Further Reading
Disruption Impacts Investing Decisions
The Impact of the Age of Connected Intelligence
Global Technological Revolutions Shape Our Lives
The Lifecycle of Technological Revolutions
Introduction
Module Menu
A New Era
Emerges: The Age
of Connected
Intelligence
To begin, please scroll down.
We are in a new world. Uber is the world’s largest taxi company but owns no vehicles. Facebook, the world’s most popular media owner, creates no content. One of the world’s most valuable retailers, Alibaba, has no inventory. And Airbnb, the world’s largest accommodation finder, owns no real estate.
These companies are changing or destroying whole industries. They highlight how important it is to be on the right side of change.
At Alger, we believe it’s vital to understand technological revolutions that enable innovative companies to disrupt entire industries, leaving behind fatally wounded companies that failed to embrace change. We are experiencing unprecedented levels of innovation that are quickly surging through the economy and creating attractive investment opportunities.
Revolutions
The Lifecycle of
This module explains how investors may benefit from understanding the lifecycle
of technological revolutions, the current technological revolution, and how disruption is impacting investing decisions.
There are five phases in every technological revolution, according to researcher Carlota Perez. The first two phases comprise the installation period when the revolution is “a small fact and a big promise,” while the last two phases involve the deployment period when the new paradigm has become “normal best practice.”
Click each phase of the lifecycle to learn more.
Continue to learn about the global technological revolutions that have shaped our world and our lives.
Age of Connected
The Impact of the
Intelligence
There have been five technological revolutions since the 18th century. The one you may be most familiar with is the Age of Information and Telecommunications. It began with the microprocessor, continued through the turning point of the collapse of the technology bubble, and the subsequent buildout of the internet and introduction of the smartphone. What was the impact of this technological revolution? Nearly four billion people are now connected to each other and essentially all of the world’s knowledge via the internet.
Click below to explore each revolution, including the innovations that were created and the impact on our world.
Where are we today? We believe we are in the irruptive phase of a new revolution: the Age of Connected Intelligence. Read below to learn how this will shape our lives.
The Age of Connected Intelligence is building upon the computational engineering and information superhighway created over the past several decades. Data is the new oil and advances in cloud computing and artificial intelligence (AI) will turn this now abundant raw material into better decision making for companies and individuals. We believe that as AI is applied, it will likely reshape industries and usher in tremendous change.
AI is the ability of computer systems to perform tasks that normally require human intelligence and perception.
The chart below shows how much “training” various AI programs required over time. This training can be thought of as the computing usage (compute for short) needed to practice and improve a program’s skill.
Incredibly the speed of training is doubling every three to five months. If sustained, this greater speed is likely to lead to incredible breakthroughs. For example, AI recently tackled the field of radiology and proved it could analyze images better than 80% of experts, according to Google Director of Engineering Ray Kurzweil.
What is AI?
Our Lives
Revolutions Shape
Global Technological
The Age of Connected Intelligence is driving a variety of advances that will have far-reaching consequences for businesses and society and now they are converging.
We are about to witness what happens when companies can harness data, use predictive analytics, and make decisions instantaneously using inputs from a multitude of endpoints. Consumers leave behind “digital breadcrumbs” everywhere they go. Using AI, companies can make predictions about consumers’ likes and dislikes based on this data. Similarly, a business can use sensors and cameras in factories to collect data on operational efficiencies. Every piece of equipment—even vending machines—can offer a piece of unique data by which to make an organization more efficient.
Explore the ways innovative companies are using data to make better decisions.
Intelligence
Investing Decisions
Disruption Impacts
New companies and industries will be born and old ones will die as we enter this new technological revolution. If one company adopts a digital transformation strategy and becomes more agile to respond to changes in real time, it will establish a competitive edge relative to its peers. The businesses that fail to keep up with the technology will no longer compete effectively.
