Two weeks ago, Ford Moter company $F announced they would adopt the North American Charging Standard (NACS) developed by Tesla $TSLA. Of course, they cannot retrofit the plug into the vehicles. They, therefore, will provide adapters and software integration (API access) to allow current models and future models produced until 2025 to access the Tesla Supercharger network.

The connectors will be built into the car from 2025 on wars into their next-generation vehicles - https://shareholder.ford.com/Investors/news/default.aspx

Last night, General Moter company $GM followed suit and announced an almost identical commitment. New vehicles from 2025 will contain the NACS; in the meantime, there will be adapters and software integration (API access) for current models until the switchover.

(1) I suspect that other car manufacturers will follow suit. Why would they not? The car industry is changing rapidly, and cashflows will be prioritised successfully transitioning to EVs. Tesla foresaw the issues surrounding charging EVs and built a comprehensive network that works far better than standalone providers such as Electrify America $EVGO and ChargePoint $CHPT.

(2) I don't believe this will be a massive boon for Tesla regarding the monetary value, but it will open the door for future licensing and collaboration. Self-driving software and Chips are the most obvious that come to mind. Again, I ponder the question - In the face of watching your old business and cash cow dwindle, it will be challenging to transition to profitable EVs, which the likes of $GM and $F have mentioned won't happen for years to come, if you have to divert funds to extended areas of development AND in a relatively short period.

(3) Shareholder implications - There is no doubt this is great for sentiment, and in the short term, this can significantly affect the stock price. Narratives and stories can push a stock beyond disbelief and bulls will argue and defend the rise whilst bears will scorn the same. I'm not going to argue either way however I will say that these developments push back on the argument that the 'competition is coming' and 'it will be easy to catch up'.

Disclosure - I'm long $TSLA in stock and option calls.

Soft or Hard landing is the question.

Below are links to the 2023 Outlooks by Major Banks. Most of them are in PDF format, and a couple is videos.

I shared them for educational and resource purposes. I will go through them and present any exciting findings in a separate note.

J.P.Morgan - Investment Outlook 2023

Goldman Sachs - Macro Outlook 2023: This Cycle is Different

Morgan Stanley - 2023 Investment Outlook

BlackRock - 2023 Global outlook: A new investment outlook

HSBC - Investment Outlook Q1 2023: Looking for the Silver Lining

Citi Bank - Wealth Outlook 2023: Roadmap to recovery

Credit Suisse - Investment Outlook 2023: A fundamental reset

BNP Paribas - The investment outlook for 2023: Investing in an age of transformation

Deutsche Bank - CIO Insights: Resilience versus recession

ING - Global Economic Outlook 2023

Apollo Global Management - 2023 Economic and Capital markets outlook

Wells Fargo - 2023 Outlook: Recession, recovery, and rebound.

BNY Mellon - 2023 Outlook: Looking through to recovery

Fidelity International - Outlook 2023: Navigating the polycrisis

NatWest - Year ahead 2023: Tomorrow begins today (Link at the bottom of page)

Bank of America - Outlook 2023: Back to the (new) future

Lazard Asset Management - Global Outlook 2023

Life with a dog is always better.

A few weeks back, I posted about why you should be invested in software. It was based on the premise that software and hardware are modern companies' digital infrastructure, meaning more software must be produced to manage, monitor, analyse and secure these digital infrastructures.

Continuing the theme, I want to explore managing, monitoring, and observing an ever-evolving digital infrastructure with all its software and cloud deployment advancements.

But before doing so, we must educate ourselves on cloud computing and application development. I'll utilise sources and pictograms to distil information into a high-level, easy-to-understand summarisation.

Before cloud computing, inefficient and unproductive practices made software production and implementation slow, rigid, and cumbersome. This was primarily due to a dysfunctional and non-optimized relationship between Development and Operational (IT) teams. Operational teams responsible for deploying and managing the software on their IT Systems required more interaction with the development teams responsible for producing, testing, and refining the code/software.

As technology improved, primarily cloud infrastructure and the ability to self-serve, also known as IaaS (Infrastructure-as-a-Service), so did the relationships of teams inside a business. In this case, Developer and Operational times could align closer to quicken and simplify developing, deploying, and refining software/code; thus, DevOps was born. This is a simplified version of history, but it delivers a high-level understanding.

Looked at holistically, DevOps is a combination of practices, philosophies and tools that combine Development and IT operations to shorten the software development life cycle and increase code quality through continuous delivery.

