Pendragon

Data is the New Oil


It is not the most intellectual or the strongest of species that survives; but the species that survives is the one that is able to adapt to and adjust best to the changing environment in which it finds itself.
- Charles Darwin

 

We are students of history. When one examines history over an extended period of time, one can identify cycles and themes that tend to repeat. Extended periods of time, for us, means many decades, even centuries. The lessons one can learn from examining the late 1700’s and the early 1800’s, for example, can provide a different point of view when one is building a thesis on how and why the global economy is evolving as it is. To wit, are the trade tariffs that the Trump administration imposed similar to the tariffs suggested by Alexander Hamilton, after the Revolutionary War? Is the evolution from an analogue economy (where business models were devolved to produce products) to a digital economy (where business models are designed to provide outcomes) similar to the evolution of the economy from an agricultural base to a manufacturing base as it happened in the late 1880’s? From that prospective, we come to the conclusion that the global economy is going through a generational adjustment period. At the center of this evolution is data, not just the collection of data, but the processing of data. Data is similar to oil in that it needs to be processed in order for value to be created. Data generation has reached an inflexion point. In fact, a significant supply-demand imbalance is being created as too much data is being created. Companies that help in storage and the processing of data are in the sweet spot. This provides opportunity for those that will stand back a little further and look at history from a generational prospective. We live in a just in time, instant gratification, 24-hour news cycle, social media world and too few investors, at this point in time, take this investment prospective. Alas, this is what makes a market.

It is true, history does not repeat but it does mimic. One could put forth a thesis that we are facing a generational trade, akin to the consumerism trade of the 1980’s. The internet now has global reach and cost of access is low enough that digital disruption of industries is a clear and present danger. At the center of this is data, as data now becomes the fulcrum asset. The quest to obtain it, process it and then use it to evolve business models and take market share is a real and ongoing threat. Data storage is no longer a commoditized industry. Data storage is no longer about storing pictures on your smartphone. It is about a program, the silicon in your smartphone to provide a solution that can collect and process applying machine learning so that the device can implement cognitive actions with no latency. Data is no longer held hostage to the smartphone cycle or the PC upgrade cycle. The data economy is a structural phenomenon forcing economies, industries and companies to evolve or die. Darwin was right, those that are the most adaptable to change will survive.

 

Dr. James E. Thorne
Chief Capital Market Strategist & Senior Portfolio Manager

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