This is shaping up to be “bitcoin week” here at Stock Gumshoe — I wrote a bit more about my (befuddled and pessimistic) opinion about bitcoin itself late last week, and we got things rolling on Monday with David Gardner’s “bitcoin backdoor” stock…
… and today, we move on to Jeff Brown at Bonner and Partners, whose pitch for his Near Future Report has Gumshoe readers saying “wha?”
The Near Future Report is Brown’s “entry level” newsletter (currently $74/yr), and the current ad talks up the rapid adoption of blockchain technology by the government, giving us that “February 18” date to make this sound more urgent (as if the fact that bitcoin has gone up a gazillion percent in recent years doesn’t already fill people with FOMO-urgency). Here’s a little taste…
“Insiders are already calling it ‘the greatest profit opportunity since the dawn of the internet.’
“But the really big news for investors comes from a government document I recently discovered…
“The document reveals that February 18th will mark the end of a 6-month investigation into integrating this technology across dozens of government systems.
“I believe this will mark the beginning of an investment mega trend that could make you as much as 21 times your money as this situation plays out.”
OK, so we’re talking more about the blockchain trend here, and less about the specific bitcoin or other cryptocurrency investments… which probably means that he’s pitching some of the tech stocks that supply hardware needed for bitcoin, but let’s check out some more of the ad…
“Mark Andreessen, one of the earliest investors in Facebook, says: ‘We’re quite confident… that when we’re sitting here in 20 years, we’ll be talking about this technology the way we talk about the internet today.’
“An ex-hedge fund manager and former Goldman Sachs partner says, ‘10% of my net worth is in this space. [It’s] the best investment of my life.’
“Already, the Department of Homeland Security has invested millions in a number of small companies developing this technology.
“The Centers for Disease Control and the General Services Administration are already experimenting with pilot projects.
“And according to a study by the Economist Intelligence Unit, nine in ten government organizations plan to invest in this technology.”
OK, so now do you feel bad? Everyone else is on board, aren’t you afraid you’re missing out?
That’s the point of all of this marketing language, of course… to push you over the edge into buying a newsletter. Maybe it’s a great newsletter, I don’t know (we’ve had only a little feedback from readers on this one so far), but you don’t have to rush into it… let’s see what he’s actually pitching first.
“Right now, the only people interested in investing in these opportunities are the big tech insiders.
“(That’s your first hint it’s a trend worth paying attention to.)
“However, there is one public company that has the potential to grow exponentially on the back
of this trend.
“And it’s one I strongly recommend you invest in before February 18th.
“And I’d go as far to say if you only invest in one blockchain company, this should be it.”
Ah, there we go… we finally find the little reference to an investment. And yes, it’s a regular old tech stock, not a hot little Siberian bitcoin miner or a new Initial Coin Offering. So what is the stock?
“This company came back on my radar almost two years ago.
“I’ve learned of several exciting developments since then.
“And just a few weeks ago, the company announced something I think could make this opportunity even bigger than I initially thought it would be.
“And I believe we could see this company grow in value 21 times where it is trading today.
That’s not enough clues to be 100% certain, but the Thinkolator spits out a good match for us that we’ll call an “educatified guesstimation” … this is very likely AMD (AMD), the rival of NVIDIA in GPU chips (and Intel in processors) that has been a sad second fiddle to both of those leaders for a long time.
That did indeed start to change a couple years ago, at least from an investor perspective, as GPUs began to be so widely adopted for artificial intelligence, self-driving cars, data centers and other high-demand new growth initiatives, escaping from reliance on high-end computer gaming.
That drove NVIDIA shares to dramatic heights (and Brown is one of many who picked NVDA in 2016, which he carefully brags about in the ad — NVDA was the top stock in the market that year, and is close to the top this year), and the rise of NVDA brought AMD, it’s only real competitor in high-end GPU chipsets, along for the ride.
