Moore’s law says that computer power doubles for the same cost about every two years, implying rapidly falling cost, increased power and proliferation. If this continues, the equivalent price of a $600 iPhone would be $18.75 in 2020, $0.59 in 2030 and overall power or cost improving 1,000,000 times by 2050. How should we account for this possible scenario in our investment strategies and plan for potential impact? What products and services have good present potential but could be enormous if Moore’s law continues?

Intel (Nasdaq: INTC) Co-Founder, Gordon Moore, wrote an article for Electronics magazine in April 1965, describing his thesis that the number of transistors that can be placed on a chip will roughly double every two years – meaning that computing power also doubles. He saw that this could lead to some revolutionary advancements:

Integrated circuits will lead to such wonders as home computers - or at least terminals connected to a central computer, automatic controls for automobiles, and personal portable communications equipment. - Gordon Moore, Electronics magazine, April 1965

It is an amazing vision. He was still with Fairchild Semiconductor and Intel would not be founded for another three years. I am sure it seemed preposterous. Even Electronics magazine poked fun at him, placing this cartoon appeared in the original article.

I recently wrote an article, “Mobile Apps: The Wave of the Past,” which generated some good discussion about how mobile computing capabilities might be expected to progress. It reminded me of the importance of looking at the technology on the horizon – an important lesson that I learned in a consulting job interview during business school. The interviewer asked me an open ended question about the future of the PC and how that might impact a particular company. I described at length, what was happening at present. When I was finished, he paused, waited and said, “You need to look at technology in terms of what is coming, not just what is.” I didn’t get the job, but learned a powerful lesson. While technology present is important, you also need to look ahead. Easier said than done.

Just five years ago, how many people predicted that Apple (Nasdaq: APPL) would be poised to become the world’s most valuable company by producing an affordable, powerful, connected pocket computing device? Looking back the signs were there. Twenty years ago Apple made the Newton, ten years ago we had Blackberry’s and Pocket PCs, and the first iPod in 2001. Just put these things together and extrapolate.

It’s just not that easy. In 1943, Thomas Watson, chairman of IBM and no slouch in terms of technology vision, was famously reported to have said, “I think there is a world market for maybe five computers.” His thinking was somewhat logical. In 1943 there just was not that much computing going on, so five computers ought to satisfy the market. (You can find many other similar quotes here.) Obviously, one missing piece here was that the availability of computing power would create demand and falling prices would cause that demand to continue to grow.

Intel has been able to keep up with the pace predicted by Moore the past forty years. What if this pace continues for the next forty years?

The table below shows the projected relative computing power if Moore’s Law continues at its current pace: