Technology at a Crossroads…(II) Software

Waves of innovation

Over the past thirty years or so, there have been several  waves of software innovation, each of which has brought a different set of companies to Wall Street’s center stage.  Each wave has lasted a decade or more and radically reshaped our lives.  Each has begun to recede, from an outperforming stock point of view, when the bulk of possible buyers already own and are using the products (not a surprise that relative stock performance slows down as the company matures).

Low Tide Now

I think that we’re in between waves now.  The next wave is doubtless gathering power, though.  “Cloud computing”  is one possibility.  Developments with smartphones, maybe with Google’s help, is another.  But the next wave could equally well come out of nowhere.  The important thing isn’t necessarily to be the first to discover the next trend, but to be aware enough to catch it in the first year or two of its existence.

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Technology at a crossroads, or, Why hasn’t the tech industry performed better? (I)–Hardware

Three posts to come…

I mentioned in a post on Recent market Action in late May that the tech industry had been a laggard during the current market rise.  I said that the IT index is a mix of large-cap companies that have little growth in prospect and some smaller, more exciting names.  I’d like to elaborate on that post.  I’m going to do this in three parts:  hardware, business software and games.

Hardware:  prohibitive cost of chip production

Take hardware first.  To build a new state-of-the-art semiconductor fabrication plant from scratch costs at least $3 billion.  Two or three companies are unlikely to band together to share the expense, for fear that their design and process technology secrets would be stolen by the others if they were to operate in a single plant (Intel told me once that they won’t sell an obsolete fab to anyone, but dismantle it and sell the components piece by piece instead, for security reasons).

Getting the capital to built a new plant is a huge hurdle for almost anyone except Intel.  But that’s not the only stumbling block.

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Gold as an investment (II)–inflation hedge? not so much

Many people still believe that gold is an inflation hedge.  Maybe that was true in the nineteenth century and before, but I don’t think it is one today.  I don’t think the price of gold over the past thirty years supports the inflation hedge view, either.  But others clearly interpret the data differently from me, since the inflation hedge thesis seems to be firmly embedded in conventional wisdom.

Three factors have changed the place of gold in investing over the past few decades.  All argue against the inflation hedge thesis:

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