Today’s Exponential Investor is a guest piece from expert trader Eoin Treacy. I think you’ll enjoy it – Harry.
The story begins in 1959 when people were beginning to think about what the future of the semiconductor sector might look like.
For the 35th anniversary of Electronics magazine Gordon Moore was asked to predict how the semiconductor components sector was going to evolve over the following decade. He made his famous call that he it was reasonable to expect that 65,000 transistors might be fit onto a quarter inch semiconductor by 1975 because at the time the rate of innovation was doubling every year.
Today the figure is more than 20,000,000,000. That’s about as good an example as one might wish for of exponential compounding.
That impressive rate of compounding in the semiconductor sector became known as Moore’s Law. Between 1975 and 2016 it was a benchmark against which the semiconductor sector measured themselves.
Up until 2016 the Semiconductor Industry Associations of the USA, Europe, Japan, south Korea and Taiwan produced the International Technology Roadmap for Semiconductors. It was literally an index of what they predicted based on the doubling of transistors on the chip every 18 months or so. However, in 2016 they abandoned the document because Moore’s Law has ended. The challenges of creating chips at a nanoscale mean it is now impossible to predict with the same degree of accuracy how the sector will evolve.
It’s almost impossible to quantify just how important Moore’s Law is to how we live our lives. There is one part of our lives we take completely for granted which before Moore’s Law was discovered represented a pipe dream. Personal computing.
I’m sure you’ve heard of people at IBM predicting that the world might never need more than a handful of computers and being spectacularly wrong.
If the last fifty years can be characterised by anything it is by the growth of personal computing.
Every one of us has gone from needing to have a calculator, watch, record player, encyclopaedia, books, newspapers, a camera, scanner, GPS devices, road maps, notebooks, Dictaphone, handheld games and televisions to owning one device that is capable of completing all of the tasks we previously thought of as individual operations.
That has been possible because of the drive towards having a single device that everyone can have which will be able to complete all these tasks without recourse to any outside help. It was possible because of Moore’s Law. Now that Moore’s Law is over we have to conclude that phones are close to about as good as they are going to get.
So, what do you do when you are a seller of products that get a bit better every year and the basis for your ability to deliver improvements goes away?
Well, you improvise. That’s what Cloud Computing is all about. It’s the tech industry’s number one bet on the future of their businesses following the end of Moore’s Law.
Companies can no longer rely on the architecture of the phone to deliver the computing power necessary to deliver better apps and more functions. Therefore, they are laying off some of the work to bigger computers and networks which can do the calculations required in faster times. That is what Cloud Computing is. It is simply using server farms to complete tasks better and faster than what individual devices are capable of.
However, this evolution in the product offering represents a revolution for the tech industry because building server farmers is a very different prospect than putting a chip in everyone’s pocket.
The rollout of artificial intelligence, deep learning, predicative modelling, real-time diagnostics and other evolving technologies can only take place via servers because the computing power they require is orders of magnitude greater than what is available on phones.
That means companies have been building massive server banks all over the world just so they can get the calculations done as close as possible to the end user so there is no lag in the deliver of service.
The big challenge to the success of the Cloud Computing sector is in the speed with which devices can access the network. That is why investments are flying so quickly into 5G. It represents the answer for Cloud Computing’s connection speed issue.
Cloud Computing represented a need to build server farms but 5G represents a need for a completely new communications infrastructure which needs to be built. It’s been almost 20-years since the last really big infrastructure investment cycle in the telecommunications sector. That was what delivered us the internet in the first place and the rollout of 5G represents a similar program of investment.
Rather than think about what could or might happen I regard the best way to think about what is going to happen in the future is the answer to the question “How are companies going to make money?”. Since Moore’s Law is dead the only way major companies are going to be able to deliver on the incremental improvements consumers demand is to invest in Cloud Computing and 5G. That means they are the highest probability bets for where the trajectory of consumer- oriented technology are likely to go over the course of the next five years at least.
The most important point about laying down these key pieces of technology infrastructure is that they are enabling technologies which will help to usher in many new additional pieces of technology that will leverage off of access to massive networks and computing power. When we think about the most exciting potential stories of the technological future, if they are to come to fruition they require basic infrastructure as support. Since companies can make money from servers and 5G, it greatly enhances the outlook for artificial intelligence to reach its full potential.
Southbank Investment Research