Ever since the Digital Revolution began during the mid 1900s, technology has rapidly expanded at a near unforeseeable rate. Computers 50 years ago were big enough to fill entire rooms, yet today would have similar computing power to an old iPhone. To put this in perspective, the four computers used to bring the NASA astronauts to the moon for the first time in 1969 are not as powerful as your everyday pocket calculator or even a basic USB flash drive. This was predicted in 1965 by Gordon Moore, who said that the number of transistors that can fit on integrated circuits will double about every two years. This means every two years, microprocessors are shrinking nearly in half, allowing for a large amount of computing power into a small device like an iPhone. Because of this principle, technology has been able to expand and develop at an exponential rate, allowing for everyday people to have access to the internet and computing abilities through personal laptops and smartphones.
As of June 2018, 55.1% of the world population were internet users. This amounts to over 4.2 billion people, and that number is expected to increase quickly. With this many people accessing the internet, a massive amount of data is created and stored online. This occurs when someone signs up for an account with an online retailer, social media platform, entertainment website, and most other web addresses. Furthermore, data can be created and stored internally on a specific computer often demonstrated when someone creates and saves documents on his or her computer. Additionally, businesses often have software programs that generate and store data internally along with data on each transaction and customer in the system. Data is being created at a rapid rate, with approximately 90% of the world’s data being made in the past two years. .Although data collection has made large advancements over the years, security measures have not evolved in correspondence with this trend.
Since 2013, over 13 billion data records have been lost or stolen. This is enough for nearly every person on Earth to have their data taken twice! The information taken can be used for identity theft, with social security numbers, emails, phone numbers, addresses and credit card numbers commonly being targeted. Because of this, data security should be of the utmost importance to people when utilizing the internet. Nevertheless, this is often one of the last things on someone’s mind as he or she browses online. Data storage and security is the responsibility of the business that keeps the information. For example, Facebook has the responsibility of safely storing all information about each of its users. This includes all email addresses, phone numbers, addresses, relationships with other users, and other information. If Facebook or other tech firms fails to do this, users may be subject to identity theft among other issues.
Although data breaches have been increasing each year, security measures have not developed to match this growth. A few reasons come to mind for this. First, data security is often considered a discretionary cost to businesses. This means that a business will spend money on security measures only if the funds are available after all operating and required costs have been paid. A change needs to be made in the minds of business owners that data security is of utmost importance. The average cost of a data breach is $3.9 million dollars according to a study from IBM, yet this number can greatly increase depending on the severity. Facebook’s recent breach could cost them over $1.6 billion in fines just from European regulators alone. Marriott is a prime example of a company that failed to keep its customers’ information safe as approximately 500 million people may have had their data taken illegally in one of the largests breaches in history. As more information was discovered on the severity of the breach, Marriott’s stock price plummeted to $100.99 on December 24, a 17% decline in share price since the news of the breach broke at the end of November. With countless other costly examples seen in the news (Uber, Equifax, Yahoo, Quora, etc.) it should be evident to businesses that it is more economical to invest in data security than suffer the consequences of a data breach.
If businesses fail to invest in customer data security, then government regulations may be created to increase this involvement. In September of 2018, Congress held a hearing on data privacy and security at top tech organizations. Executives from Facebook and Twitter attended while Google declined the invitation. This congressional hearing displays that the American government is not afraid to regulate the tech industry, and these new rules may be coming sooner than some businesses anticipate. By investing in data security soon, companies can protect their customers, prevent negative effects that come with data breaches, and jumpstart the process of changing how tech companies approach online security. Hopefully in 2019 companies will begin to realize the importance of data security and take steps towards implementing new measures to protect it. And if companies fail to do this, then the government should begin to take action through new laws and regulations.
The stigmatization of marijuana is something almost every American is familiar with and something that has a profound impact, one felt by dozens of American industries. When it was announced in late 2012 that two states, Colorado and Washington, had intentions to legalize the substance for recreational use, many reacted negatively to the legislation. Public protest of the drug’s legalization was widespread, with only 50% of Americans supporting legalization of marijuana in any capacity.
