This would also include the software technology that powers internet giants such as Facebook and Google, as well as the operating procedures of Starbucks or the value of the Coca Cola brand.
Artificial, or augmented, intelligence and the associated value extracted from Big Data are important intangibles, which must be analysed and assessed when valuing equities. While these analytical tools are commonly exploited to grow revenue and profitability of the major technology disruptors, the usage of data analytics is now spreading to the more conventional players, including financial service providers, with a view to also enhancing shareholder returns.
Are capital light business models keeping inflation low and extending the economic cycle?
The trend we have seen towards increasing concentration and more monopolistic power with corporates is likely to persist and may increase through time. As a result, profit margins are likely to be sustained at historically high levels even if there is an economic downturn in coming years. Indeed, the next recession may consolidate the position of dominant firms in some sectors. The future winners are therefore likely to be the owners and providers of capital.
Intangible and tangible investment in Europe and the United States
Source: Haskell and Westlake (2014) calculations based on INTAN-Invest database (www.intan-invest.net)