He believes that the economy could enjoy 5% annual productivity growth for a decade if we let technology transform major industries that to date have not experienced much productivity growth. Dr. Joe Kennedy is senior fellow at the Information Technology Innovation Foundation, the top science and technology think tank. He addresses six myths behind calls for increased regulation of large tech companies and suggests four actions government can take to bolster innovation.
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The number of IoT endpoints--defined as connected sensors, nodes, or devices generating data—is expected to double to 13.8bn by 2024. In turn, data generation is expected to triple to 11mn petabytes. The industrial segment, consisting of manufacturing, construction, and mining, currently accounts for 56% of all enterprise data generation. That figure is projected to fall to 33% in 2024 as IoT hardware penetrates energy and utilities, smart buildings, and commercial transportation.
Wolfe Research Tech Strategist, Steve Milunovich, hosted a webcast with Joe Kennedy, Senior Fellow, Information Technology and Innovation Foundation. ITIF is a leading think tank for science and technology policy. For almost three decades, Kennedy has provided legal and economic advice to senior officials in the public and private sector. Much of this advice has been directed at public policies involving technology, competitiveness, and the social contract. In this webcast, Kennedy touches on a number of topics, including digital services taxes, ride-sharing platforms, R&D tax credits, and environmental innovation.
IoT has seemed like more bluster than reality, but a 451 survey finds that 43% of respondents have IoT in use and another 40% are in proof of concept or plan to implement in the next year. The most popular uses are for data center monitoring/automation, surveillance and security, and mobile device tracking. Impediments to deploying IoT include security, lack of internal skills, and limited ROI benefits. Important business indicators are ROI and customer satisfaction.
We recently highlighted stocks gaining or losing momentum among the top 20 market caps in each of our five tech sectors. We plotted price performance for 3 vs 12 months. Names with better 3- than 12-month results are considered gaining momentum and vice versa. There has been investor interest in the results for the next 20 companies by sector, which we present.
We have touted how platforms are the greatest business model created. However, not all platforms are successful. Professor Andrei Hagiu of Boston University told us he sees dozens of start-ups that don’t make it, largely due to the chicken and egg problem of attracting the two sides of a multi-sided platform. Often subsidization of one side is required. Once that is solved, governance can be tricky—who gets the economics, how to create platform stickiness, and what responsibility the platform takes when user experience goes wrong (Care.com).
Tech M&A spending was off to a strong start in 2019 but has waned in recent quarters due to decelerating economic growth and global uncertainty. Third quarter spending was the lowest in two years at down 41% YoY, pushing the 2019 annual estimate lower by 20% to $470bn. Broadcom’s $10.7bn purchase of Symantec’s enterprise security business was the largest deal. The main slowdown is in private equity acquisitions. PE firms have consistently increased their tech M&A activity over the last five years, now accounting for 1 of every 3 announced deals. With stocks flattish, bond yields depressed, and potential signs of recession, their appetite for large private tech M&A has diminished.
We provide (1) takeaways from recent TechBrains Interviews on regulation, platforms, AI, and branding, and (2) discuss the setup into earnings in tech demand, sector valuation, and stock momentum.
We review demand, sector earnings and valuation, and individual stock performance. Investor expectations for 3Q earnings are quite low, which could result in a good response from stocks. However, 2020 consensus numbers may prove optimistic, causing trouble down the road. Relative Software valuation is declining while still expensive in the absolute, and Semis and Services are at five-year relative P/E highs. We identify stocks showing positive or deteriorating price momentum.
Friday’s rally (10/11/19) put tech in the black. The Wolfe Tech Universe rose 1.0% the past week, outperforming the S&P 500’s 0.6% gain. Software (+1.3%) led for the second consecutive week. Software has been the best sector over 12 but worst over 3 months while Semis are the near-term outlier (Exhibit 1). Top performers this week included Roku (+14%), SAP (+9%), Ericsson (+8%), Temenos (+7%), and STMicro (+7%). Laggards were Yandex (-15%), Nanya Tech (-10%), Monolithic Power (-10%), Zoom (-7%), and CrowdStrike (-6%).
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