With the proliferation of cloud and hybrid computing, we witness applications and databases connected differently. It’s not just the connection but how software is designed, delivered, and refined.

With the proliferation of cloud and hybrid computing, we witness applications and databases connected differently. It’s not just the connection but how software is designed, delivered, and refined.

Cloud computing services leveraged virtualization technologies giving clients complete control over sandboxed networks. This abstracted the complexity of provisioning and managing infrastructure in the data centre.

The evolution of these technologies, paradigms, and practices continues today. We now have containerisation and micro-services.

Microservices is an evolution of the approach towards how software is architected. Rather than one monolithic application, the code is compartmentalised into smaller, independent repositories.

What about containers? They are pretty much as the name suggests. Here's an excerpt from Google Cloud

They are "...packages of software that contain all of the necessary elements to run in any environment. In this way, containers virtualise the operating system and run anywhere, from a private data centre to the public cloud or even on a developer's personal laptop".

We’ve quickly run through the changing environment for digital infrastructure. The cloud is becoming more sophisticated and specialized, giving rise to new ways in which software and app developers can create, manage, test, and deploy code.

This also affects IT operations and teams. They must monitor and manage an increasingly complex ecosystem covering many responsibilities. Managing digital infrastructure can be just as complex and time-consuming as managing physical infrastructure.

Many tools are available for the job; however, navigating different software solutions for different applications is counterproductive and time-consuming.

Enter Datadog $DDOG - A cloud-scale monitoring and security platform that unifies metrics, traces, logs, and more for centralised visibility and faster troubleshooting on dynamic architectures.

Here is a more comprehensive description taken from their website.

Besides making it easy to manage and monitor the health of the digital infrastructure, they also enable DevOps teams to be more productive. One of the primary value propositions of Datadog is the simplicity of viewing the health of your organisation’s digital infrastructure through a single pane of glass.

What does this single pane of glass view look like? If I was a customer, what would I see? Here’s a snapshot of what a Datadog $DDOG dashboard would look like.

Datadog has climbed the ranks of Gartner magic quadrants to become a leader in its core competencies.

How did it manage such a feat with so much software and competition?

The first mover advantage is where it began, but it maintained its lead by adding more modules and functionality that were natural extensions of its core offering. They did not stray too far from their core competency, a vital strategy to remain a disrupter and a pioneer within your industry.

You can read more here about sticking to core competencies that align with your strategic intent and what happens when you fail. Hint, it’s not good!

Here’s an excerpt from ‘Software Stack investing’, a respected and excellent resource I use for understanding companies like Datadog. The author, @stackinvesting, briefly outlines how Datadog established a leadership position.

“The answer can be found by going back to Datadog’s first big industry achievement in 2018. That was consolidating the “3 Pillars of Observability” into one solution. This is a reference to the fact that monitoring the health of a software application could be accomplished by observing application logs, infrastructure metrics and code execution traces. Prior to Datadog, each of these functions was often addressed by a separate tool. Going back 10 years ago to 2012, an engineering team (DevOps was still a nascent concept) might use Splunk to examine log data, New Relic for traces and some open source project like Graphite for metrics. And Nagios could alert the team if something went out of threshold.”

Remember, a Unique Selling Point (USP) differs from a Value Proposition (VP). In this case, the USP brings together three aspects of observability traditionally done by individual vendors. But, the value proposition is a cleaner and more detailed view of the company’s digital assets and health, meaning time is saved, resulting in increased productivity.

Here’s another excerpt from Software Stack Investing’s website

No more going between applications and manually stringing together errors and alerts from one application to another or receiving an alert and wasting time trying to figure out how and why that alert rose.

Modern software and digital infrastructure have become vast, and observability is even more complex. With that complexity, better security functions are necessitated.

Datadog has ventured into Security and Operations, collectively known as DevSecOps. It’s introduced new offerings that are natural extensions of its core products covering Development and Operations. This makes sense; why wouldn’t you want security tailored around these primary functions?

They offer application security, SIEM (Security Information and Event Management) and cloud infrastructure deployment.

A dedicated security team will have Cybersecurity software in place, which is why Datadog hasn’t delved into Endpoint security or other cybersecurity products, as it would be straying too far from their core competency, resulting in a misalignment of strategy.

Instead, they listen to their customers and focus on the developers' needs. A developer’s remit is on the production environment, which is why Datadog offers tools to implement security at this stage. Similarly, it offers IT Operations security functionality that bolts onto what they are already managing. This allows for harmony between the developers, operators, and security teams in terms of having congruent and functioning communication regarding keeping a digital infrastructure running and secure.

How do they keep introducing so much functionality and new modules whilst sticking to their core mission of being simple and straightforward, saving time and money?

The answer is AI and automation.

An AI focus underpins all their offerings and functionality. In this case, a tool that intelligently amalgamates functionality acts as an assistant aptly called “Watchdog AI”.

It’s not only about increasing functionality that stems from its core offerings. It’s also about being cognizant of the environment for hiring developers, as they are in short supply. Automation is a crucial pathway to improving what’s already available and adding to the productivity gains already delivered through their products.

They can use baseline interpretations of the company’s data, and anything that deviates from that norm can be alerted towards the relevant team.

Datadog intends to fuse its offerings, making them congruent with its core strategy whilst providing timely assessment and notifications to the relevant teams.

A lot of standard workflows and processes can be automated; as a result, they introduced ‘Workflow Automation’. The workflow is a set of sequences activated from a ‘trigger’. So it could be a trigger arising from observability. If it frequently requires a predetermined response or action, it is suitable for automation rather than allocating time and resources.

Datadog is being recognised for its efforts, as evidenced in the latest Forrester Wave chart for AI within IT operations.

Remember, Datadog was all about removing frustration and making the life of DevOps teams easier whilst breaking down silos and making data viewable from one pane of glass.

There are other commercial options; however, less time is wasted on not switching between disparate apps and tools whilst having everything on a single customisable pane of glass, saving time and resources and benefitting productivity.

The difference between ideating and successfully releasing products desired by your customers requires agility and iteration. When perfected, it’s a flywheel that can’t be underestimated; it helps to maintain a leadership position and pioneer the curve. The history of innovation below supports this.

DevOps continues to evolve, and as much as Datadog innovates and releases new functions extending its core offerings it recognises that obtaining these new products through acquisitions is a way to save time & resources.

I would argue that the pace of innovation in this space, coupled with niche offerings that address particular problems, warrants acquiring these products rather than organic development. Datadog has acquired technologies that bolt onto what it already offers, and it’s been doing so for many years.

Recent acquisitions include:

It is a cloud infrastructure monitoring tool that allows you to map and visualise your cloud assets and configurations.

It simplifies the complex mesh of interconnected resources and services, giving a high-level model of your digital infrastructure. This helps with costs, configurations, and how everything interacts.

It extends Datadog’s unified platform to deliver deeper API observability, governance and automation across the entire API lifecycle.

With so many APIs, it can be challenging for engineering teams to understand the interdependencies, health, availability, and security of APIs and how they affect the experience of application users.

Hdiv is a security-testing software provider that will enable Datadogs cloud security platform to take a more comprehensive approach to application security.

It monitors application behaviour to detect vulnerabilities during runtime, enabling developers to assess, track, and monitor risk from running applications.

Extending its functionality within application security monitoring, Sqreen helps to protect organisations’ production environment, further integrating the work of security, development, and operational teams.

Shifting from traditional monolithic architectures to microservices is complex, opening the door to code-level risk and vulnerabilities. Sqreen actively detects attacks on applications and traces them from network requests down to the line of code.

Simplifying how distributed engineering teams can collaborate to investigate, debug, and resolve issues in real time.

It’s a step beyond the constraints of asynchronous chat threads by being able to multi-user edit within a shared window.

The cloud growth runway has many years ahead of it. With the increasing adoption of the cloud, we require tools to monitor, observe, and protect this digital infrastructure.

It’s not just about IT but also how we develop and deploy code. The better tools that DevOps have, the more productive they can be, which benefits the company.

You can deploy different solutions and stitch them together, which can be inefficient and time-consuming. A single solution that can amalgamate the different requirements into a single pane of glass solves the problem and makes teams more productive, benefiting the company from a product and financial standpoint.

The continued strength lies in adding more functions and features that naturally extend from its core capabilities meaning existing and new customers will adopt them and won’t be seen as disjointed.

Datadog fits this bill perfectly. Its ability to continually introduce new products that stay ahead of the growth in cloud technology and the evolution of DevOps will secure its leadership position for many years.

