Technology
The technology sector is an inescapably huge investment opportunity for both the corporate world and financial markets. It is the largest single segment of the market, eclipsing all others (including the financial and the industrial sector). More than anything, technology companies are associated with innovation and invention. Investors expect considerable expenditures on research and development by technology companies, but also a steady stream of growth fueled by a pipeline of innovative new products, services, and features.
Why the technology industry is important
These products and services are then disseminated throughout the economy. There is no sector of the modern economy that technology does not touch and that does not rely upon the technology sector to improve quality, productivity, and profitability. Technology is also notable for its rabid competition and rapid obsolescence cycles. These examples have been used so often they have become cliché, it is nevertheless still a fact that computers used to occupy entire rooms, 16 GB of hard drive storage was perfectly adequate for a tablet, and mobile phones only handled calls and basic texting. With that constant drive to adapt and overcome competitors with new products, no company can rest easy for long in the Technology sector.
This rapid cycle of obsolescence means that winners and losers in technology do not necessarily maintain those positions for long. Microsoft was founded in 1975 and after dominating in software for computers, has had to play catch up in the mobile space. Likewise, Apple was left for dead in the 1990s but sprang back to life with its innovative smartphone products. Moreover, that dynamism and impressive growth make technology a must-consider sector for virtually every equity investor.
Within the huge and unwieldy world of Technology, it is possible to look at four key “mega sectors” semiconductors, software, networking, and hardware. While not every tech company fits into one of these four mega sectors, the majority do, and it is a useful way to talk about the sector as a whole.
UK Technology
1. UK technology VC (venture capital) investment is third in the world, hitting a record high of $15 billion in 2020 despite COVID challenges.
2. UK deep technology investment rose by 17% in 2020, the highest rate of growth globally.
3. 63% of investments into UK technology came from overseas in 2020 up from 50% in 2016.
4. The UK is third in the world for investing into impact technology, which has increased 160% since 2018 compared to just 15% in the US.
5. UK technology start up and scale up ecosystem is valued at $585 billion – 120% more than 2017 and more than double the next most valuable ecosystem, Germany, at $291 billion.
6. The rate of technology GVA (gross value added) contribution to the UK economy has grown on average 7% per year since 2016.
7. Last year a record £29.4 billion was invested in the UK’s technology sector, more than double the previous year.
8. Overall UK technology job vacancies advertised increased by 50% in 2021. Technology vacancies make up 12% of all available jobs in the UK.
Trends to watch from 2022 onwards
Move to a public cloud-first strategy
AI-driven automation & autonomous services
Better cybersecurity to support a new way of working
Increased use of data science factories
Sustainability and decarbonisation
Technology to support hybrid work
Increased demand globally for data storage
Digital supply chain transformation
Technology in the Spotlight
Edge Computing
Fast becoming seen as a key technology and enabler of widescale innovation. Accelerating innovation in key industries, and accelerating adoption on complementing emerging technologies.
The world’s data is expected to grow 61% to 175 zettabytes by 2025. Edge computing is where distributed, computational processing and data storage is brought closer to the sources of data. This improves response times and saves bandwidth.
Quantum
Quantum computing has been identified as a key emerging and transformative technology that will have an impact on the UK’s long-term digital and economic future. In the coming years, there’s potential to enable smart cities, revolutionise healthcare systems, and drive innovation in key industries. Quantum computing is an area of computing focused on developing computer technology based on the principles of quantum theory (which explains the behaviour of energy and material on the atomic and subatomic levels). Computers used today can only encode information in bits that take the value of 1 or 0—restricting their ability.
Quantum computing, on the other hand, uses quantum bits or qubits. It harnesses the unique ability of subatomic particles that allows them to exist in more than one state (i.e., a 1 and a 0 at the same time) which is called a ‘superposition’. The power of quantum computers grows exponentially with more qubits. This is unlike classical computers where adding more transistors only adds power linearly.
Augmented/VR
Adoption of immersive Technology will be a crucial tool for business innovation, driving tangible benefits and clear ROI, including mitigating high-risk, high-cost training through VR, building digital twins and exploring the future of an augmented reality workforce.
Intelligent automation
Intelligent automation has the capacity to revolutionise business services across a variety of industries through driving optimisation, enhancing digitisation, and building resilience.
Intelligent automation (IA), sometimes also called cognitive automation, is the use of automation technologies – artificial intelligence (AI), business process management (BPM), and robotic process automation (RPA) – to streamline and scale decision-making across organisations. Intelligent automation simplifies processes, frees up resources and improves operational efficiencies, and it has a variety of applications. For example, an automotive manufacturer may use IA to speed up production or reduce the risk of human error, or a pharmaceutical or life sciences company may use intelligent automation to reduce costs and gain resource efficiencies where repetitive processes exist. An insurance provider can use intelligent automation to calculate payments, make predictions used to calculate rates, and address compliance needs.
