Checking out Gilder’s “Will This Weird Device Be in Your Home Soon” Pitch

Who are those teased "Three Spectrum Millionaire Makers?"

By Travis Johnson, Stock Gumshoe, December 15, 2020

Today another teaser pitch from George Gilder caught my eye, this one a pitch for a “weird device” that turns out to be a spiel about increasing wireless data usage and the next generation of WiFi technology. He’s selling subscriptions to the George Gilder Report, which is his entry-level newsletter ($79/yr).

Here’s the final bit of urgency from the order form about what he’s offering here, just to start you with a little summary…

“My brand-new report Three Spectrum Millionaire Makers, in which I reveal the names of the three stocks I expect to soar as a result of the Federal Ruling. (Remember, last time it took just two months to create one of the greatest stock opportunities in American history.)”

The big picture argument is that the US is going through a telecom revolution akin to the mid-1980s, when spectrum was initially freed up for cellular telecom through the auction process.

“Docket 81-413 was a seminal event in American history.

“Moments like that don’t come around very often.

“But one occurred very recently – on July 27th, 2020.

“On that day the FCC opened up NEW bands of unlicensed spectrum.

“One that’s FOUR TIMES bigger than the spectrum liberated in 1985.

“This time around it’s known as Docket 18-295.

“And though it’s not the sort of thing that makes front page news…

“It has the technology world buzzing.”

And he includes a couple quotes from bold-face names in technology:

“Facebook’s Director of Wireless called it ‘clearly one of the most important wireless announcements in a long time’.

“Broadcom’s Vice President of Marketing said it’s ‘a definitive moment in US wireless history… the most substantive decision any Commission has made on unlicensed spectrum in almost 25 years’.

“Intel called it the ‘most significant contribution to Wi-Fi in nearly 20 years’.

“Apple said ‘it sets the course for the next generation of Wi-Fi networks’.”

So that’s the big-picture driver, the FCC announcement earlier this year that the 6 GHz band will be opened up to use by WiFi networks, which will free up a lot of new bandwidth for unlicensed operators (like, your own hot spot… or the larger WiFi networks at your local football stadium or shopping mall). The common terminology here is that we’re moving on to the next generation of Wi-Fi networks, called Wi-Fi 6E, which will be 2-3X faster than current Wi-Fi networks, with the 6 GHz spectrum allowing faster data transmission than existing Wi-Fi networks, and increase the bandwidth available by offering up a broader band of usable spectrum, helping to ease congestion. Wi-Fi 6 is available now, using the latest and better wireless standards, but devices that use Wi-Fi 6E, which adds the capability to use that newly available 6 GHz spectrum, are just beginning to be available now and expected begin to impact the market in a meaningful way early next year — though it might take a while to make a difference, since the new spectrum will only be usable by new routers and devices that have upgraded hardware.

Here’s some more from Gilder on this big shift:

“And that’s where the technology hidden inside THIS device comes in…

“Inside is a computer chip that was built within a month of the FCC’s decision.

“And it allows new technology to access – and SHARE – the 6 GHz part of the spectrum for the very first time.

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“If history is any guide, this may well prove to be the single most valuable technology of the 21st century.

“So much so that every single major tech firm in America is backing it….

“To be clear: these companies are usually direct competitors.

“But in this one instance… they’ve teamed up…. the list runs to nearly 800 major multinational corporations…

“… hundreds of multi-billion dollar companies are about to RUSH to use the new bandwidth the FCC just unlocked.

“In fact, it’s going to be a stampede…”

And that’s where we’re apparently going to see riches flowing…

“This will kickstart a tech ‘arms race’ to dominate the market…

“In the next six months, every major tech firm in the world will race to get to market first.”

How do we do this? Who’s going to make the money? Here’s how Gilder puts it:

“See, your phone or router can’t simply tune in to the newly-opened spectrum.

“To access this “virgin territory,” it needs special technology….

“The companies that make spectrum sharing possible are effectively the “gatekeepers” of the new industry.

“They’re the ones that make everything else possible.

“History proves… these firms were some of the best performing stocks in the world last time this happened.”

And he sees this new surge of faster broadband networks creating hundreds of billions of dollars in new wealth as technology marches forward, inspiring new use cases and new products, and driving adoption of more connected devices, which is essentially the same “Internet of Things” and “everything is connected” future we’ve seen evangelized for years now.

Who wins? Well, after all the big picture “futurist” projections that are really what made George Gilder famous, we do get to some specific hints about investments he likes as a play on this future… he packages that as a special report he calls “Three Spectrum Millionaire Makers,” so what kind of details does he include to tantalize us (and feed the Thinkolator)?

“Chances are, you’ll see new routers designed specifically to work in the new part of the spectrum. (Netgear and Linksys are already developing hardware. And Intel says it’ll have chips ready for January 2021.)

