Global investment in technology has seen significant trends and shifts, reflecting both the evolution of technology itself and the broader economic and geopolitical landscape. In the digital age, technology firms are poised to create significant value for investors. Artificial Intelligence (AI) and Machine Learning Companies like Nvidia ($NVDA) are central players due to their production of AI-specific hardware like GPUs. Microsoft ($MSFT) and Google ($GOOGL) are also pivotal, with their advancements in AI through Azure AI and Google’s DeepMind respectively. The integration of AI into business operations and products is expected to drive substantial value, as AI can enhance efficiency, personalize customer experiences, and open new revenue streams. Globally, there’s a heavy investment in AI, with projections indicating exponential growth. AI is seen as a transformative technology across various sectors, from healthcare to finance, with significant investments from both private and public sectors worldwide. Investment in semiconductor manufacturing has grown, particularly with geopolitical strategies like the U.S. CHIPS Act aiming to bolster domestic chip production. Quantum computing is also gaining traction, with global investments reaching historic highs.
The shift towards cloud solutions has been a major value driver. Amazon’s AWS and Salesforce continue to lead in this space, offering scalable, secure, and efficient cloud services that businesses increasingly rely on for their digital transformation. This sector not only provides recurring revenue but also grows with the demand for data storage, processing, and advanced computing capabilities. With the digital expansion, cybersecurity has become critical. Companies like Palo Alto Networks and CrowdStrike are noted for their robust solutions in protecting digital assets, which is increasingly vital as cyber threats evolve. Cybersecurity firms are expected to see growth due to heightened corporate and personal data security needs. The move towards software as a service (SaaS) has been transformative, with companies like Adobe transitioning successfully from traditional software sales to cloud-based subscriptions, thereby ensuring consistent revenue streams and better market penetration. This model supports long-term value through customer retention and upselling opportunities. Beyond AI, cloud, and cybersecurity, sectors like edge computing, quantum technologies, and generative AI are also highlighted for their potential to create value. These technologies are at various stages of adoption but are anticipated to disrupt and innovate across industries, offering new investment opportunities.
The tech sector has shown resilience even in volatile markets, with companies focusing on operational improvements, strategic acquisitions, and leveraging technology for value creation rather than just relying on market multiples. This approach, as seen in private equity and M&A activities, is about returning to fundamentals like operational efficiency and strategic growth, which can lead to significant value for investors.
Technology firms, especially those positioned at the forefront of digital innovation, are likely to generate considerable value for investors in the digital age. Automation technologies, including robotic process automation (RPA) and intelligent automation, are significant areas where companies are investing globally. This reflects a trend towards improving efficiency, reducing costs, and enhancing customer and employee experiences. A notable segment of tech investment is directed towards renewable energy, with global investments in clean energy technologies increasing year by year. This reflects not only a push towards sustainability but also the technological advancements required for energy transition.
United States continues to lead in tech investment, with cities like San Francisco (Silicon Valley) attracting massive venture capital for emerging technologies. Despite a year-on-year drop in investment, the U.S. remains a tech investment powerhouse, with companies like Microsoft, Apple, and Amazon driving growth in AI, cloud services, and consumer technology. China has experienced a significant year-on-year decrease in tech investment, China’s focus has been on AI, robotics, and cybersecurity, with cities like Beijing and Shanghai leading tech investments in Asia. The Chinese government’s support for tech development, particularly in AI and semiconductor industries, positions China as a formidable player in tech investment. Countries like Singapore, Vietnam, and Malaysia are witnessing increased tech investments, particularly in AI, blockchain, and chip manufacturing, driven by the U.S.-China tech rivalry.
The global investment in technology continues to grow, driven by the promise of high returns from disruptive innovations and the necessity to adapt to digital transformation across all sectors of the economy. Investment landscapes are being influenced by regulatory environments, especially in tech-heavy areas like AI, where the EU is drafting AI regulatory bills, and the U.S. and China are in a tech war, affecting global tech investment strategies.
The International Accounting Standard 38 (IAS 38) on Intangible Assets has been a cornerstone for accounting practices related to non-physical assets. However, the explosive growth of the digital economy has sparked discussions on whether IAS 38 needs updating to better reflect the realities of modern business. The digital economy has significantly expanded the types and importance of intangible assets. This includes software, digital platforms, data, and even cryptocurrencies, which weren’t as prevalent when IAS 38 was last revised in 2004.
The current standard may not adequately address the valuation, recognition, and amortization of these new digital assets. The criteria for recognizing an intangible asset under IAS 38 are quite stringent, requiring a probable flow of future economic benefits and reliable cost measurement. In the digital realm, where assets like internal software development or data might not have a clear cost or where benefits are hard to predict with confidence, these criteria can be challenging to meet. IAS 38 allows for either the cost model or the revaluation model for subsequent measurement of intangible assets.
The rapid evolution of technology can make it difficult to apply these models effectively to digital assets, whose value can fluctuate widely or where determining a fair value might be complex. The useful life of digital assets, particularly software and technology, tends to be shorter and more volatile than traditional intangible assets like patents or trademarks. Current rules might not reflect the rapid obsolescence or the need for frequent updates in digital contexts, leading to misrepresentation in financial statements. IAS 38 has served well across a wide range of intangible assets, providing a framework that is adaptable to many situations.
Some argue that the standard’s principles are flexible enough to cover digital assets through interpretation and judgment. Revising IAS 38 to specifically address digital assets could lead to inconsistencies with how these assets are treated in different jurisdictions, potentially complicating global financial reporting standards. The International Accounting Standards Board (IASB) is already engaged in projects that might indirectly address some of these issues, like the project on goodwill and impairment, which could impact the treatment of certain digital assets. while IAS 38 provides a foundation for accounting for intangible assets, the digital economy’s expansion does indicate a need for some form of revision or at least more specific guidance to ensure financial statements accurately reflect the economic realities of digital assets.
Galactik Views