The World’s Big Data(fication)

When you look up for the best beach holiday locations on Google,add your favourite dress to your Amazon shopping cart or swipe your credit card to buy yourself a dinner, you create a digital footprint. Huge amounts of data are also coming from sensors connected to industrial machines, wearable devices, connected cars and RFID (Radio Frequency Identification) tags on shipments. This huge collection of unstructured digital datasets created at an ever-increasing pace by human interactions and connected devices is referred to as Big Data. Globally, the total size of data generated by humans and machines is expected to increase from 16.1 zettabytes (1 zettabyte = 1 trn gigabyte) to over 163 zettabytes by 2025 (Source: IDC research). This ten-fold increase should be driven by strong growth in the number of connected devices (from 13 bn in 2015 to >30 bn by 2020E; Source: www.idc.com/infographics/IoT). The fast expansion of the digital universe has also been supported by significant drops in the cost of storage devices (memory semiconductors), increasing internet usage and other connectivity solutions.

Despite this stellar growth in data collection, less than 3% of all generated data is currently analysed and used (Source: IDC, www.emc.com/collateral/analyst-reports/idc-the-digital-universein- 2020.pdf). However, the development of smarter algorithms (artificial intelligence, quantum computing and deep learning) along with more powerful processors allow enterprises for further analysis on larger stacks of unstructured data. Digital market leaders such as Google, Amazon and Facebook improved their product and service offerings using intelligence on users’ behaviour. Data analysis allowed for higher revenues generation through delivery of targeted content and advertising. Retailers, industrials and healthcare companies are also turning to Big Data to improve business efficiency and enter new markets. Product offerings from pure play Big Data analytics software companies such as Splunk allow these organisations to leverage their data and gain real-time operational intelligence.

Smart analytics allowed major tech companies to build new tools for market penetration and expand beyond their core business. For example, Amazon used its wide customer base and data analytics to expand into the media business with Amazon Prime. It has also started generating advertising revenues through promoted products. We believe that digital market leaders such as Facebook, Amazon, Google, Netflix, Microsoft are best armed to leverage data intelligence in the value chain thanks to efficient user ecosystems, data networks and analytics capabilities.

Big data is at the heart of global emerging technologies like the Internet of Things, autonomous driving, smart cities and augmented reality. Faster adoption will depend on efficient data usage to make smart decisions. The surging number of device interactions has led to heightened security concerns over data privacy and protection. The increasing number of sophisticated cyber attacks in recent years (Distributed Denial of Service attack in October 2016, WannaCry ransomware in May 2017) has resulted in a preference for big data analytics-based approach for security information management. In our view, this trend should benefit software companies with efficient security analytics offerings such as Splunk and Microsoft. We focus on a basket of stocks with a sizeable exposure to the big data theme and that should benefit from the favourable trends in this space.

Sriram Chellappa

Equity Expert

Data & recommendations as of 27 November, 2017 close

This document presents equity ideas exclusively provided for potential investments.This document cannot be considered as adapted to a person or based on the analysis of the situation of a person.