“That gives you – at the outside – a few weeks before this story breaks out into the open.

“But don’t think you can wait around until then to make your move…

“You see, I’ve discovered that the computer chips required to tap into the new 6 GHz band are already available on the market right now.

“I’m betting they’re actually inside new “Wi-Fi 6E” routers already.

“And they’re made by a company that already supplies high end computer chips to some of the biggest companies in the world.”

More about that stock:

“It’s is easily the world’s #1 ‘spectrum sharing’ technology firm. It had chipsets built within a month of the government even legalizing the 6 GHz band. It supplies Apple, Google, Microsoft (all trillion dollar companies), and scores of others. If firms want to roll new devices out, they’ll need this company’s tech.

“The last time I recommended this stock, it soared more than 20x in the next four years – and it’s a must own once again.”

That could conceivably be either Qualcomm (QCOM) or Skyworks Solutions (SWKS), I expect, both had those kind of 20X runs in the late 1990s into the peak of the dot com bubble (and during Gilder’s heyday as a stock picker)… though I’d guess he’s probably talking up Qualcomm given the more direct exposure to WiFi and “spectrum sharing” MIMO technology on both the router and device end, and the fact that they announced their new Wi-Fi6E chips for both routers and devices roughly a month after the April FCC announcement.

Qualcomm is probably the most direct play on both 5G and Wi-Fi6E chips, and it’s among the largest technology companies in the world… and they’ve had an extraordinary year, finally, a year or two after it was expected, as 5G demand finally began to pick up. The stock is still rationally valued, but rationally valued in the mold of a company like Apple (AAPL), trading at a PE of about 30 and with a decent dividend yield (nearly 2%). It’s harder to buy the stock these days than it would have been a year ago, given the huge surge it has recently had, but that’s true of a lot of big technology stocks — and they are expected to have a very good year next year. Analysts see QCOM earning $7 a share in 2021, and growing another 10% or so in the year following, so if that’s a reasonable expectation the stock can still be a justifiable buy here at about 21X forward earnings.

There could be competition coming, of course, investors fear that Apple will be developing its own modems for future iPhone models and bypassing Qualcomm, or that other up-and-comers will continue to pressure Qualcomm’s lucrative per-device royalties on their chip designs, but that’s been a risk for years. Qualcomm’s revenue growth is finally picking up for the first time since the 4G transition really peaked around 2015, so you can see why investors are celebrating a little bit. I’m a little hung up on the bad old days for Qualcomm, with those $40-60 share prices probably anchoring my thinking too much, so I haven’t been able to talk myself into buying the shares recently… but I can look at it and say that valuation is still pretty reasonable. I’m not buying, but I won’t try to talk you out of it.

And what else does he hint at?

“The second stock you’ll hear about is going to be central to bringing this new technology right into your home. It already supplies close to 58 million homes and businesses across America. Its network is already growing at an exponential rate – doubling roughly every 18-24 months. As Wi-Fi 6E rolls out across America it’s THIS company that will likely be on the frontlines.

“Chances are, this company could soon be installing its tech in your neighborhood – or even your home.”

The best match there, sez the Thinkolator, is Comcast (CMCSA), which does indeed reach about 58 million homes and businesses with its high-speed cable broadband — and, therefore, supply the best high speed internet option for most of those end points, given the lack of fiber to the home or real competition in most areas. That would mean they’re the likely seller of improved home internet access through upgraded home wireless networks, since many of their customers just rely on Comcast to also run their home or small business Wi-Fi network (which is essential, of course, since almost none of us use ethernet or direct wired data connections anymore — even our desktop computers generally get their internet connection wirelessly).

And yes, their trajectory has generally been that they’re doubling their network capacity every 18-24 months (though not actually doubling their customer count every two years, of course).

Comcast has been pretty nimble about the transition to cord-cutting, with people giving up their cable TV in droves to switch to streaming (Netflix, Roku, etc.), but they’re also a pretty powerful conglomerate with huge content ownership, like the new NBC-drive Peacock streaming product, and they’re trying to walk that tightrope between cable boxes and streaming hardware carefully to keep hold of as many customers as they can, integrating streaming into its X1 products… and, of course, charging more and more for broadband internet to make up for the declining customer base for the big cable TV “bundle.” They also pay a decent dividend, similar to Qualcomm at about 1.8% now, and while they’re not growing either revenues or earnings this year they do have a steadiness from their huge installed base — even though people are cutting the cord, they’re not all doing it at once… and nobody is giving up internet access if they can help it.

Comcast makes things a little more complicated by being more than just a broadband company, of course, so one of the reasons for their dropping revenues this year has been the drop in ad revenue on some TV networks (other than election ads, of course), and the temporary closure of some of their huge theme parks, including the Disney-scale Universal Studios resorts in Florida and California. Right now, the estimate is that they’ll be back at 2019 levels for revenue and earnings sometime late in 2021, so if you value the company based on the anticipated rebound it’s trading right now at about 15X 2022 earnings estimates. Not bad for what is at heart a utility company stapled to the NBCUniversal entertainment content company.

