Disruption Survey Results: A Love/Hate Story

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Disruption Survey Results: A Love/Hate Story

Thanks to all who completed our DataTrek Disruption survey! Here are the results in the same order as presented in the questionnaire, along with our thoughts on each:

#1: Demographics and survey details:

  • We received a total of 145 completed responses, 80% of which came from DataTrek readers and 20% from social media (Twitter and LinkedIn followers and contacts).
  • 65% of survey takers work in financial services, predominantly on the buyside (including family offices/wealth advisors/RIAs). Much of the remainder (24%) classified their employer as “Other” (we have many tech industry/VC contacts on our lists) with 9% self-reporting “Student/Retired” or Media (2%).
  • We randomized possible answers wherever practicable. Percentages given below may not add to 100% due to rounding. We limited respondents to one choice per question.

#2: Do you think any US Big Tech companies (Amazon, Facebook, Google, Apple, Microsoft) should be broken up?

  • Yes: 40.0%
  • No: 53.1%
  • No opinion: 6.9%

Our take: a surprisingly slim majority (53%) of respondents favor the status quo, where a handful of companies successfully dominate many aspects of global (non-Chinese) technology.

#3: Do you think US/western countries should ban Chinese technology companies from the rollout of new initiatives like 5G wireless networks?

  • Yes: 53.8%
  • No: 38.6%
  • No opinion: 7.6%

Our take: recent global focus on Huawei and other Chinese technology companies has clearly taken a toll on confidence that they can be trustworthy partners. All we know is that one country is not concerned – China itself. And that could give them an edge in the upcoming global rollout of this important technology.

#4: Would you approve of the widespread rollout of facial recognition technology in public spaces, either by government or private companies?

  • Yes: 18.6%
  • Yes, but only with new regulations: 48.3%
  • No: 33.1%

Our take: we view facial recognition was the most underappreciated disruptive technology currently in development (US) or widespread adoption (China). Our reader/social follower respondents, who are overwhelmingly from western countries, see possible dangers here and either disapprove of it outright (33%) or want to see new regulations (48%) before this technology sees mass adoption.

#5: Over the next decade, which country/region do you expect will lead the world in disruptive technologies like AI/deep learning, facial/object recognition and autonomous driving?

  • United States: 55.2%
  • China: 39.3%
  • European Union: 4.1%
  • India: 1.4%
  • Neither Japan nor rest-of-world received any votes

Our take: we see this as a 2-horse race, and 95% of you agree. And this makes it very hard to be structurally overweight EAFE (Europe and Japan) stocks, by the way…

#6: In which area do you think the US is most likely to first pass incremental laws/regulations on American technology companies?

  • Data privacy/portability: 49.7%
  • Election-related advertising: 19.3%
  • Artificial intelligence: 13.1%
  • Facial recognition: 6.2%
  • “Fake news”: 5.5%
  • I do not think any new regulations are likely: 6.2%

Our take: respondents overwhelmingly (94%) see more US regulation coming, most likely (50%) in the area of data privacy/portability – perhaps something akin to the EU’s GDPR. Given how important user data gathering is to Google, Facebook and other companies, how they adapt their business models to new regulations is a notable overhang on those stocks.

#7: How long do you think it will be before fully autonomous (no steering wheel) personal vehicles go on sale in US/Europe/China?

  • Within the next 5 years: 17.2%
  • 5 – 10 years: 49.7%
  • 10 – 15 years: 23.5%
  • More than 15 years from now: 9.7%

Our take: we asked this exact question in our May 2018 survey, and the only real change here is that respondents are now a bit surer that a truly autonomous vehicle will come in the next 15 years (86% of respondents then, 90% now). The modal response (5 – 10 years out) remains the most popular at 50% in both our surveys. Which, we would note, is a long time in stock market years.

#8: Do you believe any of the following are in a bubble?

  • Tech focused venture capital: 34.5%
  • US tech stocks: 16.6%
  • Chinese tech stocks: 13.8%
  • None are currently in a bubble: 35.2%

Our take: we asked a similar question in May 2018, and respondents now are more worried about at least one of these groups’ valuation than last year: 44% said “none” in 2018, but only 35% replied in a similar fashion this time around. The most popular answer then and now: tech-focused VC, which should make this year’s unicorn-heavy IPO calendar worth watching for its effect on private valuations.

#9: What area do you think US Big Tech will address next at scale, either through a large acquisition or significant organic investments?

  • Health Care Services: 41.4%
  • Financial Services: 23.5%
  • Further investments in media: 13.1%
  • Transportation Services: 12.4%
  • Biotechnology: 9.7%

Our take: If you’re looking for a reason to be cautious on the Health Care space (our POV, as outlined last week), this survey answer gives one. Big Tech looks for large addressable markets with inefficient supply chains where technology/Big Data can streamline the industry. Health Care fits that to a “T”, and investors are keenly aware of this risk. That may well cap valuations in this sector.

#10: Which basket of stocks/index do you think will do the best in 2019?

  • The S&P 500: 31.7%
  • US Super-Cap Tech (Microsoft, Apple, Facebook, Google, Amazon): 20.0%
  • The MSCI World Index: 19.3%
  • 2-Year US Government Treasuries: 15.2%
  • Chinese BAT (Baidu, Alibaba, Tencent): 13.8%

Our take: Many surprises here…

  • More respondents like the S&P 500 than super-cap US Tech. But recall that MSFT, APPL, FB, GOOG(L) and AMZN are a combined 14.3% of the S&P.
  • That implies broad leadership coming in 2019 from areas like Financials (consistent with last month’s DataTrek survey), Industrials, and Consumer Discretionary ex-Amazon.
  • Also worth noting: the last place position of Chinese BAT, which should benefit from a stronger local economy if/when a US-China trade deal comes to pass. Regardless, BAT placed last here – even below 2-Year Treasuries.

#11: How important is it to long term US national interests that it maintains a global lead in disruptive technologies like artificial intelligence and quantum computing?

  • Extremely important: 67.6%
  • Somewhat important: 29.7%
  • Not so important: 2.8%
  • Not at all important: 0.0%

Our take: a somewhat obvious set of replies, but it does shove some uncomfortable questions to the forefront. For example:

  • If the US forces the breakup of one/more current tech giants (as 40% of our respondents favor), then will these companies have the business models/cash flows to afford the investments required to keep the US in the lead?
  • If important new technologies like AI-powered facial recognition see speed bumps from US new regulations/prohibitions (as our respondents collectively favor), then how will America compete with China, where the government fully backs efforts in this area?

#12. Are you overweight Technology in your personal portfolio or client accounts?

  • Yes: 40.0%
  • No: 60.0%

Our take: this is consistent with respondents’ answers to Question #10, and shows Tech to be a modestly contrarian sector at the moment.

Summing up these responses into one overarching theme: investor sentiment on Technology is deeply conflicted and seems destined to remain so.Respondents see developing disruptive technology as a national priority, which should be a powerful driver of secular growth. But they are deeply uncomfortable with where this will lead and how much industry concentration is even healthy. As a result, they see further regulation as all but certain, possibly harming current business models. Many investors are therefore (understandably) underweight the group.

On the plus side, that’s a textbook example of a market “Wall of worry”. On the downside, it looks very high at the moment.