Despite these obstacles, it seems that the marijuana industry cannot grow fast enough. It was estimated that the nation’s recreational and medical marijuana industries, combined, earned a total of over $9 billion in 2017, with a projected growth up to $11 billion by the end of 2018. These projections become even more impressive as time goes on, with an anticipated valuation of $21 billion dollars in 2021 and expected total spending of over $57 billion worldwide in 2027. By this point, recreational usage will also dominate 67% of the market. All of these growth factors may be why approval ratings for marijuana legalization have launched up to a record high, with 64% of Americans supporting legalization of the substance. Despite opposition by the federal government and a number of reluctant states, the trend of market growth seen within the industry does not appear to be slowing down. In addition to this massive monetary growth, the legalization of marijuana by state legislatures is having a worldwide impact. Europe, for instance, is expected to dominate the medical marijuana industry within the next decade, becoming the world leader by 2030. Several european nations, such as Germany and Italy, are aiming for billion dollar markets by 2027. Israel, Australia, Canada, Brazil, and Argentina are also expected to break into the industry within this timeframe and join the U.S. as major investors in both medical and recreational marijuana.
So why haven’t all U.S. states legalized the drug? After all, it seems as though the drug has only helped the states that have legalized its recreational use; Colorado and Washington both boast lower drug possession arrest rates, higher crime clearance rates (even, surprisingly, for non-drug related crimes), and booming economies. The fact is that many Americans are still not “on board” with total legalization of the substance. A glaring lack of evidence as to the long term health effects of the drug is front and center in the debate, leaving many reluctant to detach marijuana from its negative stigma through legalization: if the drug is legal, won’t kids be more inclined to try it? This concern may be warranted: the unprecedented growth of JUUL (an electronic cigarette device that has amassed a user base mostly consisting of young adults and teenagers) has many parents claiming marijuana may see the same popularity spike amongst children following its legalization. This argument opens up all sorts of chaos and introduces further questions as to marijuana’s identity as a gateway drug, its potentially addictive nature (if used for extended periods), and the impact it has on users’ lungs, brains, and overall mental health. But perhaps the biggest questions that demand to be answered have to do with crime rates. While the aforementioned crime clearance figures do seem impressive at first glance, what’s to say they will last? How will geography influence these statistics? Will full legalization increase the rate of intoxicated driving incidents nationwide? These questions are part of the reason many states have been hesitant to enact the legislation to the extent of Washington or Colorado, for example.
Proponents of total legalization argue that these questions can only be answered with further research, and that this research will be more readily available if marijuana use is decriminalized on a larger scale. The enactment of pro-marijuana legislation will not only provide more subjects for wide scale research activities, but will also grant more funding for government sponsored research through collection of tax money applied to sales of the substance. The lack of credible information as to the effects of the drug on a user’s body can only be remedied through detailed research, something the government could provide best, many argue.
The legalization of marijuana, both for recreational and medicinal usage, has been a major discussion point in the media recently. While reluctance to pro-marijuana legislation amongst the American public has been present over the past couple years, support for its legalization has been steadily increasing over the past couple years and it appears as though this trend will continue. The potential negative side effects of the drug, many argue, should be ignored when focusing on the bigger picture: an immediate and powerful economic boost given by its introduction into the market. As time goes on, it seems more and more like the legalization question is not a matter of “if”, but of “when”. Whether we like it or not — marijuana is here to stay.
The summer of 2018 has been populated by speculation on the future of the tech industry and tempestuous debate on the direction of our economy. We have discussed the scandals of the likes of Facebook and Twitter but, this time, we are looking on the bright side of the tech industry with the frontrunners of innovation, Amazon and Apple. The recent highlight? Apple reached the inconceivable $1 Trillion valuation crux for a company… Amazon quickly followed suit.
The only way to aptly start this article is to awe over what ‘Trillion’ means and looks like. To begin, find the nearest ruler or roughly picture one foot in your head. Now, you need to visualize the distance between the earth and the moon. That distance is roughly 1.3 Billion feet long and in order to reach one trillion, take 770 trips to the moon or take a trip to Mars. Let that sink in. Comparing the companies to countries, per 2017 GDP data, both Apple and Amazon would find themselves beating all but 16 countries.
