Luke Lango has a new “Next Microsoft” pitch about something called “G.C.T.” for his entry-level growth-focused advisory Innovation Investor ($79/yr), here’s how his email a few days ago introduced the idea:

“I don’t know about you, but I’m constantly looking for the ‘next big thing’ in the stock market. And I think synthetic biology might just be it.

“Forget buying an index fund and making 7% a year or buying Coca-Cola stock and collecting a 3% dividend. I’m looking for the next Apple, the next Amazon and the next Netflix.”

And what’s the promise today? Here’s how he puts it:

“Specifically, I’ve identified one tiny, $5 stock that I think could be the next Microsoft. It’s an early stage company that was founded by some of the smartest people on the planet. And its ground-breaking technology could fundamentally reshape society over the next few years.

“It may be the most promising tech startup in the world today. And, yet, virtually no one is talking about this stock.”

Big picture? As is clear from our headline today, it’s a synthetic biology stock… more from Lango:

“In many ways, the new technological revolution I’m talking about is the Computing Revolution 2.0.

“That’s because it’s basically the computing revolution of the past 40 years but applied to living things as opposed to computers.

“I’m talking about rewriting the code of life through an emerging technology field called synthetic biology. That’s a much bigger undertaking than rewriting the code of machines.”

That has been a big focus of a lot of researchers in recent years, and the analogy we hear frequently is that programming cells is similar to programming computers, it’s just a shift from the base language of binary (which is what computers use — everything is either on or off, a one or a zero), to the base language of DNA, which has four variables (the four amino acids that make up DNA, adenine, thymine, guanine and cytosine). If you can build complex machines by encoding information in binary, you should be able to do at least as much, perhaps much more, by encoding information in DNA as well.

He’s not talking about the computing use of synthetic biology, though, not really, he’s talking about being actually able to manipulate living things — which we all know is quite possible, thanks to the advancements made in genetic editing (including CRISPR). More from the ad:

“In practice, synthetic biology means we can manipulate the code of crops to be pest-resistant or the code of plants to be weather-tolerant. We can manipulate the code of cancer patients to get rid of the cancer. We can manipulate the code of yeast to produce better-tasting beer.

“Indeed, synthetic biology may be the solution to the myriad of problems the world is facing today!”

He even provides some examples, which sound wildly optimistic (though, to be fair, he is using that “50 years” timeframe, and a lot of what is commonplace today was science fiction 50 years ago)….

“Take, for example, soaring gas prices. They are a byproduct of American and European reliance on Russian oil. Such a dependence could be solved with synthetic biology. By employing advanced synthetic biology techniques to manipulate the code of oil and natural gas in the U.S., we could make it far more effective and plentiful. And with these next-gen fossil fuels, we could eliminate our reliance on foreign oil and gas.”

Anything else? This is the final sum-up of the pitch, with a couple more loose clues thrown in…

“And at the dead-center of this fast-moving, multi-trillion-dollar technological revolution is one tiny $5 stock with infinite potential.

“It’s a company that was founded by the most pioneering experts in this field. And it’s backed by some of the biggest and most successful venture capital firms of all time.

“The company has developed unique and groundbreaking technology that deals directly with the AI mechanisms that power this entire revolution.

“This tech, frankly, is unrivaled. And the company is actively using it to change the world via many partnerships with big food and pharma companies.

“This company, folks, is the ‘next big thing.’ It is the Microsoft of the Synthetic Biology Revolution.”

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That’s all just from the email introducing the pitch, he also goes into a long “presentation” spiel if you click through, showing a little image of a DNA Sequencer and teasing his idea as a leader in “Genetic Coding Technologies.” Any other clues in that pitch?

He goes into the idea of this being like biological “software” a bit…

“… investing in software is the fastest way to potentially build incredible wealth as technologies hit the Sudden Phase.

“Think about it.

“When the internet hit the Sudden Phase in the 1990s, it was software businesses that became the biggest stock market winners….

“And we believe DNA is the where the NEXT software empires will be created.

“Because DNA can be read, edited, and programmed just like computer code….

“But instead of creating a software app you use on a device…

“DNA is programmed to create new treatments and engineer biomaterials in a whole new way.

“And my research has led me to what could be the software giant of the DNA era.”

And drops some more hints about the founder (and backers) of the company:

“The company is headed by an MIT scientist who helped build ARPANET, the technology that laid the foundation for the internet.

“In 2009, after witnessing the huge potential in DNA and the falling costs of sequencing, he started this incredible company.

“It specializes in programming the DNA of microorganisms…

“And then licensing out those programs to companies who use them to make physical materials, consumer products, and more.

“That’s why experts are saying this company could be the next Microsoft.

“And the most exciting part: Bill Gates has already publicly backed and invested his own money in this company….

“Cathie Wood – manager of the $60 billion Ark Investment Funds – is also on board.

