This ad has been running for a week or so, since Crowdability hosted their “special presentation” to make the original pitch on October 23, and readers have been peppering me with questions… which makes sense, the idea of a “single stock retirement plan” is very compelling (Oxford Club has used it to pitch a different $3 stock for over a year now), and the fact that it’s tied in with 5G and with something specific happening on January 7 makes it seem even more exciting.
So let’s dig through the ad and figure out what exactly they’re talking about, shall we?
It’s a pitch for Crowdability’s Micro-Cap Advantage service (currently being sold at $1,495/year, though the real push is for “lifetime” subscriptions for $2,995), which I’ve only covered once before (they were teasing Neptune Wellness (NEPT) back in April, it eventually doubled and then dropped with the rest of the pot stocks and is back where it started). The basic spiel is that Crowdability’s founders, Matt Milner and Wayne Mulligan, are great at profiting from emerging technologies and little private companies, and they’re taking that expertise to the micro-cap arena (which they consider to be stocks with market caps smaller than $500 million).
Here’s a little taste of the ad…
“January 7th, 2020. That’s just a few months away.
“As we’ll explain in a moment, a major announcement is set to take place that day. And as soon as it happens, the price of certain stocks could explode.
“And that brings me to the final topic we’ll be covering during this presentation…
“We’ll be sharing three specific trades with you!
“To be clear, these trades are in the public stock market — trades that anyone with a few hundred dollars and a brokerage account can make…
“And these trades will give you three different ways to take advantage of the January 7th announcement.”
I don’t want to spoil the surprise, but the “Apex Event” they’re teasing for January 7 is the Consumer Electronic Show in Las Vegas, which is the massive trade show that always generates a lot of buzz about the latest whiz-bang product introductions… and they think the CES this year will be a major 5G event…
“… next year, the Consumer Electronics Show is where 5G will be making its major debut…
“For example, this is where all the major carriers and handset makers will be rolling out their 5G phones.
“This alone could unleash enormous levels of spending and sales.”
The idea that CES will focus on 5G this year is probably true, though 5G was also a big focus of the show last January (though it arguably wasn’t really ready for prime time)… and the biggest US handset maker, Apple, doesn’t generally have a CES presence and probably won’t roll out its first 5G device until much later next year.
That’s just a general prediction about the inflection point for 5G, though, and that doesn’t really matter — there’s broad consensus that 5G will be a massive focus of the electronics and telecom industries over the next few years, so identifying a precise point of time that’s an “Apex Event” to drive that trend higher is probably not worth the brainpower.
We know it’s going to be big, point taken… so how do the Crowdability folks think we can profit from that?
Well, they do toss out two “free ideas” — here’s the first one:
“This first trade is a very simple, direct way to profit from the bull market in the mobile communications sector.
“As you’ll see, this stock will directly benefit from the 5G rollout next year.
“The name of the company is Inseego (INSG).
“Basically, Inseego provides large enterprises with modems and routers that are specifically built for 5G networks.”Are you getting our free Daily Update
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We’ve covered Inseego a bunch of times, several newsletters have teased it as an early 5G play. Crowdability thinks it would grow 25-40% a year for the next five years and they have a $12 price target. I last wrote in more detail about this one last month when David Fessler teased it, in case you want to read up more on that idea.
And the next one is an ETF…
“The one I’m going to recommend here is called: “The Global X Internet of Things ETF” — and its symbol is SNSR.
“This fund gives you a way to invest in a basket of 50 different IoT-related stocks…
“And because it’s so diversified, that means your downside will be protected.”
ETFs are always less risky than dabbling in individual stocks and trying to hit home runs, and SNSR has done pretty well recently — big holdings include obvious choices like STMicroelectronics (STM) and Skyworks (SWKS) as well as somewhat more surprising ones like GPS maker Garmin (GRMN) and security monitoring firm ADT (ADT). It’s fairly expensive for an ETF with a 0.68% expense ratio, but that’s not so unusual for these sector/theme ETFs.
But what we’re really interested in is the “secret” stock they’re teasing, right?
Here’s some more from the ad:
“… as soon as the mobile industry starts rolling out 5G networks, life for CPU makers is going to get very challenging…
“You see, IoT devices will be even smaller than an iPhone… but they still need to be just as powerful! …
“Which is why we believe the company we’ve been telling you about today is sitting on such a goldmine…
“You see, this company recently announced a major breakthrough…”
Now we’re getting somewhere! OK, what did this microcap announce as its breakthrough?
