Here’s the intro to Luke Lango’s ad for his entry level Innovation Investor newsletter ($49/yr):

“Silicon Valley Insider confesses…

“We’ve Created A Monster

“It will eat jobs… wreck businesses… and destroy investment portfolios…”

And like so many ads these days, it’s focused on A.I. — so I’ll spare you the long presentation about how AI will do to white collar workers what the factory robot did to blue collar workers, you’ve heard that before. We’re mostly just curious to see which stock Lango is pitching as his “#1 AI Stock to Buy Right Now” — and whether it’s different from all the other hyped-up AI picks we’ve seen since the launch of ChatGPT back in November (many folks are calling that an “iPhone moment” for the technology) and the dramatic revenue forecast from NVIDIA (NVDA) last quarter.

Lango also has a second AI-focused teaser pitch running right now, for a collection of other stocks that he’s selling with the acronym “SUPRMAN” in ads for his pricier Early Stage Investor, but I’ll take a look at that one separately (you can jump in with other Gumshoe readers who are trying to figure out those SUPRMAN stocks right now, if you don’t want to wait for me) — today, our focus is the simpler pitch for his “#1 stock” in the space.

Lango claims to have great prescience in picking hot stocks…

“Because of my ability to find little-known opportunities in the tech space, I was recently ranked as the #1 stock picker in America according to TipRanks… claiming that title by beating out more than 15,000 financial experts.”

I don’t know that TipRanks is the best barometer for any newsletter editor, but if he’s going to brag about that we should mention that he’s probably referencing a ranking from a time when the market happened to be hot for growth stocks and he was on a hot streak picking some of the popular ones, maybe 2021 or so — as of today, TipRanks says Luke Lango is ranked #33,089 out of 33,457 experts.

But anyway, once we skim down to the part where he’s teasing his favorite company, what gives?

These are the clues:

“These opportunities are on the launching pad as we speak.

“They have incredible potential.

“And one small-cap AI stock recently crossed my radar that is poised to skyrocket.

“As far as AI stocks go, I consider this company to be the “king of the hill.”

“In short, without giving away the full details here, this firm has finalized its end-to-end warehouse automation solution… that Walmart (WMT) is fully adopting.

“I wouldn’t be surprised if this stock produces a 10X return for folks that get in early.

“This single opportunity is so incredible, that I had to create a separate report that will fill you in on all the juicy details.

“This report will explain everything you need to know about this opportunity to make the most money possible…

“It’s called The #1 AI Stock to Buy RIGHT NOW.”

That’s not a lot of clues, but the Thinkolator’s best answer here is that Lango is pitching Symbotic (SYM), which is indeed a warehouse automation company, and does have a deal with Walmart (WMT). It’s also been an AI darling for months, so the stock has quadrupled since Christmas. It is relatively small, and does have a meaningful level of business, with revenue growing at well over 100% year over year for several quarters in a row, so it’s a lot easier to take seriously than the little AI stock we looked at yesterday, Verses AI, but it’s still, of course, quite speculative, with expenses rising almost as fast as revenue. Analysts can’t keep up with the mania on this one, almost all of them rate it a “buy,” but the highest price target from an analyst is $36, well below where the stock trades right now.

At its heart, Symbotic is not so different than lots of other warehouse and logistics automation companies, including the internal projects at places like Amazon, but this is how they describe themselves:

“Symbotic is an automation technology leader reimagining the supply chain with its end-to-end, A.I.-Powered robotic and software platform. Symbotic reinvents the warehouse as a strategic asset for the world’s largest retail, wholesale, and food & beverage companies. Applying next-generation technology, high-density storage and machine learning to solve today’s complex distribution challenges, Symbotic enables companies to move goods with unmatched speed, agility, accuracy and efficiency. As the backbone of commerce Symbotic transforms the flow of goods and the economics of supply chain for its customers.”

The big growth recently seems to have come from outsourcing, as they’ve partnered with other companies to build and install their smart warehouse systems and have closed down their own manufacturing centers in Quebec and here in Massachusetts… here’s a quote from CEO Rick Cohen from the second quarter press release:

“Our second quarter results reflect continued execution to our growth plan. During the quarter we advanced our transition to outsourcing partnerships to successfully complete installations of our current system at multiple customer sites and achieved a three-fold increase of deployments in progress since last year. Our ability to scale at this pace, while continuing to innovate, positions us to be the leader in transforming the supply chain.”

They do expect to keep scaling up, and they’ve guided for revenue to be about the same this quarter as it was last quarter ($266 million was the Q1 number). They came public last year, near the end of the SPAC mania, so their large deal with Walmart didn’t get that much attention (Walmart has committed to use Symbotic’s robots and software in all 42 of their distribution centers), but that deal does provide a nice foundational level of work for the company as they roll it out to additional Walmart warehouses over the next 7-8 years (maybe faster with the outsourcing, we’ll see). That’s been key to Symbotic for a while, they started their first pilot project to automate a Walmart distribution center in 2017. They’ve also been active with big wholesalers and grocery chains, though I don’t know to what extent partners like C&S Wholesale have committed to future development like Walmart has.

You can see the original SPAC presentation for Symbotic here, they merged with one of the Softbank SPACs (SVF Investment Corp. 3) — and this is actually one of the very rare companies that’s outperforming its SPAC presentation projections (they projected $832 million n revenue in FY23, which they’re halfway through right now, but will probably top $1 billion given their past couple quarters and their guidance for next quarter… though they may well fall short on the “gross profit” forecast and their EBITDA and Free Cash Flow goals, thanks to rising costs).