A year ago, Apple’s total Market Capitalization (total firm market value) sat at $830 Billion while Amazon’s fell short at $460 Billion. With Apple’s colossal popularity, we expected the firm to hit the milestone sooner or later. On the other hand, Amazon burgeoned from a new way to order textbooks to capturing 49% of the e-commerce market and now, potentially, a soon-to-be healthcare provider, all within the past decade.
Now that 2 of the 5 FAANG giants (Facebook, Amazon, Apple, Netflix, and Alphabet/‘Google’) have soared to a trillion dollar valuation, and with Alphabet flirting with $900 Billion after a strong Q2 earnings report was released, which company will join the podium? The tech industry has seen a jet-fueled growth due to strong quarterly reports, technological and e-commerce needs, and the continued expansion of the US economy. While Wall Street analysts expect to see the largest growth from a $530 Billion valued Berkshire Hathaway, the race boils down to two true contenders: Microsoft and Alphabet, yet two more tech companies.
In the case of Alphabet, despite a $5 Billion fine in Q2 from the European Union, the company still managed to have a strong quarterly performance. However, ever since the earnings report brought Alphabet’s peak, the firm has been in decline; Google’s absence at the congressional hearing did not help. With ensuing claims of shadow banning via Twitter, Facebook, and Google, the US Senate looks to further regulate the industry. Unlike Alphabet, Microsoft did not have to make an appearance at the September 5th congressional hearing. Much like Alphabet, they and many other tech stocks took a hit, with Microsoft falling 3%. The industry took a massive drop but this could just be the start of a drawn out regulatory battle.
According to Goldman Sachs Chief US Equity Strategist, David Kostin, we may see pressing regulation and even potential reclassification. Kostin speculates that this could separate the more “social” tech firms, such as Facebook and Google, to be redefined with a new industry description. Could they fall into a subdivision of tech or something new? Furthermore, Kostin mentions that the remaining ‘tech’ firms would be deemed “legacy” tech. By splitting the mammoth tech industry into two categories, investors will have a stabler, hopefully regulation-averse, positions that separate the hazy futures of the likes of Facebook, Twitter, and Google while maintaining the sincere domination of true tech firms. Since Alphabet is a conglomerate that has branched into social media with Google Plus, they have a large representation of information tech thanks to the Google Pixel and Chromebooks, technological research, and so much more. Seriously, click here to learn more. Goldman Sachs’s Kostin is trying to categorize a giant with arms in multiple industries; Facebook and Microsoft have far simpler distinctions. This is where I draw my conclusion and shift my focus back to the question at hand, who’s the next trillion dollar baby?
Separating the non-information technology firms from the social media-esque firms will allow investors to capture the growth of the tech industry without having to deal with as much of its regulation and spotlight. On September 5th, the only companies that were scheduled to appear at the congressional hearing were Facebook, Google, and Twitter, and the largest of the three did not even show. Despite the hysteria of regulation focusing on Kostin’s “Communications Services” firms, Microsoft and other major tech “legacies” took huge hits. Goldman Sachs’s reasoning? The massive presence of contemporary tech positions in ETFs (exchange-traded funds). The split would tighten the current industry and shift the focus of investors to their respective sides. It would also reduce the overall volume of holdings and trades of tech companies that are included in the same indexes, but only because they are in the tech industry with the likes of Facebook. The chief US equity strategist states that the legacy firms will grow at a slower pace than the new communications services sector, despite including the burgeoning Amazon and Apple.
With that being said, we’ve come to our answer. And the winner is… it depends. If Alphabet continues to face ensuing regulation, do not expect the company to reach $1 Trillion next. Unless the firm quickly survives the tumultuous sentiment of the public spotlight, expect Microsoft to take the crown.