“Essentially, it’s created a new type of patented semiconductor material.
“According to newelectronics, a leading news source for engineers, this company’s technology has been shown to ‘improve the performance and power efficiency of devices’ — while also ‘reducing their cost.’
“Furthermore, MarketWatch announced that this ‘breakthrough’ has been proven to deliver a ‘performance improvement of up to 50%’ over existing technologies.”
OK, this is when we should remind ourselves that we aren’t silicon engineers and materials scientists (well, I’m not — maybe you are!). That means we’re at risk of getting very excited about things we know nothing about, particularly when it comes to new materials “breakthroughs” — there are labs all over the country where new chip materials and coatings and formulations are being tested all the time to try to push the next generation of chips, and there’s very little chance that I’ll be able to make a rational distinction between a microcap “breakthrough” company’s advancement and the dozens of other advancements that are probably being made right now.
But, of course, once it rises to the level of becoming a business, as perhaps this one has, we can take our evidence from the income statement instead of from the lab results.
So what’s the company? Let’s get into the rest of the clues…
“… in the semiconductor market, there are two types of businesses…
“First, there are semiconductor manufacturers…
“These are companies like Intel and ST Micro. Basically, they make money by producing semiconductors and CPUs, and then selling them to computer makers.
“Ok, so that’s the first type of company…
“Then there are semiconductor “materials and licensing companies”…
“These are companies like Rambus, Inc., ARM Holdings, and the company we’ve been telling you about during this presentation.
“These companies make money by developing new semiconductor technologies, and then licensing them to the manufacturers.”
Well, we know that ARM Holdings was a fantastic investment for several years as they gobbled up royalties for their chip designs, so that’s a good example (though they’re owned by Softbank now). And it won’t surprise you to hear that this microcap stock they’re teasing is also hoping to profit from licensing… this is what the ad says about the reason these kinds of companies are compelling investments:
“First of all, because they don’t have to spend money on factories or inventory, they can keep their costs low.
“Secondly, not only do these lower costs reduce their risk, but they can also increase the companies’ profit margins.
“And perhaps most importantly, rather than competing with massive enterprises like Intel or ST Micro, these companies can partner with them instead. And as you’ll see in a minute, this can quickly turn them into multi-billion-dollar companies.”
And how about some actual clues?
“… this company we’ve been telling you about has already signed up ST Micro as a customer.
“… this company’s sales leads are skyrocketing…
“Furthermore, it’s currently in active negotiations with literally 50% of the world’s largest semiconductor makers…
“… this technology is the ‘only game in town.’ It’s protected by more than 200 patents and patent applications…”
This is, sez the Thinkolator, a tiny little $60 million company called Atomera (ATOM)… and no, I had never heard of it before. And they just reported yesterday, so we’ve got some good timing here and some fresh data.
Atomera barely exists as a commercial enterprise, they’ve been public since late 2016 and have had a total of about half a million dollars in sales since they started reporting financial data in 2014 (almost half of it in just this quarter). Their total “retained earnings” number is a loss of about $130 million, and in recent years, at least, most of those losses have been ascribed to R&D expenses… so they are at least working on something. What is it?
Here’s what they say on their website:
“Atomera has created a patented, quantum engineered material called Mears Silicon Technology (MST®) which enhances transistors to deliver significantly better performance in today’s electronics. That means your mobile phone will have longer battery life, IOT devices can be made smaller, and web servers will become even more powerful.”
And that sounds perfectly wonderful, though I confess that as soon as the term “quantum” is used my brain starts to hurt and I immediately begin to think of myself as having Howdy-Doody level intellect. I do not understand what “quantum engineered” means at all.
In the second quarter conference call transcript, the CEO described the business this way:
“Atomera is a materials and intellectual property licensing company with a proprietary transistor enhancement film called Mears Silicon Technology or MST. Our Company develop new material designed to improve the performance of semiconductors and helps our customers integrate them into the manufacturing flow of both existing and new fabs. Our technology can address the slowdown in Moore’s Law by providing new materials and integration techniques to the industry, which will improve performance, cut power consumption and decreased product costs….
“Atomera gets revenue from 3 sources. Engineering services revenue, which will grow as more customers pay us to conduct MST deposition runs; license fee revenue, which has up to now has been limited to payments from our first 2 licensees, STMicro and AKM, but will increase as we sign more license deals. And finally royalties generated by the sale of licensed MST wafers and chips.”
