Investors may have a better grasp of tech stocks, and particularly of the so-called GAFA companies – Google, Amazon, Facebook and Apple. But it is easier to find investment opportunities in other segments, writes Jacques-Aurélien Marcireau on finews.first.
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Artificial intelligence, connected objects, machine learning and algorithms are all front page news today. And they have one thing in common: big data. This describes the massive increase in IT data volume in recent years. However, incessant data flows mean nothing unless they can be analyzed and used.
The big data sector is the 21st century’s new black gold for all sectors, even the most traditional. There is more to big data than GAFA stocks (GAFA means Google, Amazon, Facebook and Apple).
Yet, the data mass is worthless if it cannot be analyzed, a situation that prevailed only a few years ago. Today, any company which knows how to harness these data can achieve competitive edge from using a broader range of parameters to make better decisions, lift current performance via cost optimization/reduction and productivity gains and create new, better-targeted products. Investing in big data is now essential for companies which want to protect and grow their businesses and revolutionize their development models.
«The data explosion represents an unprecedented opportunity for innovation»
The first to take the plunge into the sea of data were, unsurprisingly, tech companies. Leading groups like IBM, Cisco and Microsoft have for several years been massively investing in data centers and dedicated IT analysis solutions. They then started to offer new solutions to huge sections of the economy. But over and above the tech sector, data processing has also had an impact on more traditional sectors like banking and insurance, industrial maintenance, energy efficiency, autos and healthcare.
The data explosion also represents an unprecedented opportunity for innovation in healthcare by identifying disease risk factors, providing assistance in diagnosing, choosing treatments and monitoring their efficiency, and helping areas like pharmacovigilance and epidemiology, etc. Thanks to big data, a so-called «4 P» or predictive, preventative, personalized and participative approach to healthcare is emerging.
«the arrival of big data has completely transformed the automotive sector»
Sensors have long been present in our cars, helping, for example, to measure tyre pressure and oil and petrol levels. But the arrival of big data has completely transformed the sector, making driving safer, more responsible and more ecological. Today’s new cars leave the factory equipped with, on average, 100 sensors, including radars, high-resolution cameras and optical and thermal sensors.
They now offer applications to help driving like trajectory control, ready-alert brakes, gear changing to help reduce petrol consumption and fatigue detection solutions to encourage drivers to take a rest.
«The insurance sector is also being radically transformed by big data»
An auto industry forerunner like Munich-based BMW Group is looking to get the most out of the data revolution by building a digital ecosystem to improve the customer experience. The firm has put innovation at the heart of its growth strategy for more than 100 years.
The insurance sector is also being radically transformed by big data. Insurance groups want to harness digital transformation to offer clients new services which are more suited to their needs. One example is car insurance with premiums based on the insured party’s driving record and mileage. Data are collected through all sorts of connected instruments, helping companies to offer home insurance based on customer habits.
Economic agents are today in the middle of a deep and inevitable transformation that nobody can ignore. Some firms will prove better than others in benefiting from the data revolution. This makes big data an investment theme in its own right, one capable of creating very strong value. Tapping into this successfully means picking the companies which will be impacted directly or those with the skills to transform their business model.
«The objective is to identify suppliers which will benefit from these opportunities»
Investors have a better grasp of tech stocks, and particularly GAFA companies and so naturally they have invested massively in them. But we think it is easier to find investment opportunities in other segments like infrastructure providers, who enable access to these data, and data users, non-tech companies which exploit data to achieve a strategic advantage. Their average valuations are still more reasonable.
We believe the right approach is to adopt a pragmatic and selective view when valuing these companies and assessing the products and solutions they offer. The objective is to identify suppliers or users which will benefit from these opportunities. Our stock picking skills are our main source of added value.
Jacques-Aurélien Marcireau is co-head of international equities and lead manager of the Edmond de Rothschild Big Data Fund. He joined the international equity management team at Edmond de Rothschild Asset Management in March 2009. Marcireau studied at Institut d'Etudes Politiques de Lille and took a Master in Economics and Financial Analysis at University of Lille. He is a Chartered Financial Analyst (CFA).
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