Daily Brief: Has Microsoft Just Spotted The Next High-Growth Sector?

Daily Brief: Has Microsoft Just Spotted The Next High-Growth Sector?

almost 3 years ago3 mins

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Microsoft announced very slowly and clearly on Monday that it’s buying speech-recognition company Nuance Communications, but it still accidentally ended up ordering toilet paper.

What does this mean?

Microsoft is already a major player in everything from cloud computing to gaming, but now the tech giant has found itself a new plaything in the form of healthcare artificial intelligence. Nuance is best-known for creating the voice-recognition technology that went into Apple’s Siri, but it’s since narrowed its focus to tools that transcribe doctor-patient discussions, integrate them into their health records, and help predict those patients’ future needs.

Microsoft is reportedly paying $56 a share for Nuance – 23% higher than the company’s share price just before the deal was announced. That would value Nuance at $16 billion, making the acquisition Microsoft’s second-biggest after its buyout of LinkedIn in 2016. And Microsoft’s not done yet: the tech giant’s in talks to buy video game chat platform Discord, and it’s approached TikTok and Pinterest in the past year too.

Nuance stock
Source: Google Finance

Why should I care?

For markets: Has Microsoft spotted the next high-growth sector?

That $16 billion valuation comes in at more than 10 times Nuance’s sales last year, so the deal isn’t exactly cheap. But Microsoft seems to have noticed that the healthcare sector hasn’t been digitalizing nearly as quickly as, say, retail and banking, and it’s been trying to make inroads for a while. Now, with Nuance on its side, it might be able to take full advantage of all that untapped growth.

The bigger picture: Stay away from the sun, Microsoft.

Antitrust regulators won’t want to see one firm dominating technology in as sensitive a sector as healthcare, so investors might want Microsoft to be careful with its ambitions. They’ve recently been reminded how costly it can be to get on rulemakers’ bad sides, after all: Chinese ecommerce giant Alibaba just got slapped with a $2.8 billion fine – 4% of its 2019 revenue – for anti-competitive practices.

China’s Internet Rulers
Sources: Bloomberg, CB Insights, Crunchbase

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Darktrace Is Planning To List On The London Stock Exchange

Darktrace image

So much for “crime doesn’t pay”: Darktrace announced on Monday it was planning an initial public offering (IPO) that’d value the British cybersecurity firm at as much as $4 billion.

What does this mean?

The UK’s been nervous about the future of tech IPOs in London ever since the Deliveroo calamity a couple of weeks ago, when shares of the much-hyped food delivery company collapsed on their debut. So Darktrace’s announcement that it’ll list on the London Stock Exchange is being welcomed with open arms, not least because the fast-growing company – which uses artificial intelligence to detect and respond to cyber threats – saw its sales climb 45% last year.

Darktrace is now hoping a successful stock market debut will raise enough money to put the firm ahead in the $40 billion global security market. And investors are feeling optimistic too, especially since it’s steering clear of the dual-share classes that give company executives more power than the average investor – which might be one of the reasons for Deliveroo’s downfall.

Why should I care?

For markets: European IPOs are back.

Darktrace joins a flurry of European listings announced this month, including – in what could be two of the region’s biggest deals this year so far – fund supermarket platform Allfunds and Swedish payments company Trustly. That’s breathing new life into Europe’s IPO market, which recorded its strongest quarter since 2015 in the first three months of 2021.

European IPOs

The bigger picture: More money means fewer problems.

IPOs are big business on both sides of the Atlantic, as companies look to raise serious money from investors to fund their expansion plans. And they’ve picked a lucrative time to try: according to Bank of America, investors have plowed $569 billion into global stock funds over the last five months – more than the previous 12 years combined.

Inflows to stocks over the past five months
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