This is an update of an article that was first published on March 8, 2023, when the ad we’re talking about first appeared (the ad has not been udpated, but seems to still be in heavy rotation).

Ian King’s Extreme Fortunes ($2,995/yr, no refunds) is being marketed now with a presentation about the “Fourth Convergence” — and I don’t think I’ve written about that newsletter since Paul Mampilly left the masthead and went off on his own last year, so I thought we’d dig into that story for you today.

Here’s the intro that got a bunch of Gumshoe readers excited enough to ask about this one:

“We’ve been building toward this moment, this convergence for 70 years. It will help forge a select group of men and women into a legion of middle-class millionaires.”

The big-picture theme here is all about semiconductors (or microchips, if you prefer that term), with Ian King talking about how fragile the semiconductor business is, with huge geographic concentration (80% of the most advanced semiconductors are fabricated in Taiwan).

“In any business, you don’t want a single point of failure. You always want a backup.

“Yet, our entire $94 trillion global economy relies on our ability to make 36,000 of these chips every second.

“And that production process has 50 single points of failure.”

So the argument is that there are several elements “converging” to change the semiconductor industry — one is the effort to onshore chip production and bring more semiconductor manufacturing back to the US…

“Government funding is one of the three factors for this massive convergence.

“Every time the government invests billions of dollars, and uses incentives to pave the way, an industry can flourish.

“And now, the other two key elements of this convergence have come into play.

“And that is why now … right now … we have the opportunity to make historic profits. In each of the last three convergences, investors could have made gains as high as 1,000% to 5,000% within five years.

“But that’s nothing compared to what will unfold in this Fourth Convergence.”

Ian King seems to think that the chip stocks in general have not reacted enough to all this government funding for the semiconductor sector…

“Most people are pricing these microchip stocks as if nothing were changing. As if the U.S. government didn’t just bankroll the microchip industry with $52 billion.

“As if there was no convergence happening.”

Though he also says that Warren Buffett “just invested $4.1 billion” in microchip stocks, as have Peter Thiel, Eric Schmidt, George Soros and Steve Cohen. None of which really means anything specific, of course, the semiconductor sector is large and varied, but copywriters love to name-drop famous investors, to give us the subliminal feeling that Ian King and Warren Buffett are similar investors.

And just to catch us up, Berkshire Hathaway revealed in their last quarterly filing that Buffett’s large investment in Taiwan Semiconductor (TSM), which is the $4.1 billion King is referencing there, has now been reversed in extremely short order — they sold most of it just a few months after buying the shares, which we already knew, but in the first quarter they sold the rest. Buffett has said that he sold because he changed his mind about tolerating the political risk of being in Taiwan.

And Ian King uses some pretty bold language…

“All my research is conclusive, anyone who invests in this company right now could be handsomely rewarded for it. I believe this is a massive opportunity for middle-class Americans to profit. This convergence will launch a new class of millionaires will arise, and I want each of our viewers to be one of them today.”

Or if you’d like to hear my rewording, “I’m sure that you might get rich.”

Here’s how King describes the forces that are “converging” to create a big opportunity:

“The first element is government support. We’ve talked about that. The U.S. government has already committed $250 billion to tech advances including these chips via the CHIPS Act.

“And we should note, that is just the start. I expect a lot more funding in the future.

“The second major element is … private equity. Basically, billions of dollars pouring into an industry.

“The third major element is … innovation. When a technology leaps decade ahead in the matter of months.

“When those forces come together in a very specific way … there’s a convergence. And an industry can grow 5X faster, 10X faster, than anyone initially predicted.”

The other “convergence” events in recent past that he references were the shale oil boom of a decade ago, the green energy boom in recent years, and the COVID-driven biotech boom that started in 2020.

So this “Fourth Convergence” is essentially that the government and private equity are pouring money into chip companies, the innovation is continuing to leap forward, and that it’s all being juiced by the strategic imperative of wanting to reduce the world’s reliance on China and Taiwan, largely by building up semiconductor manufacturing capacity in the United States. Here’s a little more from King:

“Even TSMC, the No. 1 chip manufacturer on the planet, is investing $40 billion into a U.S. facility in Arizona.

“Micron Technology, another major semiconductor company, is investing $100 BILLION in a mega plant in central New York.