This is an interesting business, because the real driver right now is their sales of the robotic systems into distribution centers — that’s a huge up-front cost for the customer — but the much higher profitability should come very gradually, as the ongoing software subscription that’s required to run those robots and automated systems becomes a larger part of the revenue, which will take many years. The big top-line growth numbers make it possible for this to work out over time, but the biggest risk is probably that any slowdown in new installations would lead to slowing top-line growth before the SaaS subscription revenue really becomes meaningful enough to generate steady profitability. They have a pretty big order backlog, so that may not be a near-term risk, but paying a high price today does mean that they’ll have to continue to post strong “beat and raise” quarters to keep investors happy — right now, the shares are trading at about 60X 2025 estimated earnings, so investors who buy in today really need to believe that those 2025 estimates will keep moving up.

And they might. According to analysts, they’re likely to be profitable, at least on an adjusted basis, as soon as this quarter or next, and that transition to profitability often attracts new investors (partly because when you’re starting at a penny per share of earnings, the earnings growth can look very dramatic for a while).

It’s an impressive little company, and their improved margins as they outsource manufacturing could give them a kick start at fulfilling that long-term backlog… it’s just that the growth in recent quarters, combined with some AI mania thrown on the fire, has put them at a price where investors aren’t likely to tolerate a bad quarter. I’m inclined to like this one after my first look at their financials, though I haven’t researched the stock before and I’m not ready to risk a large investment at this kind of valuation… which means it’s time to do a little speculating.

Given what looks to me like a relatively low premium on the in-the-money call options for SYM, after the recent stock price surge, that might be a safer way to get a little nibble while keeping the total money at risk at a comfortable level for a speculation — that way, if things keep looking up and the company keeps ramping higher on good news in the next couple quarters, you’ve locked in an easier buy price. If it doesn’t, and the stock collapses back to the teens, you’ve risked only about a third of the current share price, effectively setting yourself a mechanical stop loss if you only buy as many options as you would normally commit to buying shares of a new position.

How does that work? Example: You would normally commit about $8,000 to a new position like this, so that would mean buying about 200 shares at $40 each. If they collapse roughly 35%, to ~$25, and you cut your losses, you’re out about $3,000. If they soar to $75 in January, say, your position is worth $15,000.

You could instead use in-the-money call options, with less capital at risk, and buy two call options at a $25 strike price. That costs you about $17 per share, for a total of $3,400, and gives you the right to buy 100 shares per option contract at $25 per share. You’re paying an extra $2-3 per share for the leverage, effectively, so anything over $42 or so means you’re making money, and if the stock collapses back below $25 at expiration, assuming you keep holding until then, you essentially lose everything, so you’re out $3,400. If you know in your heart that you want to ride the whirlwind but that you’ll panic and sell if the stock gets cut in half, this is a way to essentially turn that commitment into a contract. You know that if the stock collapses to $10 for some reason, which is certainly possible (it was at that level in December, and not all that much has changed about the company — it was posting very strong growth late last year, too), you won’t be the person who rode it all the way down and kicks themselves.

It’s a psychological tool as much as anything else — putting up less cash means there’s more leverage, so your results will look worse than an equity buyer at $40 if the stock is falling and better if it’s rising, but it gives you almost complete exposure to the upside (minus that $2 extra premium you’re paying) and it sets your potential loss in stone. If you’re a patient investor and know you’ll hold for five years no matter what, then that’s fine, buy the stock — but if you’re going to sell anyway if it hits a stop loss, or you’re going to wish you had, then the options can pre-make that decision for you.

The biggest bummer in that situation is not necessarily that the stock collapses to $5 and you lost less than someone who capitulates and finally sells at that lower level… it’s probably that the stock dips to the $30s for most of the next year or so, your options end up losing you 2/3 of your investment when they reach expiration in January, you opt not to exercise those options and buy the stock at $25… and it finally soars to $100 a year or two after that.

Nothing’s perfect, sadly. But I do like the real nature of this company’s installation deals and its good visibility on contracted future revenue. It may or may not really be a revolutionary “AI” story, it’s entirely possible that their version of AI is not so different than the warehouse management systems that Amazon and others are effectively using, and which are constantly evolving all around us, but having their software tied to those installed systems, and a good backlog of installations to perform over the next few years, provides more of a real financial “story” than we find behind many of the AI pitches we hear these days. They can still mess it up, and the stock is objectively expensive right now, but they have a good operational trajectory that could continue, and could easily justify the current share price if they continue to operate well.

So I took such a nibble, picking up some $25 call options for both January and October 2024. We’ll see how it goes. Maybe I’m just too excited about a small teased AI stock that has actual revenue and some visibility into future earnings, but it’s a minor commitment of capital to ride along and see if the growth continues to accelerate.

Other risks? It’s a Softbank-affiliated company, funded by a Softbank SPAC, and that means there’s a big chunk of the shares that could be put on the market in a hurry, more than 30%, if Softbank decides to sell (and it’s newly public, so there will almost certainly be some meaningful insider selling in general over the coming year). There’s also been a growing short interest in the shares over the past few weeks, as the price has spiked, so there are probably some smart short sellers who are betting against us (short interest is only 5% of the float, but the float isn’t very big because of the big Softbank/insider stakes). And other warehouse automation stocks have looked compelling in the past, but failed to really scale up and reach their promise, like the smart warehouse company Ocado (OCDO.L, OCDDY).

What say you, dear reader? Already interested in Symbotic? Interested in following Lango into this idea, or do you see skeletons in the closet that haven’t yet jumped out at me? Do let us know with a comment below…

Disclosure: Of the companies mentioned above, I own shares of NVIDIA and call options on Symbotic. I will not trade in any covered stock for at least three days after publication (one week for options trades), per Stock Gumshoe’s trading rules.