Finding tech ten-baggers of the future

Interactive Investor is 21 years old. To celebrate, our top journalists and the great and the good of the City have written a series of articles discussing what the future might hold for investors. Here's Walter Price on the big future technology themes investors should be watching.

The modern era has seen remarkably rapid change in almost every aspect of life. Look behind most of these changes and you will find a common thread. Transport, energy, communications, healthcare, manufacturing, entertainment, business and education: all have been transformed by advances in technology.

Such advances led to electrical engineering, the internal combustion engine, global telecommunications and air travel. Business and entertainment have been transformed by the development of the personal computer, the internet and now migration to the cloud.

Behind each innovation, the technology companies reaped the rewards.

Tech winners are big news. Their headline-grabbing growth draws the attention of the mass media and, of course, of investors at every level, from institutions and pensions funds to private investors. Everybody knows the IBM story. Google is a verb, not just a company name.

And how many former CEOs are as well known as Steve Jobs or Bill Gates? It's no coincidence that three of the top four companies in the world by market capitalisation - N Apple, Microsoft and Alphabet (Google's holding company) - are in the technology sector.

But in a sector full of advancements, innovation and fierce competition, where do the next "big ticket" opportunities lie for companies, managers and investors alike?

Cyber security

Internet security breaches are increasing in severity and magnitude. Barely a week goes by without a major organisation experiencing some kind of data breach, with more than half of UK companies suffering a breach in the past two years.

Companies across all sectors of the economy have to rethink their policies, and they are still only in the early stages of adjusting to the various risks presented by a new, more sophisticated breed of hacker.

There are no major dominant security players, as the market is very fragmentedUnderstanding security risks and how technology advances can mitigate them will be a top priority.

There is high demand and a strong need for counter-technology to challenge and alleviate risks from hackers and all the associated threats to business.

The new enemy provides an interesting and developing investment opportunity for fund managers. There are no major dominant security players, as the market is very fragmented.

It is unlikely to be a winner-takes-all scenario; several companies could grow rapidly. There is an exciting opportunity for investors to take advantage of a truly non-cyclical sector.

Cloud computing and artificial intelligence

Spending on cloud computing is expected to grow at a rate of 19.4% a year, while traditional IT spending is forecast to grow by just 1.5%. Cloud computing will reduce the need for hardware, software and IT services, saving businesses money.

The real value of artificial intelligence may be in improving the productivity of companies.

Productivity improvement is ultimately why companies buy technology. If one company uses it to become more productive, competitors who want to keep up have to use it too. Companies such as Google and Microsoft are starting to put analytics capability in the cloud.

Adapting portfolios to ever-changing technology increases your chances of capturing growthTo our mind, this is likely to be the most common use of artificial intelligence. Increasingly, decisions will be made in real time, based on best practice.

This is revolutionary. Fund managers must take this new way of computing into account, while acknowledging that more traditional computing companies still have a place in a portfolio.

Continuing to adapt investment portfolios to the ever-changing world of technology will increase opportunities to capture the growth of these companies.

Internet of things

More objects, particularly machines, have sensors connecting them to the internet. The resulting 'internet of things' (IOT) networks can improve business processes and models while reducing costs.

While more than 10 billion devices are connected to the internet today, some 50 billion could be connected by 2020.

Amazon recently launched its one-touch home product restocking service Dash in the UKFurthermore, the efficiencies realised by IOT are expected to save $14 trillion (£11 trillion) through waste reduction and productivity enhancements. The IOT is not confined to businesses, of course.

Consumer products - fridges, central heating systems, cameras and cars - are increasingly connected, redefining the user experience and driving sales.

Companies expanding their presence in this area make for an exciting addition to technology portfolios. Amazon has recently launched its Dash service in the UK, whereby households can restock products at the touch of a wi-fi enabled button, to be delivered within 24 hours.

Driverless cars

Driverless cars have been hitting the headlines, for good and bad reasons. On the one hand, they promise to revolutionise activities such as long-distance lorry travel. On the other, they have caused a first fatality.

The growing versatility and adaptibility of mobiles mean investors mustn't overlook themDriverless cars will be set a higher safety benchmark, and failures will be damaging. But in spite of setbacks, the outlook for driverless cars is sound, and portfolios exposed to this technology are likely to benefit.

Nvidia makes the most advanced autonomous car equipment on the market, combining elements such as sensor fusion and surround vision.

These technologies would have detected the hazard that caused the recent fatal accident, and they are likely to become vital elements in driverless car designs.

Mobile advertising

Mobile devices will become the preferred way to access the internet, creating a massive audience for mobile services. As mobile internet use increases, companies' physical locations will become less important.

The quality of their customer service, products and social media will be the keys to success. Technology is likely to have a profound effect on the media and advertising. The ability to measure is replacing "gut feel" advertising with science.

In 2015 advertisers in the UK spent a record £8.6 billion on digital advertising . The fastest-growing part of the UK internet market is display advertising, of which mobile advertising makes up more than 39%.

The increasing variety of uses for mobiles and their adaptability mean investors cannot afford to overlook the opportunities they bring.

Walter Price is Portfolio Manager at Allianz Technology Trust.

This article was first published in our special publication 21: Twenty-one years of Interactive Investor. Download your digital copy for free here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser