The top companies powering progress and productivity in technology
A professional investor tells us where he’d put his money. This week: James Dowey, manager of the Liontrust Global Technology Fund, picks three favourites
The Liontrust Global Technology Fund invests in technology companies that create huge value for customers by driving down costs and prices and boosting productivity. When companies do this they create demand, develop products further and grow the overall market. This is a powerful driver of shareholders’ returns.
Today we are right at the start of a major new innovation cycle driven by artificial intelligence (AI). We believe AI will prove to be one of the most deflationary innovations in history, taking costs out of businesses, improving productivity and fostering new innovations. There will be major winners and losers. Here are three companies we believe will win.
Making the most of software
Enterprise-software company ServiceNow’s (NYSE: NOW) operational performance over the past 12 years since its flotation in 2012 takes some beating. It has grown annual revenues from $200m to $10bn and free cash flow per share by more than 50% a year – a phenomenal performance.
The awkward truth about the great digital transformation of the past couple of decades is that much of the expenditure has not delivered a positive return on investment. But ServiceNow is turning this around for companies – including 85% of the Fortune 500 – by managing the mess of existing software programmes and unlocking productivity.
ServiceNow’s AI-enabled products generate substantial productivity gains. They have allowed the group to raise the price of resubscribing to its products by 60%.
Synopsys (Nasdaq: SNPS) provides software for the design of semiconductors and other electronic systems. Semiconductors’ productivity has increased by a factor of more than ten million in the 37 years since the firm’s inception, and Synopsys has been crucial to the sector’s progress.
But the demand for rapid innovation in semiconductors is now stronger than ever given the rise of AI across the economy. There are new sources of demand for highly specialised chips from new customers and fast-growing new markets for Synopsys in broader computational design. So Synopsys has an exceptionally strong growth opportunity. It has invested an average of between 30% and 35% of its revenue in research and development over the past 37 years, another reason it looks likely to stay ahead of the game.
Fighting cybercriminals with AI
AI is a game changer in cybersecurity because it is enhancing the capabilities of cybercriminals, implying many more and much faster attacks. It used to take a hacker hours to do damage once they had breached a company’s system; now it takes minutes. The best way to fight AI is with AI. Cybersecurity group Crowdstrike (Nasdaq: CRWD) was built on an AI-based format from the start, while some major competitors have much more work to do to integrate new AI capabilities with legacy software.
Crowdstrike is generating strong productivity gains for its customers, delivering a sixfold return on each dollar spent. This is driving excellent growth and profitability, with revenues up from $300m in 2019 to more than $3bn today. Current annual growth of more than 30%, with an equally large free cash-flow margin, is an enviable combination and a mark of the strength of Crowdstrike’s product for the AI age.
“The best way for companies to combat cybercriminals’ AI is with AI”