If we took a decade from Gordon Moore’s initial 1965 paper to come to believe that he was onto something, a something that was subject to some revisions in search of precision but a something of great power that would continue for a worthwhile period then the next 50 years became, well, predictable.
Past has been prologue. The specific implications might have been obscure but just keeping the pattern of exponential improvement in mind would have opened investor eyes to personal computers, electronic games, mobile phones, the internet and e-commerce. For all their initial failings we’d have known that judging the outcome by their initial capabilities was unintelligent. At each stage the victims of these changes would have been far clearer. From traditional retailers to newspapers the path of the old to purgatory was quite visible.
So where are we now? I’d suggest that there are more areas with even greater transformative potential that are at the point of looming revolution than has been the case in the past era. From that point of view we should be very excited. From that point of view the gloomy prognoses of a Robert Gordon or of the gods of secular stagnation look quaint. The problem is liable to be too much rather than too little excitement.
I’d suggest that there are more areas with even greater transformative potential that are at the point of looming revolution than has been the case in the past era.
There’s no need to start elsewhere. What’s given such dramatic gifts to investors over the last 50 years isn’t likely to disappear as a source of wonder. We’re at the second half of doubling the grains of salt on this chessboard so the ramifications of further progress are potentially hard to comprehend in their scale.
That this is so is primarily to the credit of that most unusual of triumphs – that of a European technological leader. To me ASML may be the most important company in the world. That is not the same as being the most attractive investment. It might be worth adding that according to ASML’s CTO, the brilliant Martin Van den Brink, Moore’s Law actually dates back in all but name to 1900 so it’s more than 117 years old. But unless ASML had fought its way through the challenges of extreme ultra violet (EUV) lithography then it’s quite possible that it would finally have ground to a halt. Certainly no one else has come close to solving the problems. But now, as they say, it’s a clear path to around 2030. In return ASML has become a monopolist. This seems fair.
So if we know we have at least a decade more then what follows? What gets better and cheaper? What becomes possible? The first comment would be that it’s most improbable that another decade of Moore’s Law is a good omen for those waiting and praying for a reversion to the mean and a reversion to value. The traditional will be swimming against very strong currents. That becomes still more challenging considering that the most obvious targets for Moore’s Law enabled change are in big data, machine learning, the Internet of Things and artificial intelligence.
So if we know we have at least a decade more then what follows? What gets better and cheaper? What becomes possible?
Given that it is the major technology companies that have the most data then their leadership – dominance if you prefer – is reinforced. Their fields of action seem broadened and their longevity expanded. This seems almost inescapable. At this stage we do not wish to be dogmatic as to where this will take our world for good and ill. Again we would rather just watch intently.
In specific investment terms what this near ‘inevitable’ progression translates to is an extraordinary and persistent demand for silicon. For once it’s fair to quote a broker, Bernstein’s Pierre Ferragu, with his conceptualisation of the trends as actually being to ‘Artificial Stupidity’. What he’s capturing so persuasively is that what we’re actually going to be doing is throwing vast quantities of silicon at the problems. It’s not that subtle. But it may outrun Moore’s Law as the demand for chips or power improvements may well increase at a rate well in excess of a doubling every two years. Therefore cutting edge capacity will be in constant demand. Perhaps ASML does become about the best investment as well as the most important company if this is right.
Source: Courtesy of the Computer History Museum
The views expressed in this article are those of the author. Its express purpose is to highlight areas of intellectual thought and debate which inform the investment philosophy that underpins Scottish Mortgage, in the hope that they may be of wider interest. The author(s) therefore make(s) no suggestion that this article constitutes independent investment research and it is not subject to the protections afforded to such.
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