Although we have crowned a winner- well two tentative winners- what if neither company hits the landmark soon? With all of the discussion surrounding continuously increasing market caps within the current tech industry, analysts often poke at the idea of potential overvaluation; and your local Pitt Business Review Analyst will quickly do the same. So, what is the major difference between the dotcom bubble and our hypothetical tech bubble? Well for starters, some of our major tech firms have lived through the bubble already, but the prime reason is that they were backed by tangible goods and technological advancements. FAANG is comprised of five leading tech corporations frontrunning advancements and differentiation in the tech industry, however, two of the firms generate their profits through intangible services: Netflix leading as the largest video streaming service (double that of YouTube) and Facebook managing 2.5 Billion active individuals (with even more accounts) on its four media platforms. The companies’ values come from their massive user bases.
Nowadays, you cannot simply slap on a .com and see an immediate rise in stock price. If you’re looking for potential bubble speculation, I am sure you have read up on some of the ICO (independent coin offerings) names thanks to the crypto craze. Back in late 2017 and early 2018, with names including coin or blockchain, your stock could rise 200%; just ask the new and improved Long Island Iced Tea, which changed its name to Long Blockchain Corp. Or, maybe you have heard of DogeCoin, the coin named after an internet meme? While I will not touch upon cryptocurrency any further, focusing on the more qualitative side, name changing serves as a strong example of a potential bubble. Furthermore, many of our contemporary tech giants felt the wrath of the dotcom bubble and survived. Amazon in particular, now valued in the $1900 per share range, eclipsed at $107 and dropped to less than $7 per share during the crash. Companies like Amazon have already passed the hurdle by diversifying their companies internally to be more than just part of a new fad or craze. To add another point to the argument, strong consumer sentiment and economic expansion have driven every major index to new highs in 2018. With economic expansion comes an increase in equity and an increase in equity drives investor sentiment; just ask the roaring 20’s. As the FED moves closer to raising interest rates 4 times this year, thanks to continued growth, it is tough to ignore the paralleled growth of the S&P 500 and the Dow Jones Industrial Average specifically. Keep in mind that this is a quick qualitative analysis on a potential bubble and there is far more digging that can be done; I encourage you all to dig further yourselves. Lastly, in 1999, the Capital Markets were on a completely new level, with 468 firms seeing an initial public offering (IPO) in the US markets, while in 2017, we saw 174 IPOs. The US markets have learned their lesson on the maturity of firms and their readiness to see the public markets. The last questions remain, what does the future hold for the tech industry? Will we see a slip in tech market caps?
Within the tech sector, homing in on the “Communications Services” group, the major performers that come to mind will be the obvious Alphabet (depending on its distinction) and Facebook. However, most of the industry, in terms of frequency, are made of positions on the smaller, large-cap side. Can you guess one of the most infamous or, in better words, disappointing tech positions? Here is a clue, they opened up with a market cap of ~$28 Billion, hit its high the next day, and dropped 55% since its initial offering, which occurred a year and a half ago. If you guessed Snap Inc (or Snapchat) you have earned a pat on the back. Another security historically performing poorly, Twitter. Social media-esque firms have been criticized for their necessity to be a social ‘requirement’ and develop their revenue streams constantly.
A 2011 Aalto University research study discussed, in the abstract, what MySpace could do to keep up with the fast-paced growth of the social media realm. As abundantly clear now, MySpace is virtually non-existent. They have gone through different remodelings and ownerships but the platform is painfully on the verge of extinction. For this reason, if social media were the main a driver of the tech industry, there would be a much more concerning question about bubble potential. However, the only social media-esque firm in FAANG is Facebook and the strongest performers in the tech industry fall under the “legacy” category anyway.
Ultimately, the growth of the legacy group is not in question, especially if separated from the communications services sector. Citing Kostin, “The Zuckerberg hearing revealed to many government officials the scale of personal data that FB users had agreed to allow the firm to gather, raising regulatory risks.” And now under fire for allegations of improper shadow banning, there is a grim uncertainty for firms connected to Facebook, which focus mainly on Alphabet but further extend to the rest of the FAANG group. Companies connected with Facebook on Goldman Sachs’s radar have underperformed the industry.
With ensuing regulation, Alphabet’s strong connection with Facebook, and no apparent tech bubble, the future shines brightest for Microsoft, taking its third place spot on the trillion-dollar pedestal. I will be checking back in once we see a company approach quadrillion!