NEW RULES
Other tailwinds swirling around Facebook and its social media peers are tighter regulation in the wake of the Cambridge scandal. As Andrew Hall, global equities fund manager at Invesco Perpetual, said in a note: “The recent Facebook experience might mean that regulation of social media becomes more prominent and the miss-use of personal data more heavily penalised. If we think back to the banking sector post financial crisis or tobacco companies in the late 90s, the market has tended to de-rate businesses when the regulatory outlook is uncertain.”
In a statement back in April, Kerstin Hessius, chief executive of AP3, one of five buffer funds in Sweden’s public pension system, concurred. “A risk that is becoming substantial is how companies handle their customer data and how data can be taken advantage of,” she said. “It’s the consequence of big data and personal integrity. You have to start thinking in terms of future restrictions on companies.”
While it is unclear how future regulation will pan out, the arrival of the European Union’s General Data Protection Regulation (GDPR) in May did not have much of an impact on the larger companies. Unlike their smaller brethren they were able to delve into their deeper and leverage cloud based delivery of services, internet of things, machine learning and social networks to develop company policies and sound adequate systems. To date, Alphabet’s Google, Microsoft and Amazon have confirmed that their Cloud, Azure and AWS services, respectively, are in compliance with the new rules.
While the social media giants tend to dominate the headlines, the sector is multi-layered mwith varying pockets of opportunities across the board. “There is some bifurcation with the leaders being more expensive, but there is still value to be found in the tail,” Vohora says. “The tech earnings momentum is broad-based, across hardware, software and semi-conductors –unlike the 1990s, when it was dominated by hardware.”
Paul Flood, lead manager of Newton’s multi-asset diversified return and multi-asset income funds, also sees semis and software as holding the most promise. Semis in particular have been hit by supply and demand imbalances as capital expenditure has not risen to meet the demand. This can be partly attributed to the breakdown of Moore’s Law, which states that that computer
power doubles every two years at the same cost. Coined by Intel co-founder Gordon Moore, the theory has propelled technology forward and imaginably powerful chips can be found placed in everything from home computers to autonomous cars and smart household devices.
However, over the past two years, there have been several academic papers published predicting that the end is nigh due to the seismic shift driven by changes in the underlying technology and product-end markets. The view of many is that if Moore’s Law was to continue through to 2050, engineers would have to build transistors from components that are smaller than a single matom of hydrogen.
The result is that “firms are less willing to build out the capacity,” Flood says. “In the past firms would spend half a billion dollars for a new semi line but today it would cost $10bn which is a different ballpark figure. This is causing prices to rise as supply is constrained and this is a positive for the industry.”
Robust semi demand is also expected to be fuelled by the rapid adoption of advanced information technologies including cloud, Internet of Things, autonomous cars, gaming, wearables, drones and artificial intelligence. They will also gain from being an integral component of other fast-growing tech industries including E-sports, a multiplayer video game for professional gamers, which needs thousands of semi-conductor chips for production, as well as crypto mining where they provide the processing power needed for decoding blockchain algorithms.
