In the old days, investors relied on managers to make good business decisions based on their vast personal experience. But we’re now living in the early days of the big-data trend. Artificial intelligence (AI) can analyze data sets much larger than those of even the most experienced managers, leading to better-informed and more-actionable insights.
For proof of the big-data trend, consider that just 2 zettabytes (which is over 2 billion terabytes) of data were created worldwide in 2010, according to Statista. But in 2020, data creation was estimated at 59 zettabytes. And it’s expected to keep growing at a 26% compound annual rate between now and 2024, reaching 149 zettabytes of data created worldwide in that year alone.
This surge in data creation isn’t just coming from uploading pictures and videos to social media. Many of our devices are creating their own data now as well. However, much of the 59 zettabytes is still unstructured data and, therefore, we can’t draw useful conclusions from it yet. This is partly why data analytics and AI are such hot technology trends.
Generally speaking, I believe companies with large data sets will be at an advantage as data analytics and AI improve and grow from here. With this backdrop, here are three companies quietly amassing treasure troves of data.
Image-browsing platform Pinterest (NYSE:PINS) made 10 predictions at the beginning of 2020. For example, the company forecast people would decorate their homes by drawing inspiration from around the world. Last year, there was a 160% year-over-year increase in searches on Pinterest’s platform for Indian-inspired living spaces. There was also a 120% year-over-year increase for Japanese soaking tubs.
How did Pinterest predict this trend and others? It simply looked at how related search topics were trending on its platform and ultimately forecast which trends would go mainstream. Now the company is applying the same criteria it used to predict 2020’s trends to predict even more trends for 2021.
This is important for two reasons. First, Pinterest generates its revenue by displaying ads. Second, the company is becoming increasingly integrated with e-commerce portals. By knowing what the hot trends are, it can better inform brands of what people want, guiding product development and advertising effectiveness. In short, Pinterest could be a sneaky good AI stock pick.
Have you noticed how aggressively PayPal Holdings (NASDAQ:PYPL) is expanding into new business verticals? From launching cryptocurrency services to adding buy-now-pay-later options, the company has been very busy lately. On the conference call to discuss results from 2020, CEO Dan Schulman explained the overarching goal of these new services is to increase total payment volume on the platform — the amount of transactions flowing through its pipes.
PayPal has an opportunity to glean insight from an unprecedented amount of consumer-spending and transaction data. This is significant because the company doesn’t just provide services to individuals like you and me; it also has a healthy and growing merchant business. In 2020, it added 1.4 million new merchant accounts, bringing its total to over 29 million.
At PayPal’s investor-day event in February, Schulman said, “We have a platform with hundreds of millions of consumers that are basically telling the merchant, ‘Here’s what I want’.” In the near future, the company intends to provide its merchants with tools to improve their marketing abilities based on this valuable consumer data. And considering it expects to have over 750 million users by the end of 2025, PayPal’s data will be more extensive than that of most other fintech companies.
Take this last one with a grain of salt, because Nano-X Imaging (NASDAQ:NNOX) isn’t technically gathering any data yet. The company has yet to even launch its flagship product.
What is its flagship product, you ask? Nanox intends to produce a machine called Nanox.ARC, which will provide digital-imaging technology comparable to traditional X-rays but at a fraction of the price. Earlier this month, the company received Food and Drug Administration clearance for the single-source version of its Nanox.ARC. But now, it’s starting the process of getting approval for its multisource Nanox.ARC, the more powerful version of the two and the one Nanox intends to commercialize.
Many investors are excited about the differentiated business model. Nanox plans to affordably price its Nanox.ARC machines or even make them free, to deploy 15,000 of them over the next four years. From there, it intends to generate high-margin, recurring revenue by charging a licensing fee each time the machine is used. The potential of this business model is exciting. But I’m possibly more excited about what Nanox could do with its potentially very large data set.
Nanox says it’s developing partnerships with AI companies to analyze large data sets. Consider that deciphering medical information isn’t as easy as it sounds. For example, a 1999 study on mammograms suggested mammographers sometimes unintentionally overlook warning signs found in the images because they lack constructive feedback whenever they misinterpret the data. In other words, mammographers struggle to improve because no one tells them when they’re wrong.
More recently, IBM published a study acknowledging how difficult it is for radiologists to keep up with their increasing workloads but also noting that AI is proving it can decipher X-ray data as well as people can.
Nanox expects each of its machines to be used around 161 times per month. With 15,000 machines, the company could be sitting on a gargantuan medical-imaging data set in a few short years. It remains to be seen how this could be monetized. But based on the two previously cited studies, I submit to you that a data set of this size has more than just monetary value: AI could use it to improve human health, and that’s something I can get behind.
Betting on big data
Based on the zettabytes of data our world is creating, I think many companies riding the big-data trend are worth investing in. I like both Pinterest and PayPal stock today, partly because their troves of data have immediate application to their core businesses. Nanox is a far more speculative stock, and it’s possible that its business never gets off the ground. That said, if it executes its stated plan, it could be another strong company in an increasingly data-driven world.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.