And one more…

“The third stock you’ll hear about just made one of the smartest acquisitions in its history. It now supplies nine of the world’s top ten global internet network operators – and the top six internet content providers.

“I’ve known one of the founders of this company for more than two decades, so this company has been on my radar for a while – and now is the time to make your move.”

Not a lot of clues, but the Thinkolator has a guess… and it’s a pretty reasonable one. The best match here is the optical networking company Infinera (INFN), which should, along with its networking competitors, continue to be a beneficiary of the surge in demand for more and more bandwidth and more data transmission. If that’s correct, then the move they “just” made was to buy Coriant, though the deal was announced in the Summer of 2018 and closed on October 1 of that year, so a little over two years ago.

That does match the “nine of the top ten” and “top six” hints, though, as per Infinera’s pres release at the time, and it’s also a match in terms of the past Gilder connection — George Gilder has presumably been in contact with at least one of the three Infinera founders as they’ve both spoken at the same conferences… and one of them, David Welch, has spoken at Gilder’s “Telecosm” conferences at least a couple times in the past. Gilder has recommended, written or spoken about Infinera many times over the past 20 years or so (sometimes negatively, as Infinera’s specialty in optical-to-electronic connections went against his dreamed-of “all optical” world), and there was a Gilder headline (article is for subscribers only) that indicates a still positive opinion on the stock (“Infinera Continues to Impress… There’s just no stopping this company….”)

I can’t claim any great insight into Infinera, but the chart of the past decade indicates something of a failure to launch for the company — maybe now is the time to make your move if things are about to start to look up for Infinera, but the past decade has largely been a disappointment. Here’s a graphical representation of that, the blue line is INFN’s share price, which is roughly where it was a decade ago (up 9%), the orange line is the slow and rather tepid growth in revenues, which have doubled… but doubling revenues over ten years isn’t enough to cut it for a company that’s supposed to be an emerging technology leader. And the actual investor returns have been disappointing largely because they haven’t turned this into a profitable or growing business in any real way — the red line is the free cash flow per share, and the green line their earnings (both of which are negative — acceptable for a startup, but clearly disappointing for a networking technology leader closing out its second decade as a public company):

INFN Chart

Still, that doesn’t mean the future will disappoint as the past did — what matters is what happens next, and there is a little optimism on that front. Analysts are anticipating a return to profitability next year, when they expect adjusted earnings of 12 cents (and then 42 cents in 2022), thanks to revenue growth of about 10% and a substantial improvement in margins. If so, that would mean this $2 billion company that has so far burned through about $1.5 billion in 20 years might start to become a real and sustainable business. And if it starts to get valued based on that anticipated earnings potential, then it’s currently valued at about 80X forward earnings and about 25X 2022 earnings… which is OK if they keep that earnings growth going after 2022, but I wouldn’t blame you for being a little skeptical of those forecasts (yes, the pandemic threw a wrench into business for everybody… but INFN estimates have generally been trending downward for years… and two years ago, those same analysts were forecasting 60+ cents in earnings per share for Infinera in 2020).

Maybe Gilder’s got this one right, and he certainly knows the company better than I do… but there hasn’t been a lot of profit in the optical networking or other networking hardware companies in recent years, despite the steady and dramatic buildout of next-generation data centers. That means he’s at least making a prediction that’s outside the consensus, so that’s interesting, but I’m not jumping to invest in INFN at the moment… even if, yes, I agree that the bandwidth blowing through data centers and telecom companies over the next decade is likely to be on a scale that we can’t really even comprehend right now.

So this is, like we’ve seen so many times, a tease about a secret little chip… but not really a recommendation for a specific secret chipmaker (even Qualcomm, which does make chips, can hardly be considered secret or contrarian — it is the most well-known wireless chipmaker in the world, with the possible exception of Huawei), so this seems to be more of a broad bet that this latest advancement in WiFi will spur more business for a lot of companies who sell into that sector. I wouldn’t be against that, personally, but nor am I champing at the bit to own these specific “spectrum” stocks at the moment.

Your opinion, of course, might vary — that’s why you get to decide what to do with your money. If you’ve any thoughts on the potential for this Wi-Fi6E upgrade, or other winners you think are more interesting if you don’t favor these three, please do let us know with a comment below.

And we got a lot of feedback about George Gilder when we first covered his return to the newsletter world with his “don’t buy 5G, buy 15G” pitch back in April, but if you’ve subscribed to his George Gilder Report please do click here to share your experience with your fellow investors. Thanks for reading!

Disclosure: Of the stocks mentioned above, I currently own shares of Google parent Alphabet and have call options on Intel. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.

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