In case you want some additional confirmation, the slide that Crowdability used in the ad about the number of customers in various phases of “engagement” testing Atomera’s technology is lifted directly from the Q2 investor presentation by Atomera, and the more recent Q3 presentation uses the same basic info (though the number of “customer engagements” has risen a little). You can get a pretty decent picture of where they stand now by reading their conference call transcript from yesterday and following along on the presentation.
And, yes, it’s important to remember that Atomera is very, very small — usually only about $100-150,000 worth of shares trade in any given day, so any new buyers or sellers who try to hurry in or out are likely to have a meaningful impact ont he price for at least a little while. The shares jumped dramatically back in May when they announced their MST breakthrough in 5V analog transistors, which is what you’d expect for a big technology announcement from a small R&D company, but the stock also rose about 20% in the week after the Crowdability “presentation” and leading up to yesterday’s earnings report, but has now pretty quickly drifted back down now that the news is known.
I always imagine how hard it must be for these tiny, focused labs to compete, too — their work can theoretically be pretty quickly dwarfed or acquired by hundreds of much larger companies. Intel, for example, spends about $35 million on R&D per day, and that’s more than 10X what Atomera can spend in a year… so yes, Atomera does have hundreds of patents for their processes, and being tiny and very focused on one technological breakthrough means there’s plenty of potential if they make it… but being tiny is also sometimes a disadvantage.
They did also just announce a new licensee, a RF chip company who presumably believes that MST will help the performance of their chip designs for 5G. The company doesn’t disclose much about their customers’ specific work, but do say that they are working with at least 10 of the 20 largest chip companies… and they do name STMicroelectronics (STM) as one of their larger licensees.
January 7 is not terribly likely to be a breakthrough date for this specific company, the business of developing and commercializing new materials processes for the chip industry is very slow and there won’t be any MST-licensed chips in production in a few months… I would imagine that the next real excitement for Atomera will come if and when they get a licensee to actually move to use the technology outside of an R&D environment and start making chips that use the technology, since it’s those royalties and the exposure to possibly high-volume production of chips using MST that could really make the business look compelling (we don’t know what the royalty rates might be, but I assume they’re quite low — which means getting some large-scale production would be key). The company continues to report a pretty steady stream of very small “engagements” and revenue, mostly engineering services fees but some licensing fees, but they also continue to say that ” our visibility on timing of those licenses and engineering services remains limited.”
They are right now guiding to revenue of $125-150,000 in the fourth quarter, which serves as a reminder that revenue is not going to suddenly shoot higher in some surprise move — that’s less than this quarter, and the numbers don’t really matter. What matters is whether someone moves forward into commercial production. The company leaves us with this optimistic take on the conference call:
“The customers and programs we are working on today are each very high potential and capable of making the company successful on their own. When we get these folks into production we will certainly be a powerful IP provider to the semiconductor industry and a much more valuable member of the semiconductor ecosystem. We look forward to sharing more of our successes with you as we continue to build Atomera into an important technology provider to the semiconductor industry.”
So right now Atomera is valued by the market at about $60 million, which is right in the middle of the range it’s been in over the past three years. Over that time they’ve added new licenses and done incremental work for their partners, but haven’t yet had a commercial breakthrough to match the technological breakthrough they announced this year. They’ve also raised money a few times, since they’re burning through about $12 million a year, but right now they should be in decent shape on the balance sheet for at least a few quarters (though as with all microcap cash-burning companies, if the stock pops up they’ll probably want to be opportunistic and raise money while they have a chance).
The investment case for Atomera is probably best thought of as a high-risk, high-reward scenario — it’s entirely possible that they’ll spend another three years without any commercial production from their licensees, or that they’ll be eclipsed by some better technology that none of us know anything about, and the share price will erode as investors give up on the story. It’s also possible that one of their licensees will have great results from testing, commit to a major run for an MST-enhanced chip, and generate meaningful cash flow in the next year or two… and then that success will encourage other chipmakers to push forward and get some exciting growth for Atomera. I can’t tell you which way the wind will blow, but I can say that nobody will be releasing an MST-licensed chip on January 7… and you’ve probably got plenty of time to think it over.
Disclosure: Of the companies mentioned above, I own call options on Intel and Inseego. I will not trade in any stocks covered for at least three days, per Stock Gumshoe’s trading rules.