“And it has major partnerships with Quest Diagnostics, Cronos Group, Bayer and more.”

And that’s about it by way of clues… whatever could it be?

Well, there are more “synthetic biology” stocks around these days than used to be the case, for sure, but those clues point squarely at one of the higher-profile leaders in this space, Ginkgo Bioworks (their stock ticker? It’s perfect: DNA, a ticker that was made available when Genenetch was taken over by Roche a dozen years ago… not sure why nobody else got their hands on it before Ginkgo).

Ginkgo was a very high profile company in synthetic biology even a few years ago, and there was a lot of speculation on a possible IPO in 2020, but they arguably left it a bit late and missed the high point of the mania for growth stocks and SPAC mergers (they agreed to their merger deal with Soaring Eagle Acquisition, from a very experienced SPAC sponsor, back in May, but the deal didn’t close until Mid-September). Ginkgo did actually hit a peak valuation of $25 billion in the last gasp of growth stock enthusiasm in October and November, hitting roughly $15, but now it’s back to about $7.5 billion at $4.20 a share.

What does the company look like? Well, no surprise, it’s nowhere near being profitable — they’re essentially trying to build a new sector, and it’s early days on that front — but they did enjoy an explosion of revenue growth in 2021, hitting $314 million in revenue, even if that was largely thanks to the surge of COVID-related revenue (their Concentric business, which they class under “biosecurity,” is largely a testing and surveillance business, so that was responsible for 2/3 of 2021 revenue and might well fall pretty dramatically post-pandemic, though they do say they think it still has potential beyond this year). Without the COVID-driven Concentric business, Ginkgo’s core business, their Foundry revenue, was $113 million, and that core business had revenue growth of 91%.

So yes, the numbers say they enjoyed a sea change from the $76 and $54 million they had in top-line sales in the prior two years to $314 million, but the reality is much more restrained when we think about the future. The company is guiding investors to expect $165-180 million in Foundry revenue this year, and Biosecurity revenue of “at least $160 million” as they continue investing in that area post-pandemic — so that means they think the core business will grow by something like 45-65% this year, mostly making up for the fact that the Biosecurity/Concentric business might drop by 50% from that 2021 peak year and keeping the top line growing by at least a little bit.

And it’s only fair to mention that the growth they has last year cost them plenty, they spent all of that $314 million that came in the front door, plus another $327 million, in trying to build the business (their actual numbers for 2021 look even more ridiculous, with a $1.6 billion expense line — but that’s from the SPAC merger, it’s essentially turning the merger into stock-based compensation for the insider shareholders, in exchange for which DNA now has about $1.5 billion in cash they can spend on growing the company).

But the basic challenge here is how to value the growing Foundry business, their core business of developing new synthetic cells, without giving them too much credit for the COVID-related work that is worth something, and may be sustainable, but might not grow any more and likely peaked in 2021. Analysts are following guidance, so the current forecast is for $339 million in revenue in 2022, and that would be only about 8% growth from last year, and they’re also forecasting about 20% growth in 2023.

How about the balance sheet? Can they afford all this investment in growth? Well, at least for a few years, they’re fine. They’ve got that roughly $1.5 billion in cash on the books, and analysts do think that DNA will be inching closer to breaking even, but not this year — this year will a a big cash outflow year, about $410 million, then that will dip to $150 million in 2023. Given how new Ginkgo is, and how much depends on new customers, we should probably consider those to be wild guesses, but, barring a complete collapse, they’re not at risk of running out of money in the next few years… and if you go by their original SPAC presentation, at least, they expect to be generating positive cash flow by 2025. (SPAC projections can be pathologically optimistic, especially if you go out that far, but they did at least underestimate their 2021 Foundry revenue back in May, by a good 15%, and you have to start somewhere — they also wildly underestimated their Biosecurity revenue, by almost 100%, for whatever that’s worth… any time a SPAC presentation turns out to have been too conservative, that catches my attention as a point in the company’s favor).

What else?

Ginkgo is a really interesting company, and I can certainly see the logic in speculating on the stock after it got washed out a bit by the collapse of growth and biotech stocks over the past few months — it’s not exactly cheap, they could absolutely face critical problems with their technology or lose big customers and fall 90% from here, but it’s getting down to a place where it seems more rational for speculation, as long as you give them some credit for their passion and early leadership. Buying this early in the cycle of a new technology, before the profitability of the platform is really proven and accepted, is always going to be a risk, but Ginkgo has at least been around for a long time, and has a strong web of connections with both technology providers and customers on which to build its potential future. This was a pretty mature and well-connected technology “startup” for several years before it came public.

And they know how to pitch the big potential, and to frame their progress — they even have a corollary to the famous Moore’s Law, named after their founder and “Chief DNA Hacker” Tom Knight:

“Knight’s Law — our scale theory: The cost to genetically engineer a cell decreases by 50% and the number of designs tested increases by 3X per year in Ginkgo’s automated cell programming foundries.”