Upgrade to Giga Nevada and new BESS facility coming online

Giga Nevada was incepted almost a decade ago. It was built to meet the lack of supply required for their ambitious plans of transitioning the world to sustainable energy based on three aspects.

This site was initially intended to make

The original driver of Giga Nevada was based on the realisation that combining all the world's battery output, at the time, wouldn't be enough to satisfy growth targets.

During construction, it was viewed as a "crazy amount of batteries.", as mentioned by Musk in the video at the bottom of this post. It remains the largest cell manufacturing facility in North America.

The Tesla team have come a long way in terms of the physical characteristics of the factory and the amount of capital invested to date.

It's not just the physical characterises or investment, but production has been trailblazing with the most up-to-date numbers below.

They produced their 1 Millionth Energy module last week.

This week they announced significant upgrades to the facility to meet the demand for their output.

Musk addressed a crowd at the factory last night alongside Nevada Governor Joe Lombardo.

Governor Lombardo praised Tesla's continued investment in the state as it related to the direct economic impact. Musk further commented that $37 Million was directed towards K-12 education, specifically towards the areas of Robotics and Sustainability.

Musk stated the investment would most likely exceed $3.6 Billion and be closer to $4 Billion, and the number of jobs will most likely exceed 3000 direct jobs.

Interestingly, they achieved their production goals with half the space they originally intended to use from this factory. This is why they are not only expanding current capabilities but are building out a whole new manufacturing plant dedicated to solely producing the Tesla Semi truck, which began deliveries to customers in December 2022. Amongst the first customers was PepsiCo.

Musk stated in his speech that Semitrucks only account for 1% of vehicles but make up almost 20% of emissions.

A full ramp of the Semi Truck manufacturing lines will be achieved by next year, with this year focussing on ramping up.

It's not just a new area dedicated to manufacturing trucks but also a whole new section to produce their own 4680 cells.

The 4680 cells are the culmination of acquisitions (Spring power International, Hibar systems, Maxwell Technologies and SilLion) and extensive R&D at its other battery facility based at Kato Road, California.

This is a milestone achievement, and Musk stated the following goals for cell production.

He also stated the Cells would be used for vehicles and stationary storage.

Giga Nevada was the primary manufacturer of their energy storage products - Powerwall (Residential and small-scale storage) and Megapack (Commercial and Utility scale).

This will continue, but Tesla has built another new factory dedicated to building Megapack storage only.

The building is based in Lathrop, California and is aptly called 'Tesla Lathrop Megafactory'. It was an acquired former JC Penney distribution centre. It's relatively new, acquired in 2021 and only unofficially coming into production in Q4 2022.

The Megapacks will most likely not utilise the 4680 cells from Nevada but instead Prismatic Lithium Ion Phosphate batteries. The reason is that there is no restriction in terms of weight, density, etc., as the requirement for stationary storage is different than that of an Electric Vehicle.

The sourcing of batteries for Megapacks will come from various suppliers, with a notable amount being sourced from CATL, the world's largest manufacturer of batteries.

Tesla has a whopping 2-year backlog for its Megapack Storage system, and the new Lathrop facility can produce up to 40GWh of annual production.

Pessimism has become a contagion.

Grab a coffee, grab a drink, or put your feet up and relax as we explore the psychology of a recession, how pessimism affects the consumer and the economy, and BNPL (Buy now, Pay later) could be on shaky ground.

In my first write-up on SubStack, I spoke about the Psychology of investing and how it impacts you as an investor. Here’s a link to the post, and if you’ve not signed up, consider doing so.

I spoke of how the consumer must “feel” as though they are in a recession or “feel” as though things are getting “worse”. Here’s an excerpt

Well, it would seem as though negative sentiments are beginning to manifest across all levels of consumers. This was one of the key findings in Mckinsey’s fourth semiannual edition of the ‘American Opportunity Survey’ (AOS).

The data looks at four surveys - April & Nov 2021 and April & Nov 2022.

The consumer was still optimistic during the first two surveys conducted in 2021. This is expected as it takes time for the impact of inflation and rising interest rates to be "felt" by the consumer.

Notice we are talking about feelings. You must understand that consumers look to the future by judging how they feel in the moment. If the stock market is making new highs, fat bonuses are being paid, and your house value is increasing, you will feel optimistic about the future.

The issue is that we cannot predict the future, but the consumer reflects on the future based on what is happening today! The stock market is different, and that is why the market will always turn up quicker than you can catch the bottom.

Unlike previous surveys, optimism has been cut across the board - all income levels, genders, and ages, but the sharpest cut was amongst 25 to 34-year-olds.

The report opines on potential reasons for the increase in pessimism.

Let's dig deeper and look at how sentiment varied across different demographics.

The 25 - 34-year-old has been hit hard. We discussed how a rising rate environment could impact their home buying. When the recession comes around, there may also be fewer jobs available for them; however, US labour statistics would counter this argument for now.

Returning to the survey, Look at how quickly sentiment changed for people earning over $100,000. It was the most significant drop in the whole survey.

As bad as this is going to sound, this is the kind of "feeling" we need to help reset expectations. If every income level, and every demographic, is beginning to adjust their spending habits, then the economy is beginning to cool.

Inflation and rising costs are already being talked about but expect this to ramp up as pessimism becomes more deep-rooted across all people. The news will perpetuate this, becoming the topic of small chat and feeding into demand destruction. This will also spur a deflation called the 'Deflationary Spiral'. More on this later.

On the topic of spending, let's look at the last survey Exhibit.

Here are findings from the report that relate to spending habits:

I will add my own observations and thoughts below:

The report also had a small note on inflation and wages. Here's what they had to say:

At least there was some optimism, but this doesn't help the FED's mandate. I believe jobs will be the final stand. Once we see a deterioration in employment figures, that will be the last piece of bad news the market needs to look forward into the future.

You may or may not know there are many types of Deflation, and believe it or not; there is also good and bad deflation.

Good deflation is when technology allows products, processes, and services to be cheaper, more affordable, or more efficient.

A type of bad deflation is when people stop spending money because they believe things will get worse or cheaper, but it doesn't manifest how they envisage spurring a stagnant economy.

I will leave you with this definition of 'Deflationary Spiral' from Investopedia.

Pessimism is spreading, and this is fulfilling the FED's mandate. Spending on Energy, Utilities, and Groceries remains stubbornly high, meaning other areas will suffer. BNPL may come under a lot of pressure in the short-term and clothing retailers.

The jobs market is strong, and we need that to fall, which will be the last straw.

BNPL may be f***ed in the short term.

Psychology affects markets, and the sentiment is turning sour across the board. We could see a rise in the manifestation of Deflationary Spiral effects.

Link to the Mckinsey article - https://www.mckinsey.com/featured-insights/inflation/inflation-weary-americans-are-increasingly-pessimistic-about-the-economy?cid=other-eml-onp-mip-mck&hlkid=76ee547b9bcc4f4bad0a428384a9f421&hctky=10451856&hdpid=ecfc4f87-7e74-4e4b-8ad9-0fa59c20094b#/

Agility is required in a perpetually evolving industry.

I recently posted about Software and how it should occupy space in your portfolio. You can find that post here.

I spoke about the increasing use of software and how it ironically requires more software to manage and secure software and IT infrastructures. Let's look at how Crowdstrike is navigating an ever-evolving industry.

Securing our software and computing architecture

The march towards cloud-native architectures gives way to increasingly complex IT infrastructures. This can create exploitation gateways for security breaches and hackers. Opportunity breeds solutions.

The cybersecurity industry changes quickly, and the evolving landscape gives rise and fall to many companies. It’s hard for investors to track them all and the encompassing innovations. But, it's more difficult for companies operating in the space to innovate and pioneer ahead of the curve.

Source - Global Market Insights: Global Cyber security market

In another post, I spoke about the problems companies face when they innovate outside their core competencies and pursue ideas that do not align with the firm's strategic intent and resources. Another mistake is introducing products that your customers do not need or want at this particular time. You can read the post here or the in-depth write-up on my Substack by here.

I will explore how Crowdstrike is navigating an ever-evolving industry whilst strategically introducing new products and remaining within its core competency. More importantly, these are products being necessitated by their customers.

Source - Earnings presentation Oct 2022

I like Crowdstrike’s approach to the problem. They have been incrementally introducing products, and customers are purchasing those new modules.

Source - Earnings call Q3 2022

Crowdstrike recognizes that other companies offer Cybersecurity products that aren’t within their core competence, and rather than compete directly, they’ve partnered with those companies.

Source - Earnings call Q3 2022

Partner-sourced ARR growing 55% YoY is impressive and highlights the importance of offering the best-in-breed solutions rather than trying to encroach into areas they cannot lead.

