Livin’ on the Edge II: Accelerating Toward the Edge

The Cowen Insight

In 2020, the Cowen Research TMT team identified edge cloud computing as a critical thematic for investors to monitor in a five-part, 300+ page Ahead of the Curve® Report series. We refresh our primer with a focus on framing opportunities in edge client devices and edge-enabled services. We also provide updates on what’s changed in edge cloud, as well as refreshed market forecasts demonstrating the magnitude of edge investments in hardware, software, & security.

Edge computing has come into focus for many companies in the last year, but our thesis has not changed – edge computing will be just as influential in this decade as cloud computing was in the last. This updated primer report serves as a jumping-off point for future work on edge-enabled verticals, including autonomous vehicles, robotics, communications infrastructure, and retail.

Cowen’s Edge Computing Thesis & Why Investors Should Pay Attention

Over the last 18 months, momentum around edge computing has accelerated. Many bellwether hardware/software companies have articulated formal edge strategies. There have been multiple high-profile IPOs and M&A deals motivated in part by edge computing.

While it’s still early, we believe the industry is positioning itself to enable (and monetize) a host of new business use cases and applications centered around machines (versus people) being the primary consumers of cloud computing. This will drive a re-architecting of the Internet with implications across the tech landscape including: communications infrastructure, semiconductors, software, and enterprise & security software.

What Is Proprietary in Our Work?

Edge computing trends remain early and nuanced. The Cowen Research TMT team has created a cross-sector edge primer to help investors contextualize and frame the opportunity. This type of cross-sector work has been lacking in the investment community and is necessary to contextualize an inherently co-mingled technology vector. We also provide proprietary edge unit/ASP/revenue forecasts that flow across sectors – from total edge market sizing, to servers, memory, networking, software, and devices.

Industry Model Updates – Edge Is Accelerating

Compared to our prior 2020 reports, catalyzed by COVID-19 and investment across a number of end markets, the total edge market forecast provided by Tolaga Research has increased ~20% off a small base to nearly $10B in 2021, and increased ~12% by 2028 to $116B (+42% 7-year CAGR). This data flows through our propriety server, semiconductor and software forecasts which increase accordingly.

Bigger picture, we believe it remains instructive to contextualize the current edge computing market growth potential to the early days of cloud with fast growth from a small base in the early years. We believe edge computing can grow similarly over the next decade as core cloud computing did during the prior decade, following a similar, potentially exponential, adoption curve as demands of low-latency applications pull cloud computing resources toward the edge.

What to Watch For

  1. Continued product and services co-development across industries
  2. Capital investment and product roadmaps specifically targeting edge applications
  3. M&A specifically targeting edge-enabling infrastructure and applications
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