Each week, a professional investor tells us where he’d put his money. This week: Walter Price of the Allianz Technology Trust.
Technology is disruptive. It can render old industries obsolete, and bring new industries into existence. This has frequent – and sometimes controversial – consequences for the labour market, but historically, where one industry has faded, another has often emerged to take its place. The car replaces the horse, which is bad news for those involved in the care of horses, but good news for nascent industries such as motels, road-side restaurants, petrol stations.
However, it is not clear whether this will keep happening. Can the disruption wrought by Amazon on the high street, for example, be remedied by new jobs in logistics and distribution? Even though ecommerce only makes up around 10% of retail sales, it has had a profound impact on shopping malls in smaller towns across America. A similar picture is seen in other developed economies.
There are two topical examples that showcase the disruption that technology continues to cause, and perhaps offer some insight into where potential value could lie for investors. The first is the impact of autonomous driving. Many car manufacturers still haven’t appreciated the long-term strength of this trend. These firms do not recognise the extent to which driverless and driver-assisted cars give a better driving experience: they are less stressful to use, there is better connectivity and they can navigate to where you want to go with ease.
This would be enough to disrupt the industry, but there is a longer-term vision for the future of cars. Tesla (Nasdaq: TSLA) founder Elon Musk believes that cars will become income-producing assets for their owners. When the car-owner goes to work, and doesn’t need their car, the car will also go to work – driving people around the city. People may pick up their neighbour’s car, for example, in exchange for a fee. In this way, cars become an investment. Of course, if too many people own self-driving cars, the price will go down and it will equal out. However, if this new model were to become reality, it would turn the car industry on its head. The industry would no longer sell 100 million cars a year. Overall sales will be far lower.
The second example is in semiconductors. Historically, software from tech giants such as Amazon (Nasdaq: AMZN) or Microsoft (Nasdaq: MSFT) would run on hardware from third-party chip makers. However, some of the chip makers are not reducing costs or increasing processing speeds as fast as the technology behemoths would like. So major technology groups are looking at whether they can do it better themselves, usually by buying a chip manufacturer. Google has begun designing its own chips to good effect, cutting the cost of its computing. Amazon is hoping to achieve the same result in less time. Some existing semiconductor companies will now have to add value and to recognise that they are not going to get monopoly margins.