Crowdstrike offers similar modules; however, customers will go to the leaders of the respective spaces, so rather than diluting their go-to-market strategy, partnering is a better option. Moreover, it's a two-way street, and both parties can benefit. This isn't zero-sum, and the overall market continues to grow.

Source - Earnings presentation Oct 2022

Even though they have strategic partnerships, they are slotting in new offerings and modules that complement their customer's needs closer to what they already offer. If we look at 'identity Protection', this was the most significant contributor to ARR within the emerging product category.

They understand their customer's needs, introduce products that have a material impact on the business, and align with strategic intent. This resulted in a seven-figure expansion with a leading global brand.

Source - Earnings call Q3 2022

The cardinal sin of a company is straying too far afield from its core offering. You're probably sick of hearing this now, but Crowdstrike seems to have found itself doing this and performing well.

This is in no small part to their acquisition of Humio. Humio is a log management platform. This is the space in which Datadog $DDOG operates. Datadog is more comprehensive and can provide monitoring, security, and analytics for developers.

Humio, now sold as Falcon LogScale under the Crowdstrike brand, is a way to primarily ingest massive amounts of data at any throughput, providing visibility into logs that can alert the team to incidents allowing them to respond.

Source- Crowdstrike Website

In short, it helps Crowdstrike offer a SIEM (Security Information and Event Management) product. So, it's not quite encroaching on Datadog but instead complements Crowdstrike's current offerings. For the record, Datadog and Crowdstrike can integrate.

The new product seems to be doing well, as management has hinted in the most recent earnings call.

Source - Earnings call Q3 2022

Crowdstirke also makes it remarkably easy to add additional security modules, explore partner integrations, and offer free trials. This is achieved through their app store.

I like the idea of an app store in an industry that can be pretty convoluted and has many offerings. It's clean, easy to use and provides explanations making the whole process seamless and intuitive.

CEO Geroge Kurtz has mentioned in the past and continues to mention in earning calls about providing a fully integrated platform. We've already explored why this can be tough, especially within a rapidly changing industry.

Not only that, but being able to provide every security module as your core competency would be a goliath task. If it can be done, then certainly the use of AI has to be included, and that is the bedrock of what Crowdstrike offers with their flagship 'Graph' products.

Source - Earnings presentation Oct 2022

They have added other security products to this 'Data Fabric', alongside their 'Graph' products.

The CEO is undoubtedly confident, and a good sign of leadership for a disruptive company is their ability to make predictions and deliver. Talk is cheap, but products and results are worth their weight in cash flows.

Consider recent commentary from Q3 2022 earnings calls about becoming a completely integrated security offering.

TL;DR

Let me sum up

Cybersecurity is a harsh industry, so we see fragmentation and companies coming in and out of fashion alongside their technological offerings. Crowdstrike is taking a reasonable approach by partnering where it can and strategically introducing new products its customers want.

Often companies struggle to offer products that do not align with core competencies and resources, but Crowdstrike is managing to do this, and the results are bearing fruits. Granted, they haven't made a complete General Electric move and introduced something entirely outwith their competency. But Credit where it's due, and the integration of Humio for log observability has been successful.

Using emerging technology, primarily AI, is a good strategy. They seem to be building on top of that success, paving a path towards becoming an integrated platform. The journey ahead will not be easy, but I give the benefit of the doubt in receipt of the CEO's conviction and subsequent results.

Santa Biden 🎅🎁

@kostofff posted a note on where the super-rich deploys their cash within the markets. Click here for the post.

Here are the results from this particular source

Over the years, software and SaaS have become a higher percentage of indices and, as a result, occupy a higher percentage of portfolios.

Software is indeed eating the world, and I would go as far as to argue it has become a staple of economic output if looked at in its entirety. It is mission-critical in many circumstances, and maintaining software infrastructures has paved the way for new software classes.

Software is inherently deflationary, allowing organisations to allocate the jobs of whole departments to a single piece of software. It allows young companies to compete with larger organisations because they can be more efficient and lean.

The progress and advancement of software are not slowing down by any means, and if broken down into smaller constituent groups, we can see segments that enable organisations to become even more deflationary are poised to grow quickly. Alongside modest growth for Application development software.

Either way, it supports a strong argument for why other investors should consider Software alongside the super-rich.

As software becomes more fundamental to everyday life, whether consumer-facing or behind-the-scenes, it also brings with it opportunities and consequences that ironically require more software to solve.

