Facing the Opportunity in Facial Recognition

Despite media opposition, facial recognition systems are gaining momentum worldwide.

London’s Metropolitan Police Service announced Friday that within a month, facial recognition software will begin surveilling London streets for the first time. Cameras will check crowds against a database of known criminals. Privacy activists are crying foul.

Investors should block out the noise to see the massive opportunity underneath.

All evidence suggests civilization is entering a new phase of mass surveillance. This implies a massive investment in infrastructure. There will be new hardware installations, database management, analytics and storage contracts.

It’s a new gold rush hidden from most investors. This is because privacy advocates seem to be winning the public relations battle.

It’s a mirage. They’re not winning. Given the choice, the public selects surveillance and safety over civil liberties every time. Fear and paranoia over terror attacks is exasperating this trend.

The New York Times and CBS News conducted a poll in the wake of the 2013 Boston Marathon terror attack. 78% of Americans were in favor of more video surveillance cameras.

Related post: How to Outwit — and Benefit From — the Surveillance State

Londoners have grown accustomed to terror attacks. They have also made peace with security cameras. The British capital is home to 600,000 closed-circuit TV cameras, according to a media report. That figure — more than 50 CCTVs per 1,000 residents — is second only to Beijing, China.

Facial recognition software is the logical progression.

Nick Ephgrave, assistant commissioner for the Metropolitan Police, told the BBC that the bobbies have a duty to use new technologies to keep people. safe. “The public rightly expect us to use widely available technology to stop criminals,” he said.

 

This framing is important. It puts civil libertarians in the unenviable position of supporting wanted criminals’ rights to roam freely in public spaces.

And although there is a legitimate progressive argument to be made, it’s easily drowned in the current environment of terrorism paranoia.

The Orlando and Tampa airports began plans in April 2019 to for a full-scale rollout of facial recognition systems for select international gates. New kiosks will scan every passenger on an incoming or outgoing international flight. The infrastructure follows a successful pilot program that began in 2018.

Civil rights advocates have had some minor successes in opposing surveillance. In San Francisco, a board of advisors in May 2019 voted 8-1 to ban facial recognition technology within the city. The ban does not impact the use of these systems at the San Francisco International Airport, though, as the city has no authority there.

Related post: Facial Recognition: A Force for Good … or Government?

Still, the number of police departments and deferral agencies in the U.S. that use facial recognition tools continues to grow. From New York and Boston to San Jose and Las Vegas, law enforcement departments are turning to software to help track and catch criminals. Hardware installations in public places will follow.

Western Digital (WDC) makes hard drives and solid state flash memory products following its 2016 acquisition of SanDisk. These components are the heart of the new digital surveillance revolution.

Modern CCTV systems live in the cloud. The images collected are processed by powerful algorithms at data centers. Western Digital has built a formidable business serving this hyper-scaled market. Its hard drives are ubiquitous at data farms all over the world.

The future of surveillance will come at the edge of networks, the device level. Real-time data processing will occur where the data is being collected. To make this reality, CCTV cameras have substantial data storage capability. Western Digital is built to take advantage of this transition.

The 2016 buyout of SanDisk gave the San Jose company best-in-class flash memory technology. The $16 billion purchase price also gave the company extreme financial leverage. At the end of fiscal 2019, Western Digital had $10.3 billion in long-term debt. While a high debt level can be problematic in downturns, debt becomes an earnings momentum multiplier during an uptrend.

It’s a good time to be in the business of providing data storage, in the cloud and at the edge.

Gartner, a leading information technology researcher, predicted in 2019 that the data deluge would drive exponential spending for public cloud infrastructure providers. Sales are expected to grow from $182.4 billion in 2018 to $331 billion in 2022, a compound growth rate of 12.6%.

Meanwhile, Forester Research expects a breakout year for edge computing. And Juniper Research predicts edge computing sales will reach $11.2 billion by 2024, up from only $1.3 billion in 2019. the boutique firms expects a compound annual growth rate of 52.9%.

 

Western Digital shares trade at 10.5x forward earnings and only 1.3x sales. Given the outlook for cloud and edge infrastructure those metrics seem too cheap. This stock is currently a “Buy” for growth investors.

Best wishes,

Jon D. Markman

About the Editor

Jon D. Markman is winner of the prestigious Gerald Loeb Award for outstanding financial journalism and the Society of Professional Journalists' Sigma Delta Chi award. He was also on Los Angeles Times staffs that won Pulitzer Prizes for coverage of the 1992 L.A. riots and the 1994 Northridge earthquake. He invented Microsoft’s StockScouter, the world’s first online app for analyzing and picking stocks.

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