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Perspectives

Coming soon: ubiquitous connectivity

By Archie Foster, Director of Global Equity Research, Citi Investment Management

April 17, 2019Posted InEquities and Investment Strategy

What do your shoes say about you? According to folk wisdom, your footwear sends important signals about your taste and personality. The next generation of sneakers and slip-ons, however, seems likely to say very much more than this. Shoes containing sensors and internet connectivity are already recording and transmitting real-time data about how their wearers balance, walk, and run. Wearers can then receive insights into the health of their feet, their walking or running technique, necessary adjustments to their footwear, and more.

‘Smart shoes’ are only one small example of what we see as the next stage of the connectivity revolution. We expect sensors and wireless internet technology to be added to a vast array of everyday objects, making connectivity ubiquitous. By 2035, IBM estimates there could be about one trillion connected devices worldwide, up from 18 billion today.1  Clothing, household appliances, buildings, industrial machinery, medical devices, agricultural equipment, and roads are just some of those that could routinely send and receive data concerning their usage.

The benefits of ubiquitous connectivity could be far-reaching. By gathering and analyzing data from many more objects, we may be able to improve their efficiency. For example, buildings could automatically save energy based on their occupancy at any moment, industrial machine parts could give advance warning of potential faults, while highways could flag up hazardous surface conditions. As a result, our everyday lives could become safer and more convenient. Companies could streamline their processes and address customers’ needs with ever-greater precision. The economy overall could save labor and capital, powering faster growth and higher living standards.

Of course, many of these developments have been envisaged for some time. However, realization may now be closer thanks to two factors in particular. The cost of the necessary sensors, semiconductors, and software has fallen enough to justify installing them in everyday items, while their functionality continues to grow. The scheduled rollout from 2020 of 5G technology –mobile networks that are a hundred times faster than today’s, as well as being more reliable – could enable the transfer the large volumes of new data that will be generated. IBM believes that data production could double every two to three years.2

As well as changing how we live and work, we expect ubiquitous connectivity to have significant implications for investors. While we have made selective investments in certain makers of tomorrow’s connected devices, our approach focuses upon the businesses that enable device makers via sensors, semiconductors, software, and 5G infrastructure. Storage and analysis of the newly created data offers another potential growth opportunity. Today, only 1% of data collected globally is analyzed, a figure that Cisco believes could rise to 37% in the coming years.3 With so much more information requiring transfer and storage, we see potential in companies that secure that data against cybercriminals.

Ubiquitous connectivity is part of what we call the ‘unstoppable trend’ of digital disruption. We believe its impact upon asset prices could be as far-reaching as it may be upon our everyday lives. While your shoes may not yet have built-in connectivity, your portfolio probably should have.

 

 

1An enterprise scale IoT Platform – IBM Internet of Things Blog, 2017 Watson https://www.ibm.com/blogs/internet-of-things/enterprise-scale-iot-platform-watson/

2An enterprise scale IoT Platform” – IBM Internet of Things Blog, 2017 Watson https://www.ibm.com/blogs/internet-of-things/enterprise-scale-iot-platform-watson/

3Cisco Visual Networking Index: Forecast and Trends, 2017–2022 White Paper” - Cisco, 2019