MIT or Myth, cutting through the hype of future digital worlds
08 June 2022
Following the "Future Compute" conference held by the MIT Technology Review a few weeks ago, exchanges with industry and science experts reinforce our views. The future of computing may not be there yet, but the investment opportunity surely is.
Breakthrough quantum technologies and virtual worlds will transform our daily lives, as ubiquitous Artificial Intelligence will change our interactions with machines and how we work. Yet, investors face the risk of being swirled into buzzwords. Identifying instrumental subthemes that are already benefiting whatever the timeline of the computing future is crucial. In our view, cloud and heterogeneous computing are essential building blocks, and cybersecurity is pervading these themes. We believe that our Security & Space and Artificial Intelligence & Robotics portfolios are well-positioned today for capturing future computing opportunities.
As investors feverishly search for the next big thing in a gloomy market context, we take the opportunity to review emerging technology in the Artificial Intelligence (AI) universe. We participated in the "Future Compute" conference held by the MIT Technology Review a few weeks ago and have gone through quarterly conference calls of disruptive companies - challenging our views on AI, cybersecurity, the metaverse, and quantum computing.
Impact on our Investment Case
Cybersecurity: not an option
Security is among the main challenge for every speaker we met. The attack surface expands tremendously as all data platforms get interconnected, from the data centers to endpoints and the other way around. We see companies deploying proprietary 5G networks with "close-to-edge" data infrastructure. Intuitively, enabling an attack to propagate from edge devices to core data centers only multiplies the potential consequences of a hack. In our view, zero-trust and micro-segmentation (dynamic trust depending on workloads) are core technologies. Yet, security models are like onions, and multiple technologies have a role to play, making cybersecurity a very dynamic theme. We strengthened our Security & Space portfolio a year ago to benefit from such a trend.
Open-source makes 90% of a modern application's codebase, making it challenging to spot vulnerabilities in dependencies. Additionally, software supply chains are under attack; breaches are up 650% in 2021, including major cyber-threat attacks like SolarWinds or Codecov. Cybersecurity goes beyond protecting what is becoming a core driver of the software industry, with massive opportunities for companies that can leverage modern software development and software companies that can industrialize vulnerability spotting. With DevSecOps (merging security tools with DevOps lifecycle), AI technologies (e.g., Github Copilot) and security by design are transforming how software is developed and deployed.
Artificial Intelligence: this is just the beginning
While human intelligence is hardly getting any better, machine intelligence is improving exponentially. The complexity of models is currently doubling every 2.3 months, increasing by one order of magnitude each year. Looking backward, in 1953, IBM made a statement to investors that it identified about 20 prospects that they thought could use their most advanced computers. Forecasting AI by extrapolating the market today is pretty much the same as assessing the computing market at that time - very conservative. We believe there is no foreseeable limit to automation, and MIT's panelists tend to agree with our views: "Very soon, every part of your business will run on AI."
Data is gold; you still have to mine it (using computing power). Unlike gold, digital supply is growing fast, and mining an immense volume of data is the privilege of a few organizations with the resources to support vast data science and machine learning teams. AI has not been democratized yet and is not possible on thin clients (edge or endpoint). The industry is still in the infrastructure phase, with a few companies trailblazing applications. Therefore, our portfolio has exposure to the AI cloud platforms and the more capable hardware that builds the foundations of explosive growth.
Metaverse: build the infrastructure first
Assessing the opportunity of the metaverse appears quite challenging and prone to strong opinions. Most speakers have put forward the well-known challenges of virtual worlds, such as cyber-physical interfaces, polycentric universes, economics, ethics, and moderation. These are challenges Humanity faced several times already in this world. Indeed, civility and risk management are challenging, just as it is for people to accept acting blinded in a room full of people. Yet, social media and mobile phones are actual and fertile experiment fields to tackle these objections and find solutions.
As imperfect as it may be, the metaverse is an economic reality. Roblox provides social and virtual experiences to 50mn daily users (basically all teenagers in the U.S.). Multiple technologies are readily available (e.g., spatial audio, realistic graphics, and differential privacy) to capture the opportunity for gaming and media players. Additionally, we believe that digital and physical worlds can have much more interactions than social, acknowledging it is an ample opportunity. For instance, digital twins will transform industries such as manufacturing, logistics, or healthcare, while working around most social complexity. Hence, such professional applications are likely to grow faster.
Don't rule out semiconductors just yet
Companies like AMD have never seen the kind of demand and impact they are experiencing now. The intelligent future requires a lot of computing, from devices that work on small batteries (1mW) to data centers that use their power plants (10'000'000'000'000s times more energy). Only a few companies can afford the cost of the most powerful solutions. Do you remember the time before personal computers? It is pretty much where we stand for AI, moving from mainframe to personal computers and mobile electronics. Computing is becoming a continuum for a booming “AI everywhere” market.
We heard Intel and AMD technologists and the legendary chip designer M. Keller, who confirmed ambitious roadmaps. The world of computing will be dominated by AI workloads sooner than later, and orders of magnitude faster computation and energy efficiency will support that. Industry veterans believe as we do that computation performance will improve several 100x in the next five years. The semiconductor industry is more lively than ever, and we are doubling down on the innovative companies that can deliver such computing breakthroughs through material or architectural innovations.
Quantum computing is born in the cloud and will live in the cloud.
Quantum computing is likely where AI was ten years ago, with five times more public grants. The ecosystem is vibrant: multiple technical approaches are competing, and most of them might help solve dedicated problems. Thirty years were needed from Richard Feynman's forward statement to useable experiments. Today 61 companies compete for Quantum Processing Units and more than 120 for the accompanying software. Progress in the field is not linear and could be faster, yet 2030 seems a typical timeframe for the first commercial applications at scale. Quantum computing is a national priority, as it could provide supremacy and make all current encryption methods obsolete (federal government agencies should stop using all public-key encryptions by 2035).
Asking when quantum supremacy will come is the wrong question. Quantum computing is a superb technology for some very challenging problems in physics, chemistry, biology, and finance (which is most likely to be the first commercial application). Yet, it is unlikely to supersede the current computing infrastructure for accounting or even AI. Now is the time to identify the pivotal applications and start building the infrastructure. For instance, leading companies such as Google and Nvidia are currently building the software and cloud infrastructure for quantum computing using GPUs (Graphics Processing Units) to complement them with QPU (Quantum Processing Units) when they become available. Quantum computing will be cloud-based and join today's cloud infrastructure, not replace it.
The sky is not the limit for cloud computing. Artificial Intelligence, metaverses, virtual worlds, and ubiquitous computing are still in the infrastructure phase and exploring early applications. Although market projections might be too optimistic in the short term, the long-term addressable market appears gigantic. It is all the more important to spot the hype and invest wisely. The exchanges summarized in this note reinforced our vision of a cloud-based future enabling cyber-physical and AI-augmented experiences, most of them yet to be developed.
Our Artificial Intelligence & Robotics portfolio already gives pride of place to cloud computing, high-bandwidth networks, and heterogeneous computing (the paradigm of leveraging specialized processors such as GPU, FPGA, or DPU together with microprocessors for dedicated workloads). Quantum computing will be the most heterogeneous computing, yet it will just be another specialized cloud accelerator. Cybersecurity (covered by our Security & Space portfolio) will become even more foundational as computing becomes ubiquitous.
Timing the future of computing is almost impossible, but your investment opportunity is already here.
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