapidly, significantly increasing their affordability in emerging markets. The end result is a sharp rise in per capita connected devices. The average number of devices in 2014 stood at 1.95 globally versus an expected 3.2 in 2020, according to Cisco. While the growth is broad-based, the improvement in the emerging markets of Asia Pacific and Latin America has been particularly solid. The Internet of Things (IoT) remains another growth driver.
On the enterprise side, big data analytics tools are widely used by retailers like Walmart and e-commerce companies like Amazon and eBay to generate more business. Other corporations have started to allocate more funds for big data tools to potentially save costs or generate revenues from new sources.
Examples of how big data analytics help online retailers include providing product recommendations based on what other customers with similar profiles have bought and instant coupons to effect the purchase. According to IDC and Bloomberg Intelligence, banking, retail and professional services are some of the fastest-growing spenders on big data analytics.
How can investors participate in this data wave?
We see digital data as offering a solid long-term investment opportunity and identify two broad ways to participate.
The first group to benefit from the digital data wave is the data enablers, or companies that promote the creation and growth of data, including internet, enterprise-application and smart-device companies.
The next group is the data infrastructure providers, which mainly includes companies that store, carry and analyze data. They often belong to broader sector groups like semiconductors, networking, hardware, software and services. There are also opportunities in digital marketing. The saturation of smartphones and the increased usage of technology to analyze large untapped pools of data provide a strong tailwind for further growth.
Companies exposed to both enabler and infrastructure segments should continue to witness solid earnings increases. Digital data companies are expected to post low-double-digit earnings growth in the coming years, driven by high-single-digit revenue growth and margin expansion on a better software mix and greater scale. Investors will be best positioned to benefit by investing in a diversified way in the theme of digital data companies, with a focus on software, platform and semiconductor companies, all of which are expected to enjoy superior pricing power.