Post #65: Every cloud has a silver lining - Heptagon Capital – Production

Most people, your author included, have wondered which areas of the world might be unaffected by the havoc currently being wrought by the COVID-19 pandemic.

Post #65: Every cloud has a silver lining

Most people, your author included, have wondered which areas of the world might be unaffected by the havoc currently being wrought by the COVID-19 pandemicIT spend would seem a good candidate, for when we are stuck at home, many of us are still working (or trying to). If not, then home-schooling (if you’re lucky) and the binge-watching of Netflix (almost certainly) are data-hungry activities.

However, the reality is more complex. We had a conference call with an IT industry expert last week. Whereas most forecasts at the beginning of the year assumed low single-digit growth in global IT spend during 2020, it now looks likely that that this figure will contract by at least 5%, equivalent to the tune of more than $200bn of reduced spend. Even in mid-March – before the crisis really began to escalate – some 15% of CFOs interviewed by Gartner said that they planned to reduce their IT spend in 2020 by over 10%. The above figures are almost certainly markedly higher now. Few new devices (whether PCs, laptops are mobiles) are currently being purchased by corporates, while almost every non-essential IT project is being deferred if not cancelled.

There is some good news. Growth in hyperscale cloud expenditure is showing no sign of slowing down. As more data are produced and consumed (over 300bn emails are sent every day, globally, for example), they need to be processed and stored. Hyperscale cloud, simply defined, relates to the architecture that scales appropriately as increased demand is added to the system; think of it as high-performance computing with high availability and low redundancy. In other words, it works unfailingly.

Even with heightened global uncertainty, current consensus forecasts assume that over $100bn will be spent in 2020 on hyperscale cloud projects (or similar) by the eight largest players in the industry, per Bloomberg data. Listed alphabetically, Alibaba, Amazon, Apple, Baidu, Facebook, Google, Microsoft and Tencent have both size and strong cash balances in their favour. Beyond data demand, do not forget that almost all new technological developments – from 5G to autonomous cars – will be cloud-native; designed in and powered from cloud servers.

Heptagon Capital is an investor in Alibaba and Microsoft. The author of this piece has no personal direct investment in any of these businesses. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

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The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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