Dan Chung: From Augmented to Virtual, The Reality Revolution
June 19, ​2018​
The Industrial Revolution of the 18th and 19th centuries was characterized by abrupt and rapid technological and sociological transformation. We are now in the midst of another industrial upheaval driven by a digital and data revolution that is impacting businesses, investors, and consumers alike.

​Take, for instance, smartphones. It is hard to remember what life was like without mobile devices, but the f​​irst iPhone, which quickly revolutionized the phone and technology industries, was released only about a decade ago. Yet, the smartphone industry has already created over 11 million jobs and by 2019 approximately 247.5 million people in the U.S. will have one of the devices. Businesses that fail to keep up with innovation will be severely and negatively impacted. We have already witnessed the disruption of many companies, from smartphone providers Nokia and BlackBerry to storied retailers Sears and Toys R Us.

On the other hand, these sweeping changes open opportunities for companies that innovate and successfully adapt to these new trends and changes to capture market share and even disrupt their respective industries with new products and business models. This powerful trend is happening within both existing industries and emerging industries. Even seemingly simple, proven businesses have to adapt to change; the “dollar shave club” business model, for example, is affecting the once “dominant” business of Gillette’s shaving products. In emerging fields, including artificial intelligence (AI), crowd computing, predictive analytics, augmented reality (AR), and virtual reality (VR), many firms are vying to use these technological innovations to become more efficient. We expect the costs of using these new advancements to decline significantly over time. By some estimates, the cost of AI in business applications is expected to decrease by 30%-40%. In the meantime, significant capital and human resources are being directed at developing and implementing AI across industries. In the last couple of years, AI-related comments made by S&P 500 companies on earnings calls increased by more than 1,100%, and since 2015, global funding for VR and AR firms nearly tripled to $3.8 billion.

Our analyst team conducts in-depth research to constantly understand the ways in which AI (and other emerging technologies) will be used to benefit and change existing business models as well as create new businesses and applications. Among other research functions, our analysts frequently interview company management about new business models while looking for new ways that companies are embracing innovation. We have observed that the growing AI, digital, and data revolution is increasing demand for high-speed computing, storage, mobility, and bandwidth (e.g., 5G cellular networks). Firms that can address that demand will be clear beneficiaries of the ongoing technology revolution.

At Alger, we believe in investing in companies that are engaging in positive dynamic change. As the dramatic technological revolution continues, understanding change will likely be essential for capitalizing on the digital revolution’s accompanying investment opportunities.​

Fred Alger & Company, Incorporated is the parent company of Fred Alger Management, Inc. The views expressed are the views of Fred Alger Management, Inc. as of June 2018. These views are subject to change at any time and should not be interpreted as a guarantee of the future performance of the markets, any security or any strategies managed by Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities.  Individual securities or industries/sectors mentioned, if any, should be considered in the context of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities.

Risk Disclosure:  Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Many technology companies have limited operating histories and prices of these companies’ securities have historically been more volatile than other securities due to increased competition, government regulation, and risk of obsolescence due to the progress of technological developments..  

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