While the specifics may vary, one thing virtually every research company agrees on is that big data is already a significant market, and it's getting bigger with each passing day. IDC suggests that big data will become a $125 billion market this year. And as if that weren't enough to excite tech companies on the forefront of this cutting-edge industry, IDC expects that big data associated with the Internet of Things (IoT) -- one of the primary drivers of data collection -- will enjoy a compound annual growth rate (CAGR) of 30% over the next five years.
Those are heady numbers to be sure, and you can bet more tech players will get on board the big data train in the coming months and years. Thankfully for investors, there are a couple of industry leaders, including IBM (NYSE:IBM) and Cisco (NASDAQ:CSCO), that recognized the potential early. Let's take a look at why these companies should be on a shortlist of stocks to watch in big data.
What's all this about big data?
The Internet of Things, or IoT, the cloud, and the advent of tracking Internet and mobile usage -- among other data collection points -- have presented companies with a dilemma. All of that consumer and business information provides a world of opportunity by building a profile of a potential customer's likes, dislikes, and buying habits. Thorough analysis of all of that data translates to better target marketing opportunities, and the ability to strengthen relationships by enhancing the interaction experience.
However, with so much information available, utilizing big data to its fullest potential poses a problem: For a lot of prospective beneficiaries, it's simply too much of a good thing. The days of using a spreadsheet to note a customer's past purchases to determine future marketing plans don't come close to what the reams of data now available can provide: and therein lies the opportunity, particularly for early adopters.
The future is now at IBM
The days of dark, pressed suits and power ties are long gone at IBM. The longtime tech mainstay admittedly took longer to adapt to today's mobile, cloud and big data world than it should have, but the good news for investors is that it's making up for lost time. Cloud-based big data spending, as per IDC, will grow three times faster than on-premise solutions, and IBM is going all-in.
Earlier this year, IBM announced it was investing $1 billion to establish a separate business unit to maximize the revenue-generating capabilities of its Watson super-computer. Watson is a big data customer's dream in that it's able to process enormous amounts of information and "learn" from its analysis to continually improve results. Even as Watson picks up steam, IBM is already improving its business analytics results, by over 20% last quarter, and it's one of CEO Ginni Rometty's "strategic imperatives."
Now, add in IBM's $3 billion investment to build an IoT unit -- a key component in gathering information -- along with its cloud sales that are at a nearly $4 billion annual run rate, and Big Blue is covering all of the components expected to play a part in this burgeoning market, making it a stock to watch in big data.
Safe and secure
Data security remains a primary concern for cloud providers, which will be the repository for the vast majority of big data. As research company IIA says, "Big data analytics tools will be the first line of defense, combining machine learning, text mining and ontology modeling to provide holistic and integrated security threat prediction, detection, and deterrence and prevention programs."
Cisco was able to pleasantly surprise investors and analysts last quarter by announcing a 5.1% jump in revenues, along with outstanding GAAP earnings per share (including one-time items) of $0.47, a nearly 12% improvement over the prior year. A primary reason for Cisco's strong performance was its 21% increase in data center sales, which is now at a $3 billion annual run rate thanks to its focus on the cloud, the home of big data.
Cisco is also a leading player in the proliferation of smart cities around the world, a component of IoT, and yet another means of gathering information. Equally as important, thanks to "a record number of licenses," Cisco's integrated security architecture solutions revenues improved 14% year over year. Keeping big data secure is big business, and Cisco is leading the way.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.