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Technology & Innovation
3 ways the cloud can change our future
Andy Budden
Investment Director

The digital future


The global economy experienced a marked acceleration in digital transformation during the COVID-19 crisis. According to data compiled by Statista, the world’s spending on digital transformation is projected to increase from US$1.3 trillion in 2020 to US$2.4 trillion in 2024.1


While the pandemic benefitted new economy companies in industries such as e-commerce, digital payments and online entertainment, many old economy companies also found themselves moving into the digital age.


Here we outline three ways innovative companies are harnessing the potential of cloud technologies to disrupt their own industries, creating transformational growth.


 


1. Transforming traditional industries with cloud-enabled solutions


Farming, one of our most traditional industries, is enjoying continued transformation. Increasingly, cloud-connected drones are enabling precision farming, which can boost both efficiency and sustainability. Smart-livestock monitoring (e.g. smart tags to monitor a cow’s health and activities) autonomous farming machinery and ‘smart buildings’ are other viable cloud-based solutions.


These technologies offer incremental efficiency gains, which have a material effect on improving farming performance. It is estimated that more than US$500 billion in global gross domestic product could be unlocked by agriculture connectivity by 2030.2


Cloud-enabled agricultural solutions can drive a significant leap in productivity and improve environmental outcomes


The benefits of cloud-based solutions go far beyond the agriculture industry. More and more companies from industries as diverse as manufacturing, transportation and energy are adopting cloud services as they seek to gain business agility and improve their competitive positions.


But even with today’s rapid cloud adoption rate, companies and governments could just be scratching the surface of what the cloud is truly capable of.


 


2. Big data driving gains in renewable energy


The use of big data has grown in importance over the years. In the renewable energy industry, big data is used to forecast the weather and energy consumption to help companies better manage supply and demand.


The performance of wind farms, for example, can be optimised using big data analytics. The fluid dynamics of wind turbines is a complex problem that mathematical formulas cannot solve with precision. However, big data – stored in the cloud – can be used to simulate what happens to wind around the rotors of wind turbines to help optimise efficiencies.


Critical to the financial success of a wind farm is knowing how much to bid for a project. Engineers take into account the wake effect – the performance loss for a windmill that is downwind (in the direction of the wind) of another – to calculate the energy yield of a potential project. However, energy loss from the blockage effect - the performance loss for a windmill that is upwind (in the opposite direction of the wind) of another – wasn’t fully appreciated until more recently.


Off-shore wind specialist Ørsted adapted its methodology for calculating turbine interaction loss, applying greater discipline in its project bidding process. Financial discipline, along with cloud-powered simulations to create predictive algorithms that optimise efficiencies, has helped the company to become a leader in offshore wind.


Case study: Ørsted


How the world’s largest offshore wind farm developer is harnessing cloud capabilities


Data as at 30 September 2021. Sources: Orsted, Capital Group


3. Pioneering medical solutions that go beyond improving and saving lives


The application of technology to health care has been well-recognised throughout the COVID-19 pandemic. A key reason that effective vaccines could be rolled out to populations so quickly lay in the cloud.


The ability to decode the DNA of the COVID-19 virus back in the 1990’s would have taken months and cost around US$1 billion dollars. This timeframe was dramatically reduced in the pandemic – almost instantaneous once the technology was in place – and cost less than US$100. Once decoded, the COVID-19 DNA sequence was available on the cloud and immunology teams around the world could begin the task of finding a viable vaccine.


Data as at 30 June 2021, unless otherwise stated.


1. Sources: National Human Genome Research Institute (1990s, 2007) and MIT Technology Review (2020)
2. Sources: Chemical and engineering news (1986), ACS (2010) and Thermo Fisher Scientific (2020)
3. Data as at January 2021. Source: McKinsey


The application of cloud technology is not limited to the drug discovery phase. In COVID-19 clinical trials, big data was used to help select trial candidates and understand data that came out of the results.


Some biotech companies have capabilities around cloud computing and big data, but many will look for outsourced solutions. Thermo Fisher Scientific is well known for supplying instruments to the health care industry, but it also has an outsourced cloud capability where it has 40 exabytes of human genome data stored.3 Offering this service to biotech companies allows them access to the transformational power of the cloud.


 


In search of long-term winners


Looking ahead, technology-enabled companies are set to continue to power the digital economy and transform the global business landscape. But not all companies that embark on a digitalisation journey will thrive.


Innovative management teams and resilient balance sheets are just some of the important attributes to look out for in long-term winners. Fundamental research remains key to understanding a company’s true value.


 


Forecasts shown for illustrative purposes only.


1. Source: Statista. Forecasts for 2020–2024 are as of November 2020. Digital transformation refers to the adoption of digital technology to transform business processes and services from non-digital to digital. This encompasses, for example, moving data to the cloud, using technological devices and tools for communication and collaboration, and automating processes.


2. As at 2020. Source: McKinsey


3. As at December 2020. XB refers to exabyte, a measurement of data. Source: Deloitte Insights, “Innovating R&D with the cloud"



Andy Budden has 28 years of investment industry experience and has been with Capital Group for 17 years. Earlier in his career at Capital, Andy was an investment specialist. Prior to joining Capital, he worked at Watson Wyatt Investment Consulting. Andy holds both a master’s degree and a bachelor’s degree in engineering from the University of Cambridge. He is an associate member of the Institute of Actuaries. Andy is based in Singapore.


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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.