Alphabet Inc, ARM Holdings plc And The End Of Moore's Law
There are several key trends that define the world economy and global stock markets. One is the rise of China and India. Following on from this is the boom in consumerism, as emerging market middle classes grow and start to spend. And the third is the increasing domination of technology.
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Moore's Law predicted the future of the technology industry
How long can a trend continue? Well, tech's roots lie in the invention of the microprocessor. In 1971 Intel launched the 4-bit 4004 chip, and a year later produced the 8-bit 8008 processor. Little did people know, but this was the beginning of a trend that's lasted longer than anyone could have believed.
In a paper published in 1965, Gordon E Moore, the cofounder of Intel, came up with an interesting idea. He said the number of transistors in a microprocessor would double roughly every two years. There was hardly any talk about this concept at the time, but Moore's Law basically predicted the future of the technology industry.
Since that paper we've had the Z80 chip, the 68000, the 486, the Pentium and the Core i7. We've had the Commodore 64, the IBM PC, the Apple Mac and the iPhone. All the way from the first microprocessor in 1971, up to 2011, the transistor count has doubled every two years. Over 40 years that was an increase in processing power of 2 to the power 20, or one million times.
The end of Moore's Law is in sight, but that won't stop tech
In the early 1970s, the first primitive computer games of bat and ball were invented. Today, computers are so advanced that the graphics in modern consoles are virtually photorealistic. Alphabet Inc, the company formerly known as Google, (NASDAQ: GOOGL) is increasingly becoming an AI company, using computer intelligence to do everything from web search, to driving cars and creating art that ranges from the rather spooky, to paintings you could have sworn were by Rembrandt. Computers can now play chess, Go and Jeopardy rather better than humans can.
Alphabet is now far more than just an internet search business. The fact that it has chosen the name Alphabet suggests that it will cover every aspect of technology which, by extension, means it will cover every aspect of life. That's why, although you might be a little late to the party, the share price will keep rising.
Likewise the computer chips designed by ARM(LSE: ARM) were once niche processors, while the Intels of this world took the bulk of the market. But today, ARM chips are ubiquitous, and are now more common than Intel's designs. You'll find ARM chips in just about every smartphone in the world, in tablets, in cars, in washing machines and, eventually I suspect, even inside the traditional computers that Intel once dominated.
Yet, just a few years ago eagle-eyed tech watchers will have noticed that the pace of advancement has slowed. The latest chips have 14 nm technology. Once we get down to about 7 nm, quantum effects start to interfere with processor function. The end of Moore's Law is in sight.
But I'm so optimistic about scientific advances that I think it won't stop tech from taking over every aspect of our lives. Not only are we approaching a world of all-pervasive technology, but we're only now beginning to understand just what's possible.
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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares). The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
