The digital revolution perhaps marks the greatest disruptive transformation in the history of mankind so far. The evolution of human intelligence spans about 7 million years, roughly from the separation from the genus Pan. The emergence of almost limitless artificial intelligence is now starting to have a significant impact on society. The unfolding of machine learning is proceeding at a revolutionary speed. It is likely to cause more change to the way we live over the next few decades than it did over the past few centuries.
A good way to get an understanding of what is happing is by studying today’s relevant businesses. During these summer days, I’m spending most of the day reading company reports and listening to the Q2 earnings conference calls. These insightful discussions are open to anyone on the Investor Relations websites of every public company. The staggering growth of some firms is showing the shift of behavior; for example, Shopify reported revenue growth of 97% in the second quarter and Amazon’s revenues increased by 40%. The fact that Amazon, with a market value of USD 1.5 trillion, can grow at such a speed is unprecedented.
We are experiencing the Cambrian explosion of cloud-based technologies. Of software connecting to software and of unsupervised learning at a pace so fast that those looking in the rearview mirror are at risk of being replaced by machines.
The role of software is increasing at an accelerated pace. Satya Nadella, CEO of Microsoft, said last week that “the last five months have made it clear that tech intensity is the key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger.”
One positive effect of running a distributed business is that the global pool of talent can be accessed irrespective of where a person happens to live. The decentralized way in which many people are able to work is increasing the measurability of every person’s added value and decreasing the benefits of, for example, having a charismatic character. Today, business leaders know better than ever who is relevant and who is replaceable.
Once, the leaders of companies were mainly the well-adjusted social people, those with the personality to move up the corporate ladder. This social setting is getting upgraded now as the autodidact hackers who create art by writing code release their creations into society. Their influence is derived from the beauty of the virtual worlds they are building; masterpieces that eat the role of physical assets as well as that of humans.
While this technological revolution is chaotic and disruptive like any transformation, there will also be many positive effects on the quality of our lives. For instance, we own shares in Livongo, a firm that leverages data to empower people with chronic conditions such as diabetes to live healthier lives.
Today’s younger companies are growing faster and reaching scale at record speeds. Most of these companies are cloud-native and using machine learning to get insights from data. Eugene Wei, a former product developer at Amazon, Hulu, and Oculus VR, wrote this week:
“TikTok didn’t just break out in America. It became unbelievably popular in India and in the Middle East, more countries whose cultures and language were foreign to the Chinese Bytedance product teams. Imagine an algorithm so clever it enables its builders to treat another market and culture as a complete black box. What do people in that country like? No, even better, what does each individual person in each of those foreign countries like? You don’t have to figure it out. The algorithm will handle that. The algorithm knows.”
The current discussion about TikTok shows that technological supremacy has become a geopolitical matter. Machine learning, computing power, cybersecurity, and space dominance, amongst others, have become essential themes of national defense. The arms race in these fields will remain an important topic for the rest of our lives.
In 2030, when looking back at 2020, we will be amazed that some of the most valuable businesses were still smaller private ventures today. While I think that the businesses in which we own shares will thrive, sentiment in markets and stock prices will forever fluctuate wildly. Market participants who are selling shares of great businesses based on someone’s opinion that valuations are rich are likely suffering from a failure of imagination where certain businesses, as well as our species, are headed.
I am writing this update in the garden of a medieval building and from underneath an old oak tree that has been here before 1788, the year of birth of Bank of New York Mellon, the oldest company on this year’s Fortune 500. It helps me to get perspective as businesses continue to come and go. The free market is always destroying the old economic structure and creating a new one and I feel we have to be on the ball closer than ever before. Therefore, Jeff Bezos continues to remind his team that today is Day One and to keep acting like a startup.
Now it’s time for me to listen to the next company’s earnings report. All I need to do is to open my Spotify app. This is the most interesting time of my investing life so far.