It was a rare rocky year for tech in 2018. Facebook grappled with a host of problems related to privacy, with each month seemingly bringing a wave of new revelations about the firm’s almost willful disregard when it comes to protecting user data.
Google contended with similar issues, though not at the same rate. News reports indicated that the company had allowed third parties to access user data contained in Gmail accounts.
Amazon remained profitable but experienced headwinds near the close of the year. Meanwhile, Apple continued to underwhelm, failing to demonstrate any innovation and remaining far too reliant on the iPhone.
Many of these factors came to a head near the end of the year – along with other hurdles such as the trade spat with China and rising interest rates – prompting investors worried about lofty valuations to flee the tech giants, depressing the markets and causing major indexes to experience losses for the first time in a decade.
How will the tech landscape play out in 2019 as we wade further into the new year? Here’s a look:
*Wireless 5G takes hold. While the next generation of broadband will make internet speeds faster, that’s far from the biggest perk (current speeds are plenty fast). 5G will offer improved latency, drastically reducing the time it takes for connected devices to communicate with one another.
This is the key to making the internet of things (IoT) come to life because our current infrastructure cannot support the burgeoning universe of products adequately, including everything from streaming Netflix on multiple devices in 4k to connecting phones, iPads and laptops to coffee machines, refrigerators and security systems. The coming of 5G will change that.
This not only presents opportunities for internet providers like Verizon, Fios and Spectrum but also the owners of cell towers such as Crown Castle. Even though everyone has an appetite for better internet, no one wants more cell towers in their city, meaning the value of the existing ones goes up.
Other beneficiaries will include the handset makers, something that should be music to Apple’s ears. The company is no doubt looking to offset the struggles that it faces in China by entering a massive upgrade cycle over the next few years as it unveils 5G-ready devices. Qualcomm and Intel are also poised to do well since their chips will power the modems that will make wireless 5G a reality.
*Video games are the new social media. At over 2.3 billion, Facebook has by far more users than any social media platform worldwide (Twitter, by comparison, has about 325 million). That’s why, despite its increasingly tattered reputation, Facebook continues to be popular with advertisers in search of eyeballs.
At the same time, Facebook has a problem with young people, with only about half of all high-school aged kids being active on the platform. If young people are not using Facebook now, what makes anyone believe that they’ll log on when they get older? They most likely won't, and a big reason why is video games.
Thanks partly to the rousing success of “Fortnite,” Amazon-owned Twitch and other platforms like it are creating communities that young people prize far more than Facebook, whether they are watching their favorite gamers or facing off with their friends or with others across the globe. These types of immersive experiences dwarf anything Facebook offers this group, calling into question whether the company can sustain its advertising prowess in the years to come as the younger generation becomes a highly sought-after consumer demographic.
Underscoring this dynamic is Netflix, which said in its most recent shareholder letter that it competes more with “Fortnite” than it does HBO. Skeptics will scoff at that, pointing out (correctly) even the biggest phenomenon fade at some point. However, the next huge game is just around the corner, and when it arrives, Netflix, along with social media, will have to worry about it cannibalizing users too.
All this is good news for gaming companies, including Tencent, whose subsidiary, Epic Games, published “Fortnite,” Electronic Arts and Activision.
*Autonomous driving and artificial intelligence. The future of transportation will branch in two directions. One is the Waymo approach, which essentially seeks to remove human drivers from the equation, leaving us with almost an AI-powered Uber alternative. The other is exemplified by Tesla, which is infusing manned vehicles with a series of innovative autonomous features.
Each will be here quicker than most realize. One of the reasons is that advances in artificial intelligence are driven, in part, by the availability of more data, so with each new Tesla or Waymo test vehicle that hits the road, semi-autonomous and autonomous capabilities grow exponentially. This is especially true for Tesla’s systems, thanks to the company delivering almost as many cars last year as all previous years combined.
AI-enabled transportation is yet another area where investors have an excellent opportunity to back chip makers Nvidia and Intel, whose valuations in recent months have become far more reasonable due to trade-related issues that will likely dissipate going forward.
As we move to the next level of internet, entertainment and transportation, there will be huge opportunities for the companies that are best positioned to take advantage of the new technology trends. Investors should take notice.
Ross Gerber is CEO and president of Santa Monica, Calif-based Gerber Kawasaki Inc., a SEC-registered investment advisor with approximately $830 million in assets under management as of 9/30/18. Gerber Kawasaki clients, firm and employees own positions in Tesla, Google, Tencent Activision, Intel, Qualcomm, Verizon, EA, Nvidia, Intel, Crown Castle and Apple. Please seek guidance from an investment advisor before making any investment. All investments involve risk.
