Throughout history, technological revolutions have often been sparked by breakthroughs in hardware, which lay the foundation for transformative software innovations that follow. This progression has repeated across key technological cycles, with companies emerging as leaders in both phases. In this paper, we explore historical examples of companies that built on the innovations of their predecessors, standing on the shoulders of giants to often become giants themselves, driving forward the next wave of technological evolution.
By Sam Korus, Director of Research, Autonomous Technology & Robotics, ARK Invest
Hardware Phase:
Major technological shifts usually begin with advancements in hardware. Here are some notable examples:
- IBM NYSE:IBM and Apple NASDAQGS:AAPL were pioneers in the personal computing revolution. IBM introduced the IBM PC in the early 1980s, while Apple brought the personal computer into homes with the Macintosh in 1984.
- In the smartphone revolution, Apple played a pivotal role, launching the iPhone in 2007, which redefined mobile hardware. Similarly, Samsung became a leader in producing Android-powered smartphones with cutting-edge hardware.
- The semiconductor industry, driven by companies like Intel NASDAQGS:INTC and NVIDIA NASDAQ:NVDA, forms the backbone of computing hardware. Intel led with CPUs, while NVIDIA revolutionised graphical computing with its GPUs, laying the groundwork for gaming, AI, and more.
- In consumer electronics, companies like Sony and Panasonic dominated with hardware innovations such as TVs, audio systems, and gaming consoles like the PlayStation.
Software Phase:
Once the hardware reaches maturity and becomes widely adopted, the focus shifts toward software development, where much of the value creation happens. Here’s how software companies capitalised on hardware innovations:
- After the initial surge in personal computers, Microsoft NASDAQGS:MSFT took centre stage by providing the software that powered them. Its Windows operating system and Office productivity suite became ubiquitous, defining the software phase of the computing revolution.
- Google NASDAQ:GOOGL built its empire on the software side of the internet revolution. While it didn’t produce hardware initially, it created the Android operating system, now powering billions of smartphones.
- The smartphone revolution also spawned software giants. Facebook (now Meta) NASDAQ:META and Instagram thrived by creating mobile-first applications, while Apple’s App Store became an ecosystem where developers could launch thousands of apps, unlocking new value from the iPhone.
- With the rise of cloud computing, hardware from companies like Amazon (AWS) NASDAQ:AMZN, Microsoft (Azure), and Google (Google Cloud) was abstracted into virtual infrastructure, enabling a new era of software services and applications.
- Software companies like Salesforce (CRM) NYSE:CRM, Zoom NASDAQGS:ZM, and Slack capitalised on this cloud foundation, delivering software that revolutionised business communication and collaboration.
- In the gaming industry, while Sony and Microsoft dominate in hardware with PlayStation and Xbox, software developers like Epic Games (Fortnite) and Activision Blizzard NASDAQGS:ATVI (Call of Duty) built highly profitable ecosystems around their games.
Current Trends:
- In the realm of AI and autonomous systems, companies like Tesla NASDAQ:TSLA and NVIDIA have driven hardware innovation. Tesla developed advanced self-driving hardware, while NVIDIA’s AI chips (e.g. GPUs) power many of today’s AI applications. Building on this, OpenAI and Google DeepMind are leading in software by leveraging this hardware to create groundbreaking AI models.
- Platform infrastructure software is also seeing significant innovation. Companies like Palantir NYSE:PLTR and Databricks have emerged as leaders in data analysis, AI, and machine learning platforms. Their software enables enterprises to harness vast datasets for actionable insights, complementing hardware advancements by AI chipmakers like NVIDIA.
- Cloudflare NYSE:NET and Unity NYSE:U are transforming internet infrastructure and digital experiences. Cloudflare provides critical software that optimises and secures web services, while Unity revolutionises gaming, virtual reality, and real-time 3D content development, offering developers the software foundation for immersive experiences.
Hardware Companies Expanding Into Software:
- Apple, known for its hardware innovations (e.g., iPhone, Apple Watch), has transitioned much of its ecosystem value into software services like iOS, iCloud, and the App Store. These services now play a central role in defining the Apple ecosystem and its long-term growth.
- NVIDIA is a prime example of a hardware company moving into the software domain. After establishing dominance in GPU hardware, NVIDIA expanded into AI software with platforms like CUDA, supporting advancements in machine learning and data science. This shift illustrates how hardware pioneers can evolve into software ecosystem leaders.
The Next Technological Revolution: AI
As we enter the next great technological revolution, Artificial Intelligence is leading the charge with transformative innovations. From autonomous vehicles to intelligent decision-making systems, AI is fundamentally altering how we live, work, and interact with the world. The pace of change is accelerating, and for investors, the stakes have never been higher. The potential for growth is vast, but so are the risks. So the critical question remains: Where are you placing your bets, and how confident are you that you’re on the right side of this revolution?