(In case that reference is unfamiliar, Moore’s Law is attributed to Intel founder Gordon Moore, who observed that the number of transistors per chip doubled every two years, while the cost of computers was cut in half in that same time period — and that was more or less true for a long time, and was one of the exponential drivers of the computing revolution of the last 50 years).

The appeal with Ginkgo is that they have some meaningful scalability if their synthetic compounds go into much wider use — their core revenue now is primarily from “Foundry” work, they’re essentially paid to do the R&D to develop a new cell for a particular purpose, and to test and perfect that molecule to match the customer’s needs and begin to produce it in volume over a few years (they’re getting to the point where their customers are close to covering 100% of the R&D cost up front, which is key), but then there’s the potential for much higher-margin revenues several years out into the future as their synthetic cells become important ingredients in commercially viable products — they structure their programs to generate either a share of equity ownership or a stream of royalties, so that pool of equity and of potential future royalties keeps growing as more programs work their way through development (the two outcomes are roughly equivalent, in terms of how much cash Ginkgo gets — though with equity they get it faster, with royalties it comes in slower).

Ginkgo still represents a lot of uncertainty, given how early it is in this industry and how much money they’re still losing, and I don’t have any expertise about whether competitive platforms or breakthroughs in synthetic biology will emerge over the coming years to make their technology irrelevant, so one would have to go in with that mindset which we should probably have with all emerging technology companies: It might not work at all. There might be something much better that comes along before (or after) Ginkgo becomes a cash-generating business (which might happen in a few years, if they work to plan, or might not happen at all). The comparisons to Microsoft and other technology platform companies have some merit, but as human beings we tend to latch on to the winners — and there have also been hundreds of failed computing platforms that are now lost to the sands of time, failed competitors to Microsoft (and Google, Apple, etc.)

The nice thing about platform companies? If you get it right, and they become a leader of a big industry in ten or twenty years, the rewards can be ridiculous. That’s where some of those daydream stories come from, the $1,000 you put into Microsoft when you got your tax refund in 1994 that became $90,000 27 years later… yes, we call that financial pornography for a reason, it distracts you from reality and it’s not likely to be attainable in the real world, but, at least with some portion of your portfolio, it’s OK to daydream.

So that makes this the fun kind of (relatively) small stock to speculate on — huge potential, really interesting story and founders who genuinely pioneered some technology breakthroughs, with a pretty clear focus on commercial advancement that is beginning to work, albeit not fully proven yet… and if it works out really well they could conceivably grow 100X in size. As long as you’re only risking 1X, that’s not such a bad deal — you just have to make sure to only speculate on these kinds of stocks with money that you can be very patient with, even if it looks, a few years down the road, like you’re in danger of losing 100% of your money.

That’s the bargain — find an emerging platform company fairly early on, take the risk of 100% loss, and you get to daydream about 100X returns. I can’t argue with that, I can just remind you to think seriously about that “risk 100%” bit — these are not the stocks to speculate on if you’re going to be wringing your hands or selling your shares on the days when they fall by 25%, as Ginkgo probably will along the way. But they can be interesting speculations, and they are, at least, fascinating stories of technological innovation and growth.

The other synthetic biology company we have seen touted a few times recently is Twist (TWST), which is pioneering a DNA on silicon platform — and the two companies are somewhat connected at the hip, Ginkgo for many years was the overwhelmingly dominant customer for Twist (they’re still a large customer, but no longer big enough to be broken out in reporting). That’s an interesting story as well, though Twist is widely expected to grow more slowly, and to lose more money in the next few years than Ginkgo (my most recent piece on TWST was a few weeks ago, in response to a Curzio ad).

This is an interesting one for me, and I’ve burned through a bit of my speculative cash in recent months so I did put on a small call option position in DNA (January 2024 $12 calls) — there are also warrants available, if you’re interested (DNA/WS or DNAWS are the most common tickers, $11.50 strike price, trading around $1 these days), and warrants might be a more sensible and lower-risk speculation given that they give you roughly twice as much time… but your leverage is a little bit limited, potentially, by the standard early redemption clause (if the shares are above $18 for a few weeks, they have the right to redeem them and cut off the leverage — either forcing you to sell or to exercise the warrant to avoid losing it), so I went for the call options instead and gave up half the time in exchange for a lower price and no early redemption ceiling, but they are similar.

So… interested in a speculative synthetic biology stock? Like Ginkgo’s potential, or do you prefer one of the other players in the space? Let us know with a comment below… and thanks for reading!

P.S. But wait, there’s more! Luke Lango also pitched a second DNA-related stock in his ad, and I’ll get to that in our next piece…

Disclosure: As noted directly above, I just bought 2024 call options on Ginkgo Bioworks. Among other companies named in this article, I also own shares of Amazon, and of Google parent Alphabet. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.