Emerging trends in technology investment: AI, quantum, and DCs

Over the years there have been several phases or eras in which investments in the technology space have focused on certain themes or technologies. A few of the emerging technologies live up to their promise and become the next big thing -- for instance, cloud was an emerging technology in early 2000s. Since then, it has only grown in prominence. 

Every era of technological innovation will bring with it a higher degree of technological advancement, ability to solve more complex problems, at a faster clip and bring about adoption of technology that seemed like a distant dream a few decades ago. This article talks about the key emerging technologies that could shape the next few years and potentially a few decades of technology industry related investments.

Artificial intelligence
ChatGPT reached 1 million users in 5 days, and it accumulated over 100 million monthly users in 2 months whereas it took Netflix 18 years to garner 100 Mn users. The rapid adoption of ChatGPT underscores the transformative power of AI.

The global AI market is valued at over $279 Bn, with ~ 83% of companies claiming that AI is a top priority in their business plans. With this momentum, AI industry is projected to increase in size by over 6x over the next 6 years and by 2025, as many as 97 Mn people are expected to a part of this space. 

Recent M&A in the AI sector highlights the growing significance of these technologies across industries. Through Q3 2024, global AI funding hit $55.3 Bn which is already $1.2 Bn more than the industry received last year. Recently, Google's $5.4 billion acquisition of Mandiant, a cybersecurity firm, emphasized AI’s growing role in enhancing security through AI-driven tools to combat cyber threats. 

Closer home in India, as part of IndiaAI mission, a recent tender has been issued for the procurement of high-performance GPUs. This initiative aims to make available 10,000 GPUs to support India's AI mission, benefiting startups, researchers, students, and academicians. 

One of the bidders was E2E networks, a New Delhi-based AI Cloud service provider that raised ~Rs 421 Crs in Aug 2024 (from members of promoter group and various public market investors) and ~Rs 1079 Crs in November 2024 (from L&T). The funds will be used to advance E2E Networks’ AI-First Cloud Platform for better machine learning and AI capabilities.

As AI continues to evolve, the focus will likely shift towards human-AI collaboration rather than replacement. Future AI systems could become powerful co-workers in fields like law, education, and research, enhancing human capabilities and decision-making.

Quantum computing
Quantum computing, which began as a theoretical concept in the late 20th century, has progressed significantly in recent years. Major companies like IBM have released processors such as Eagle and Condor, with Condor featuring 1,121 qubits (quantum bit). 

The rise of quantum cloud platforms like IBM Quantum, Amazon Braket, and Microsoft Azure Quantum has made quantum resources more accessible, accelerating research and development. 

India’s foray into advancing its quantum capabilities has been in the works for nearly four years with limited results so far. However, the National Quantum Mission is set to take off with multiple initiatives including setting up a grant for start-ups that need funding ranging ₹10-50 crore, launching India’s first quantum computer achieving computation of 6 qubits over the next few months, and setting up four companies to undertake various activities under the mission. It is aimed to spend the nearly ₹6,000 crore corpus for the mission. 

India is also showcasing as a potential player in the global quantum technology race. One such significant milestone in India's quantum computing journey is the successful testing of 6-qubit processor through a collaborative effort between DYSL-QT, TIFR, and TCS. 

M&A activity in this space includes Microsoft acquiring Orca Computing, a photonic quantum startup, to further strengthen its Azure Quantum platform in 2024. 

Quantum computing startups have already raised $1.5 billion in venture funding in 50 deals so far in 2024, and nearly doubles the $785 million raised last year in 67 deals, and also surpasses the all-time high raised in 2022.

Overall, while quantum computing is still in its early stages, it is progressing rapidly and is expected to have a transformative impact on numerous industries in the future, offering unprecedented capabilities for solving complex problems, optimizing systems, and securing data.

Technological advancements in data centers
The data centre industry has undergone significant changes over the past decade. Currently, edge computing has become crucial to meet the demand for low-latency processing, decentralizing data storage and computation to support IoT devices and real-time applications. 

Factors like the rolling out of 5G services, global hyperscalers expanding their captive facilities in India and the entry of new operators (from global bigwigs to the Indian industry leaders like Reliance and Adani) are ensuring the continued growth of data centers in India. India's data center capacity is projected to double to around 2,000 MW by 2026 and this expansion is expected to attract substantial investments, with an estimated capital expenditure of Rs 50,000 crore until 2026.

Companies are securing funds to established and expand their data centres. JV between Adani Enterprises and EdgeConnex Inc is noteworthy and has already invested $1.5bn and in the process of raising another $400mn offshore loan to establish data centers in India. 

In Q3 of 2024, investment in APAC data centers surged 114% year-on-year to $2.8 billion. Recent high-profile deals include Blackstone’s AU$24 Bn ($16 billion) acquisition of Australian data center platform AirTrunk — the largest-ever data center deal. Total deals closed so far in 2024 (till Aug.) are valued at $36.7 billion, with another $7.1 billion agreed, but not yet formally closed.

The data center industry is rapidly evolving, and is driven by edge computing, AI, sustainability, and the potential impact of quantum computing. As the world becomes more data-driven, the industry will need to innovate continuously to meet growing demands for efficient, decentralized, and sustainable infrastructure.

Conclusion 
In conclusion, AI, quantum computing, and various technological advancements in data centers are here to stay, driven by their growing importance, and the strong interest from companies looking to expand their capabilities, as well as investors increasingly viewing them as high growth sub-sector within technology. 

What remains particularly intriguing is how these technologies will evolve in terms of mass adoption, their application across various industries, their cost dynamics, sustainability and the long-term impact they will have on global markets.

-- Sandeep Gogia, MD, Investment Banking, Equirus.