A function of increasingly relying on computing and software is the susceptibility to digital attacks resulting in the industry we know as 'Cyber Security. As you would expect, the proliferation of companies offering Cyber Security solutions has increased alongside the number of ways our digital infrastructure can be breached.

Source - Statista

This has given rise to innovative solutions and the adoption of new technologies, such as AI/ML, that are required to keep this digital infrastructure functioning.

Crowdstrike $CRWD adopts Machine Learning to deploy endpoint security that relays with an AI-powered threat graph called 'Falcon'. Simply put, the protection it provides constantly evolves by detecting attacks across its clients and other sources and updating all devices in real time.

Companies like ZScaler $ZS are born out of necessity. This company has taken a 'Zero Trust' approach, said another way, rather than playing catch up with the ever-sophisticated ways hackers are infiltrating our infrastructure, it assumes trust in nothing and assigns it afterwards.

Cyber Security is a fickle industry, so much so that if you go to University and obtain a degree in the subject, by the time you graduate, a lot of what you learned may be redundant.

But that same speed of change can apply to other software; therefore, we need a way to assess and track companies operating within the software industry. How do we pick big winners or avoid companies that are at risk of being disrupted by the very thing that fueled their rise; Software?

Some companies like Salesforce $CRM have stood the test of time and rewarded shareholders by outperforming their constituent index.

Source - Koyfin

It's good and well, showing a chart of one of the most successful SaaS companies, but we need to think a little deeper.

There are myriad ways to assess and view companies, but here are a few that I personally employ to track software companies, encompassing a qualitative and quantitative perspective.

In the world of software, I cannot stress the importance of continuously spending on R&D. As intimated earlier in the post, the market moves quickly, and software allows for lean start-ups, meaning other companies can deploy the same tactics afforded to current leaders against themselves.

A young company can come with agility and quickly acquire low-hanging fruit; before you know it, the disrupter has been disrupted. A company must deploy cash towards new products and ideas to stay ahead and continue pioneering the curve.

A stock I own and is an all-time favourite of mine is The Trade Desk $TTD. They maintained a steady increase in R&D spending, settling at about 20% of revenue as of recently.

According to this source, the median for SaaS companies in 2020 is 23%. However, I would argue it depends on the company's stage. Is it in hypergrowth, or is it maturing? You must also consider how efficient their R&D spend is. Generally, between 15% & 30% is the sweet spot I look for. Anything below or above prompts me to investigate further.

When spending on R&D, it has to be spent on areas that benefit the company, its customers, and its growth ambitions. Aligning with the company's core competencies and strategies.

I see many companies, not just in software, spending for the wrong reasons, such as pandering to Wall Street, guessing what customers want, or drifting too far afield from their core strategy and offering.

I talk about this in great depth in a post from last week, which you can access by clicking here or for the longer and more in-depth version, you can access my Substack, which is free, by clicking here.

Sticking to software, I look for companies that listen to customers' wants and then quickly produce those products. A prime example of this is Datadog $DDOG. We can quantify this by looking at the number of customers using more than one product. Luckily, Datadog makes it easy for investors and discloses this information every quarter.

After listening to their customers and introducing 6+ core products in Q3 2021, it doubled a year later to 16%. That's a 100% increase.

Even customers using 4+ products in Q3 2020 jumped by 100% two years later in Q3 2022.

I hinted in the previous section about pandering to Wall Street. The same goes for pandering to investors. If the software industry is as fast-moving as I have mentioned, then you need to understand that management is best placed to know what direction it's going and what has to be done to maintain leadership and growth.

One way to know is the introduction of products that are quickly adopted by new and current customers, as we have already touched upon.

Another qualitative factor is management's ability to predict the future regarding industry direction. For brevity, I will talk about the CEO of The Trade Desk $TTD Jeff Green.

Looking at earning calls from 2018, you will see Jeff makes many remarks about where the industry will go. Most analysts scoff at his predictions and push back during Q&A. Fast forward to 2020,2021 and 2022 and guess what? Jeff nails them time after time.

If you want to discern between a company taking advantage of a trend and a company paving the future, then analyse management's ability to predict the direction of their industry.

The CEO of Sales Force $CRM Marc Benioff also had a knack for making audacious predictions that came true.

I wanted to repost this poll from last week for anybody who hasn't voted. The poll ends tomorrow.

Interested to see how investors are positioned in the current economic environment.