The dawn of the Data Era megatrend
Morgan Stanley Research09/08/21
Summary: The data revolution in computing has accelerated the convergence of the next era of tech: internet of things, artificial intelligence, augmented reality, and automation. What’s the opportunity for investors?
There's a fundamental law of computing, called Moore's Law, that says computing capacity doubles approximately every two years. Coined in 1965 by Gordon Moore, it was originally an observation about emerging trends in chip manufacturing. Moore’s theory as applied to other technologies has proven correct, however—computing power improvements are maintaining this exponential trajectory.
The growth of computing power has allowed us to inject technology into a widening array of devices, bringing computer technology and data analysis to firms that don't typically operate in a purely digital realm. That's why Morgan Stanley Research analysts expect the number of computerized devices per user to increase 10-fold during the 2020s. This Data Era could draw more than $1.6 trillion in IT investment from US businesses, creating potential opportunities not just for the tech sector, but also those companies that effectively harness the power of data.
Source: Morgan Stanley Research
Morgan Stanley Research believes we are at an inflection point of this computing cycle—the Data Era—which centers around data technologies: internet of things, artificial intelligence, augmented reality, and automation:
- The internet of things (IoT) brings internet connectivity to everyday items, such as refrigerators and doorbells. It also connects and collects data from end points, including farm fields, factory floors, and hospitals, helping uncover inefficiencies in their supply chains.
- Artificial intelligence derives insights from the growing amount of data. It has a broad range of applications, including voice assistants, robotics, and driverless cars.
- Augmented reality mimics the real world and allows people to simulate an experience in its “natural” environment, whether it’s recreating a hospital emergency room or fixing a rig out at sea.
- Automation leverages streams of data so that computers can replace, supplement, or augment human work in call centers, cars, or on the factory or trading floor.
Indeed, the growth of these technologies has changed every aspect of our lives, from how we work and communicate, to how we hail taxis and even date. In fact, by 2025, the average ‘connected person’ will interact with connected devices 4,800 times per day, or once every 18 seconds, according to research firm IDC.
But it’s their convergence—when two technologies are used together and the adoption of one fuels the adoption of the other—that Morgan Stanley believes will fuel future growth opportunities. Data Era tech is beginning to proliferate into every sector of the economy, from manufacturing to industrials to banking, helping to build more efficient and productive companies.
The ubiquity of Data Era technologies will, in turn, unleash a tsunami of data. According to IDC forecasts, data production is expected to increase exponentially in the years ahead—the amount of data produced in the next five years will be 2.5 times larger than the amount of data created in the past 10 years.
Source: IDC, Morgan Stanley Research
Two of the fastest growing sources of data are IoT sensors—which detect data from smart devices—and productivity applications—business software, emails, documents, and collaboration data. The explosive growth of IoT and productivity-based data will, in turn, create a massive amount of data that businesses are positioned to capture, analyze, and capitalize.
Source: IDC, Morgan Stanley Research
Already, this influx of data has revolutionized different industries. Digital media and e-commerce have made it so advertisers can target consumers with surgical precision, increasing return on advertising spend. Streaming services, using data to inform their programming choices and user experience design, have now become some of the biggest names in the entertainment business. Traditional auto makers are facing driverless disruptors—vehicles smart enough to process traffic data and make driving decisions in real time.
For investors, the Data Era and the convergence of its technologies have important implications:
- The pace of mass adoption has accelerated. Over the last 120 years, the length of time between the birth of a new technology and mass consumer adoption has fallen by 85%. In short, advancement and adoption of these burgeoning technologies may happen faster than most expect.
- Disruption can separate the leaders from laggards. Rapidly converging technologies may create significant opportunities for early adopters—but they also heighten the risk of disruption for laggards.
- Opportunities exist outside of tech. While information technology companies, broadly speaking, offer the tools to collect and analyze data, it’s also important to consider what non-tech companies may be poised to harness those tools to drive growth and value. Non-tech companies making significant tech investments may be well positioned.
While the world is awash in data and trying to make sense of it all, investors should ultimately remember that any decisions should reflect individual goals, timelines, and risk tolerance.
The sources of this article (including all statistics), Data Era Spend - Generating Alpha and Productivity, and Data Era Investment and the ‘Second Machine Age,’ were originally published on July 22, 2021, and July 8, 2018, respectively.
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