That’s not entirely fair, of course — such generalizations usually aren’t — but that’s my perspective as an investor. And yes, AMD has enjoyed a big spurt in demand this year thanks to cryptocurrencies, because the builders of the “mining rigs” that are used to mine for bitcoin, ethereum and every other hot new cryptocurrency startup are built to maximize processing speed — it’s solving complex math problems that “earns” coins for the miners, and that’s a competitive process so there’s an arms race in altcoin mining. That has led to a big boost in sales for high end GPUs, which were already selling quite well, thank you very much, so prices have stayed strong and margins are good and both AMD and NVDA are making plenty of money.
So if this is the solution, what’s the big news “a few weeks ago?” I suspect that’s the Intel/AMD partnership — Intel is really keen to take on NVDA in GPUs and in high-demand processing in general, including in AI and in data centers, so they’ve been investing in this segment as well, and part of that involves a deal for AMD to build special graphics chips that will be integrated into Intel’s high-end personal computer chipsets.
It’s not exactly an earthquake in the semiconductor space, but AMD and Intel “getting along” and building something together is certainly good for AMD, and if they go further it might give them more market presence — plenty of folks argue that AMD’s high end graphics chips are as good as NVIDIA’s, so it could be that Intel and AMD joining forces could help steal some of that share. NVIDIA has a really strong lead in a lot of the advanced computing applications, it seems, and a strong brand name, but AMD has been moving in… including rumors that Tesla is working with AMD on self-driving car chips to reduce reliance on NVIDIA.
I don’t know how it will shake out, to be sure — plenty of folks have been opining about whether or not NVIDIA is worried (or should be worried) about the Intel/AMD threat, and it seems largely to be a threat in gaming laptops right now, but it’s certainly a fast-changing business.
I’ve been liking what I’m seeing from Intel, which continues to have an incredible manufacturing might but is also more aggressively expanding into new areas these days, no longer resting on its laurels as the prime developer of desktop/laptop and server chips, but I can’t get particularly excited about AMD… even though it has fallen perhaps 30% from its highs this year.
AMD’s history is too crazy and choppy for me to feel much confidence without real in-depth research (which I haven’t done on this one), and it’s a small player with a mediocre balance sheet in an industry where titans roam (AMD is a $10 billion company, which ain’t tiny in most contexts… but the chip sector seems overloaded with aggressive $50+ billion companies who have tons of cash)… though for those who can research it enough to really believe in the future prospects the fact that they’re just on the verge of being profitable again might be encouraging (the stock is still trading at ~30X 2018 earnings estimates).
The stock has been a trader’s delight over the years, with a very choppy chart, and it still surprises me that no one has bought them, though rumors pop up every now and then (Intel would probably face pushback in buying their only real CPU competitor, but another massive company like Samsung could easily buy them if their chips and designs and brand are valuable… I don’t know why no one has).
And in the last quarterly update, AMD’s CEO did note that they see “some headwinds” if, as they predict, demand from cryptocurrency miners levels off… which seems to be the largest reason for AMD’s shares falling from $14 to $10 since that October conference call. They won’t formally update investors again until the end of January.
So that’s one guess… how about the second company? Here’s more from Brown…
“I got a big hint from the Silicon Valley Inner Circle that one other company could be set to profit from the Crypto Effect in a major way.
“In short, this company has developed a tool that could make blockchain technology even more powerful.
“Specifically, it offers a breakthrough memory technology…
“Doesn’t sound that exciting, I know.
“But the company recently partnered with a major giant in the tech field… one you would definitely know the name of… and it was awarded a prize in October 2017 for being one of the top innovators in its field.
“A forex trading group says: ‘As the demand for cryptocurrencies increases, these tech companies stand to profit substantially.’
