We’ve been lucky in Australia. Until recently, the huge resources boom delivered a decade worth of great investment returns. That’s over now so what do we think is the next mega investment trend that is just starting?
Our money is on the big data boom.
The following information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.
Big data is the use of computing power to analyse huge amounts of data to reveal useful patterns and trends. Believe us, it is much more interesting and potentially profitable than it sounds. Here are the 3 reasons why we believe the fast growing big data boom is an investment trend you should start getting some exposure to.
1. Exponential increase in data
Life has changed dramatically in the past few years. Nearly every activity we engage in on a daily basis results in data being recorded or generated e.g. social media, travel using GPS, instant messaging, online shopping, exercising with an activity tracker (e.g. Fitbit) etc. This is causing a data explosion unprecedented in human history. In fact, IBM estimates 90% of all data in existence in the world right now was generated in the last 2 years and every day we generate enough data to fill 39 million 64 GB iPhones.
Of course, the pace of data generation is only set to increase. What is the impact of all this data being generated?
Any data generated has to be stored somewhere such as on the cloud (ironically the cloud actually lives on the ground in huge data centres), transmitted when needed and analysed for trends to create better products and services. The more data that is generated, the greater the need for companies that provide these services. Industry expert IDC estimates total global data stored will be 44 trillion gigabytes by 2020 (a 10 times increase from 2013). That is a huge amount of data for storing, transmitting and analysing!
2. Real life benefits from big data have started
Getting better products or services from companies as a result of big data is real. A number of smart companies have already been using big data analysis to gain an advantage over competitors. For example:
- Some large retail stores (particularly in the US and Europe) use big data to extensively profile millions of customer transactions. This enables them to better control inventory levels and also provide a more personalised service to customers e.g. targeted coupons and offers.
- Activity tracker companies like Fitbit collect a treasure chest of health data from millions of customers. Not only is this data used to improve future products but health professionals are now realising there are immense benefits studying the broad trends from the data generated by millions of Fitbit users.
- Financial services companies are also natural users of big data. For example, some companies use it to better predict the risk of a borrower defaulting on a loan and some investment companies use big data to help find attractive investment opportunities.
The arms race of using big data to gain an edge on competitors has started. The companies that best embrace big data to improve operations and/or deliver better products are setting themselves up to be the financial winners in their industry.
3. Big data software is becoming highly sophisticated
Big data technology isn’t about putting lots of data into a table and labelling everything with a heading. It has become much more sophisticated with the ability of some big data systems to understand natural language.
The posterchild for the big data revolution is IBM’s Watson system. A few years ago Watson won a Jeopardy game show against two formidable human contestants. It was an amazing effort given Watson wasn’t connected to the internet during the show. It had simply been fed terabytes of natural language data beforehand (including the entire contents of Wikipedia).
Watson was then able to answer the natural language questions posed by Jeopardy’s host using its bank of processed knowledge. If you’ve watched Jeopardy before, you’ll know that the questions are not typically ones you would expect a computer to understand or answer. Here is a YouTube link to Watson’s performance on Jeopardy (click here).
Imagine what big data analysis software like Watson could do for data heavy industries? For example, we know that Woodside has fed 30 years of its internal engineering data into Watson. This is helping Woodside engineers reduce the time from weeks to days required to perform some engineering tasks.
What types of listed companies will be the winners from the big data revolution?
We believe the following 4 categories of listed companies will be the big winners:
- Software companies developing smart big data analysis software in particular those that can cleverly analyse unstructured and natural language data such as reports written by people.
- Companies that use big data analysis software to improve operational performance or to provide better products or services for customers.
- Companies that provide the physical infrastructure necessary for data to be stored and transmitted e.g. data centres
- Companies that provide online data security given the data stored on the cloud is at times at risk of being hacked.
For a detailed list and reports on the large listed companies we believe are currently benefitting from the big data boom, join our investment community for free.