“Intel has plans for investing $40 billion in three new plants…

“And Texas Instruments has $30 billion on the table for new builds here in the U.S.

“All of these things are happening right now, simultaneously, in a massive convergence of technology, geopolitics and money.

“It’s an enormous opportunity.

“I’ve never seen anything like it. A microchip component can be as small as a grain of sand, but it holds the entire world’s economy on its back.”

So King sees the chip industry going through a shakeup unlike any we’ve seen in the past 70 years (going back to when chips were invented, in other words), and there’s money to be made.

How?

Here we start to get some clues:

“… what I see happening in microchips over the next few years will be like taking seven decades of waiting and compressing them into 24 months.

“And this one small cap company in Beverly, Massachusetts, is poised to capitalize on this era….

“I’m not the only one paying attention to this phenomenon. They have some of the biggest investors in the world rallying behind them.

“The world’s LARGEST asset manager, BlackRock…

“The $4.4 trillion State Street Corporation…

“Even billionaire David Booth from Dimensional Fund Advisors.

“Plus, it has a team of some of the sharpest minds in the industry. They’re former executives from Intel, Raytheon, GE, even chip giant ASML.

“And its crowning achievement is this: It’s launched the first single-wafer implanter.”

I confess that I wouldn’t know a single-wafer implanter if the dog dragged one in from the back yard, but this is how Ian King describes it:

“For years, the dominant process has been batch processing of wafers.

“This has generally been cheaper, but the amount of precision, detail and energy efficiency is lost because it’s done in bulk.

“This has given rise to single-wafer processing … where one wafer… is made with painfully exact details…

“Meaning higher energy regulation. Less energy loss.”

He says there are actually three stocks in this report, but we’re out of luck on that front because he only drops some hints about one of them… but he does really lay it on thick about this one company:

“I’m outlining the three most important semiconductor stocks to buy right now as far as I’m concerned … with special focus on one company in my eyes.

“I believe this company will soon be as well-known as Nvidia, as Intel, as Taiwan Semiconductor or AMD.”

And then, on the order form:

“This is the jackpot. In this report, I reveal my No. 1 semiconductor stock to own RIGHT NOW for the chance at gains of 1,000% or better over the next five years. As the Fourth Convergence unfolds, I believe it’s imperative you have this stock sitting in your portfolio.”

So who is it? Thinkolator sez this must be Axcelis Technologies (ACLS), which was the semiconductor equipment business spun out of Eaton (ETN) about 20 years ago. They are headquartered in Beverly, MA, which is one of the northern suburbs of Boston — they’re far from being the only semiconductor company in the state (the biggest one there is Analog Devices (ADI), or even in the city of Beverly (one of the big divisions of Microchip (MCHP) is just down the road), but they’re the best match. Axcelis is a semiconductor equipment company, they provide tools and technology to chipmakers instead of actually fabricating the chips… here’s how they describe themselves:

“For over forty years, Axcelis Technologies has delivered vital equipment, services and process expertise to the semiconductor manufacturing industry, helping customers reach higher levels of productivity with each new technology generation. Today, chipmakers from around the globe rely on our tools and technology insights to produce the transistors that power all electronics. Our equipment portfolio comprises a powerful suite of manufacturing technologies for ion implantation – one of the most critical and enabling steps in the IC manufacturing process.”

And yes, they have released several versions of “single wafer high energy ion implanters” over the years — the latest one, their Purion H200, sounds impressive and got some attention when it was released a couple years ago, with sales starting to pick up now for that and other Purion equpment. As to who’s “first,” they put it this way in their press release:

“”The Purion H200 is the first and only single wafer high current implanter designed to cover all high dose implant applications from energies as low as 5keV to a maximum of 200keV”

Axcelis has reported a couple strong “beat and raise” quarters in a row this year, and the stock has soared so far in 2023 — their revenue in 2022 was up 39%, and net income jumped more dramatically by 86%, though the fourth quarter growth was much slower than that… and this quarer they bumped up their revenue guidance for 2023, from 10% to 12%. The average estimate for 2023 earnings has grown from about $5/share to $6.50 share over the past six months, and that has dragged the share price up from $80 to $130 in recent months.