As we look across the market, this concept of disruption is pervasive throughout many sectors from technology to energy. The changes are so profound that our analysis shows that 31% of companies in the S&P 500 Index are being disrupted. These are large companies that we believe are facing profound innovations that put their business models at risk.
Click below to see how industries are being disrupted.
Growth and Change in This New Era
While many investors are focused on what the Fed will do next and where we are in the economic cycle, at Alger we are deploying our resources to understand how the longer and more powerful technological revolution will play out over the next decade or more. We believe that the Age of Connected Intelligence will usher in more change than ever before, creating winners who gain large amounts of market share or even forge new markets. We also believe that a large portion of the current stock market capitalization is at risk of being disrupted. The complexion of the market is changing and we are excited to embrace the investment opportunities of the revolution.
Further Reading
Digital Advertising
Our in-depth fundamental research process focuses on investing in the companies that are capitalizing on innovation and avoiding those that are being disrupted.
... Read More
Dan Chung: The Power of 5G
5G technology is finally arriving and is likely to transform businesses and our daily lives while supporting economic growth.
... Watch Here
Genetic Technology
We have just begun to scratch the surface of linking genes to specific genetic diseases. We’re starting to see drugs be approved to treat these rare and unusual diseases based on the genetics involved, and at Alger we have invested up and down the entire genomics food chain.
... Read More
Autonomous Driving
Autonomous driving presents yet another unique opportunity in the upcoming industrial revolution.
... Read More
Brad Neuman: Gathering Intelligence on A.I.
When we talk about how the future will be driven by artificial intelligence (A.I.), clients often seem enthusiastic but skeptical at the same time. There seems to be a question lingering just beneath the surface, how will we use A.I.?
... Read More
A New Era Emerges: The Age of Connected Intelligence
This paper explains how investors may benefit from understanding the lifecycle of technological revolutions, the current technological revolution called the Age of Connected Intelligence.
...Read More
Important Disclosures
The views expressed are the views of Fred Alger Management, LLC (FAM) and Alger Management Ltd. (together with their affiliated entities “Alger”) as of December 2019. Alger has used sources of information which it believes to be reliable; however, this publication is not intended to be and does not constitute investment advice. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security, or any funds managed by Alger.
Risk Disclosures:
Investing in the stock market involves certain risks, and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Technology companies may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Short sales can increase market exposure, magnifying losses and increasing volatility.
Important Information for US Investors:
This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.
Important Information for UK Investors:
The distribution of this material in the United Kingdom is restricted by law. Accordingly, this material is provided only for and is directed only at persons in the United Kingdom reasonably believed to be of a kind to whom such promotions may be communicated by an unauthorized person pursuant to an exemption under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”). Such persons include: (a) persons having professional experience in matters relating to investments and (b) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 49 of the FPO. Most of the rules made under the FSMA for the protection of retail clients do not apply, and compensation under the United Kingdom Financial Services Compensation Scheme will not be available.
Important Information for UK and EU Investors:
This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation.
Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries.
Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub-portfolio manager to financial products distributed by Alger Management, Ltd. Alger Group Holdings, LLC (parent company of FAM) and Fred Alger & Company, LLC, are not authorized persons for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA.
S&P 500®: An index of large company stocks considered to be representative of the U.S. stock market. Investors cannot invest directly in any index. Index performance does not reflect deductions for fees, expenses or taxes. Note that comparing the performance to a different index might have materially different results than those shown. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.
Important information for Investors in Israel:
This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.
The following positions represented the noted percentages of Alger assets under management as of September 30, 2019: Facebook, Inc., 3.12%; Salesforce.com, Inc., 2.92%; Alphabet, Inc. 2.83%; Alibaba Group Holding LTD ADR, 2.28%; Airbnb 0.00%; Uber Technologies, Inc., 0.00%.
More on Innovation
irruption
maturity
synergy
turning
POINT
frenzy
DEGREE OF DIFFUSION OF THE TECHNOLOGICAL REVOLUTION
INSTALLATION PERIOD
DEPLOYMENT PERIOD
IRRUPTION
A “big-bang” leads to the strong growth of new industries while other companies face disruption and obsolescence.
FRENZY
Financial markets become overly optimistic, diverging from fundamentals and ultimately causing a bubble.
TURNING POINT
Events such as a financial market collapse facilitate the transition to the deployment period.
SYNERGY
Technology is being implemented at scale, often resulting in a “golden age” of output and employment.
MATURITY
Markets have been saturated and growth slows.
1771
1829
1875
1908
1971
TODAY
1771
Industrial Revolution
• Innovations: machinery and mechanization helped by water power
• Impact: mechanized textile industry; first factories
1829
Age of Steam and Railways
• Innovations: iron and coal mining; steam engines
• Impact: railway industry; introduction of steam power for many industries
1875
Age of Steel and Electricity
• Innovations: cheap steel; electrification
• Impact: bridges & tunnels; electrical networks; the telephone
Age of Oil, the Automobile, and Mass Production
1908
• Innovations: internal combustion engine; petrochemicals
• Impact: automobiles; roads; airplanes
Age of Information and Telecommunications
1971
• Innovations: integrated circuit; internet
• Impact: worldwide telecommunications network
Age of Connected Intelligence
TODAY
• Innovations: artificial intelligence; Internet of Things
• Impact: remains to be seen
Example 1
AI in the Board Room
One of the seats in the Salesforce.com
boardroom belongs to Einstein, an AI engine. Einstein amasses company data, compiles it and draws conclusions based on trends and patterns that it has inferred from historical data.
Sales SW Region
Sales NE Region
Sales NW Region
AI for Your Health
A smart watch detects an irregular heart rhythm before a cardiac event and sends an alert to a medical professional to mitigate the problem. Software may review a patient’s radiology results and cross-reference the thousands of recently published papers to recommend a new potentially life-saving treatment.
Example 2
97
OXYGEN
110/60
BLOOD PRESSURE
86
HEART RATE
AI When You Drive
A car may monitor a driver’s eyes to see
whether they are distracted and alert them to a potential hazard.
Example 3
DROWSINESS
EYE CLOSURE
DISTRACTION
Trucking Companies
Disrupted by
autonomous
driving
Energy
Disrupted by
innovation
reducing the cost
of renewable
sources
Industrials
Disrupted by changing
supply chains
Retail Industries and Stores
Disrupted by e-commerce
Banks
Disrupted by linking
borrowers and
lenders directly
Media and Entertainment
Disrupted by internet
content delivery
Interestingly our estimate of the percentage of companies that are doing the disrupting is much lower than those being disrupted. By our calculations, 14% of the S&P 500 Index companies are disrupting more than twice their size or 31%, which translates into $7.6 trillion in companies’ values currently being disrupted. This disparity between the two groups is significant because it speaks to the incredible investment opportunity these innovators may have.
Source: Carlota Perez, "Technological Revolutions and Financial Capital," Edward Elgar Publishing, 2002; Alger.
Source: Carlota Perez, "Technological Revolutions and Financial Capital," Edward Elgar Publishing, 2002; Alger.
Source: Open AI.
Exponential Growth in the Training of
Artificial Intelligence Programs
Companies' market values are now driven by
intangible assets
2013
2014
2015
2016
Year
2017
2018
2019
.00001
.0001
.001
.01
.1
1
10
100
1,000
10,000
PetaFLOP/s-Day (Training)
84%
AlexNet
Dropout
DQN
Seq2Seq
VCG
GoogleNet
DeepSpeech2
Xception
Neural Architecture Search
AlphaZero
AlphaGo Zero
Visualizing and Understanding Conv Nets
Analyzing....
Analyzing....
ANALYZING....
Revolutions
Technological
Neural Machine Translation
Visualizing and Understanding Conv Nets
ResNets
T17 Dota 1v1
Neural Architecture Search
GoogleNet
DeepSpeech2
Xception