“And when you consider the growth of Blockchain technology, it’s easy to imagine how far and how fast this company’s stock price could rise…”
OK… breakthrough memory technology. I’m not particularly well educated in the world of memory breakthroughs (just ask my kids how often I forget to pick them up on time), but let’s see if there are any other clues that lead us to a logical answer…
“While a handful of major investment firms like Deutsche Bank have analysts covering this stock, most people don’t recommend it.
“That’s because it’s already risen substantially in price.
“So you won’t hear about it in The Wall Street Journal or on CNBC.
“However, I do expect it could continue rising – far further and faster than most of these analysts could even imagine.”
Really? You won’t hear about a stock that has “already risen substantially in price” on CNBC? That’s essentially all they talk about on most days (well, that and tax cuts).
But anyway, what is this stock? Our only real clues are “memory breakthrough” and “partnered with a major giant” and “price in October 2017 for being a top innovator”. Any guesses?
Well, we certainly can’t give you the 100% certain match that I like to provide, not if those are all the clues I’m getting… but we can, again, do some estimatizing… this is very likely… wait for it…
Micron Technologies (MU).
I know, right? Another well-known tech stock. Pretty much the biggest memory name out there in the stock market, and a frequent tout by investing pundits over the years — the hedge fund guys used to love this one, and some of them still do (David Einhorn got back into MU pretty big this year, for example), but it has certainly had a nice run and there is a fair amount of chatter about whether it can continue.
So why might this be the match? Well, our guess here is based on the fact that Micron, too, has partnered with Intel — this time the partnership started about five years ago, though it has heated up recently (product breakthrough introduced about two years ago) and led to the introduction of the first of this “next generation memory” products this year, the 3D XPoint, a planned competitor (or replacement) for the NAND memory in solid state drives (SSDs).
My impression is that memory is not a key part of speed in “mining” operations, which would probably mean that this is not a revolutionary breakthrough for cryptocurrency mining, but I could be misunderstanding — it does sound like it has some real potential in other areas if the speed and performance improvements turn out to be dramatic in the real world.
And Micron is, thanks in part to the broad decline in chip stocks over the past two weeks, pretty cheap… investors clearly don’t believe that their rapid growth in earnings can continue, presumably because of weaker pricing for their core DRAM memory amid lots of competition, so they’ve sold it down to a trailing PE now of just 9.5. That’s pretty appealing, especially when you look at next year and see the forecast of $7.83 in earnings, which would be a forward PE of only a hair over five… but what investors fixate on, I expect, is the 2019 and 2020 forecasts that have Micron dropping back to $6.80 and then $6.20 in earnings per share over the next two years.
I don’t know what the future holds for Micron, and I’m skeptical whether there’s any real connection to blockchain mining, but it’s certainly cheap — they’ll have $42 billion in pre-tax cash flow over the next three years, analysts estimate, and the market cap is only $47 billion… so even after you account for the $5 billion in net debt, they could theoretically come awfully close to buying back the whole company just out of cash flow. If they were smaller, they would be a pretty obvious candidate for a leveraged buyout (as has been rumored before).
Personally, I come out of this little exercise thinking, “Hey, maybe I should buy some more Intel” (I currently have a small long position in Intel, through 2020 Leap Call Options). Both AMD and MU have something to be said for them (AMD is still small enough to be easily acquired, and has good growth in GPUs, thanks in part to blockchain miner demand, despite weakness in other segments; MU is cheap enough to make it worthwhile to look at why analysts are forecasting a decline in earnings), but I haven’t owned either and won’t change that today, and I would be surprised if cryptocurrencies were a dramatically positive driver for earnings at either firm over the next few months… if either appeals to you, or you’ve other candidates to suggest for solutions here, let us know with a comment below (and trying tagging that comment with a “topic” if you like, that’s a new feature we’re experimenting with — just type the name of a stock or newsletter in the “topic” box and if we have that topic available it will show up).
Disclosure: I own shares of NVIDIA and call options on Intel. I do not own any of the other stocks mentioned above, and won’t trade in any covered stock for at least three days per Stock Gumshoe’s rules.