Right now, without having any in-depth expertise about their business prospects, the valuation looks like it’s pretty rational, compared to other chip equipment companies (which have all had a good year). They’re valued at about 25X forward earnings (28X trailing earnings), with very strong margins that provide a nice 30%+ return on equity. I don’t know whether or not their ion implantation technology is critical, but they say they see very strong demand so far and believe it’s going to grow into a $1.3 billion business in future years, with a pretty steady ramp-up in sales of their Purion systems to advanced logic chipmakers over the past few months.

Investors seem to think they’re at least a little bit special — the valuation is not as lofty as at the Dutch giant ASML (ASML), which essentially has a monopoly on high-end lithography (though is also going to take a bit of a hit as they agree to hold back some of their technology from Chinese customers), ASML trades at about 40X trailing earnings (35X forward estimates)… but ACLS is at a premium valuation compared to other semiconductor capital equipment companies like Applied Materials (AMAT) or Lam Research (LRCX), which trade at ~18X earnings and, despite their much larger size, have grown earnings much faster than Axcelis over the past five years (though unlike ACLS, neither of those big fellas is expected to grow earnings this year). All those companies have seen their multiples grow this year, with enthusiasm for chip stocks and technology rising (AMAT was at about 14X earnings to start the year, for example).

So my opinion hasn’t really changed since March. Axcelis looks to be a perfectly reasonable idea, if you’re looking for exposure to the semiconductor capital equipment sector — they will probably ride the same cycles as the other large equipment companies, but they do have a wave of new products that are selling well, which might help them to be a little bit less cyclical, and they have plenty of cash and no debt to speak of, so they aren’t likely to be super-fragile if there’s a big downturn in semiconductor demand.

The best thing for equipment companies is if lots of new fabs are built, since every new facility needs lots of expensive new equipment, so as companies follow through with their commitment to onshoring and as new facilities open to try to make the chip supply chain a little less reliant on Taiwan, that could be a nice driver for everybody in the space… and if Axcelis really has an innovation edge with their new products, that might help them continue to stand out, particularly because the company is very small (market cap about $5 billion) relative to the huge equipment suppliers (ASML is $250 billion, AMAT $100 billion, LRCX $65 billion, just to put those comparisons into some context). I can’t say that I really know whether their ion implantation equipment is meaningfully different or better than competitors, but their strong gross margins and revenue growth indicate that they’re at least doing something right.

Is there some risk to Axcelis from the export restrictions to China? Well, probably… they do say in their 10-K that China is a meaningful amount of their business, as it is for most chip equipment companies (90% of ACLS revenue comes from exports, since the US-based semiconductor business is still relatively small), and that the Chinese foundry giant SMIC accounts for more than 10% of ACLS revenue (that’s one of two named customers that together consistently make up 25-30% of their revenue and earnings — the other is Samsung). So far, they say, “we currently are able to continue to ship to the majority of our Chinese customers”… though the subtext is, “that could change.” Those challenges are pretty much universal in the semiconductor industry right now, and I don’t know that they’re any more reliant on China than anyone else, but there could certainly be lags when Chinese orders falter (or are blocked) before any growth from meaningful expansion of semiconductor foundries elsewhere in the world can make up the slack.

So… sound like your cup of tea? The stock has both good momentum and a pretty rational valuation, so it has been pretty popular of late — I guess the warning note on the downside would be that if a bad quarter or two makes it fall back to a valuation more like that typically enjoyed by Applied Materials, which is generally the cheapest large equipment company (~15X earnings), that would be a downside risk of about $90-100 at the moment (the shares are at $160 today)… if investors decide that ACLS is as sexy as ASML and trade the shares up to that valuation (~35X forward earnings), that would be roughly $225 (seems a bit of a stretch to me, given ASML’s real monopoly position in their space, but ACLS is dramatically smaller, so I guess anything is possible). Which do you think is more likely? Have any other semiconductor winners you think we should consider?

Do let us know, just use the friendly little comment box below.

P.S. We haven’t written much about the world of Banyan Hill’s Extreme Fortunes since the marketing slowed down and Paul Mampilly left last year, but if you’ve subscribed please do share your thoughts with your friends at Stock Gumshoe — how is Ian King doing? Our Reviews page for Extreme Fortunes awaits your input… thanks!

Disclosure: of the companies mentioned above, I own shares of NVIDIA and Berkshire Hathaway. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules