This particular ad from Ian Cooper has been running for six weeks or so, at least that I’ve seen, so it’s not exactly “red hot” and brand new, but I’m still getting questions about it and the ad is still being circulated… and the stock being teased is down about 20% since I first saw the ad, so who knows, maybe it’s a better buy now.
Cooper is selling his The Next Superstock service ($99/year), which we haven’t seen promoted before… here’s how the ad gets our attention:
“A small $7 company is quietly positioning itself to reshape nearly every major industry in the world thanks to its discovery of…
“Energy… Defense… Electronics… Medicine…
“This life-changing innovation could change them ALL forever and turn every $1,000 into $467,000 for those that act NOW!”
Sound a little familiar? We have seen all kinds of “miracle metals” pitched over the years, from lithium and cobalt to zinc and rare earth magnets, but this ad actually seems really familiar. Let’s check out some other clues:
“Dr. John Zolper, VP of Technology at Raytheon, has stated that Miracle Metal is currently ‘changing your world.’
“An MIT professor says that this is a ‘once in a lifetime opportunity to change not only electronics, but the entire energy industry.'”
Hmmm… also seems familiar.
Then we get the photos of chunks of this “miracle metal” that you can see will stand up to the strike of a hammer… but also melt into a liquid in your hand.
And we get the pitch that this is being used to take the place of silicon, preparing us for the next wave of revolutionary chips as silicon has reached its performance limit.
And a few specific clues:
“The same way that silicon made fortunes for so many investors who jumped onto the back of the tech giants… the big defense contractors… cutting edge biotech companies and more…
“Miracle Metal has the very SAME potential behind it.
“And a small, little known $7 company sits firmly ahead of the pack, with a whopping 46 Miracle Metal patents in its back pocket.”
And a few more tidbits:
“they own the LARGEST Miracle Metal production plant in the world….
“While also setting the gold standard with their proprietary Miracle Metal wafer manufacturing process?”
And we get the typical “what if” scenario that is supposed to sound conservative, but is actually wildly speculative:
“…what if this company cornered just… 5% of its market share?
“Well that 5% would translate to annual revenues of $20 billion…
“And they’d still only be 1/10th the size of Apple.
“$20 billion also may SEEM like a ton of money… but in reality it wouldn’t even rank them in the top 500 revenue-producing companies in the world today.
“But they currently are only pulling in $98 million in revenue a year.
“So, making the leap up to even just $20 billion even a jump to a modest would mean a 20,000% revenue surge!”
OK, so if this company is actually being touted as a maker of substrates — as a wafer supplier whose “miracle metal” competes with polysilicon wafers — then it’s probably better to think of them not as a part of the whole semiconductor market, but as a part of the wafer market… right? The global semiconductor industry does have total revenues of about $460 billion, but the estimates for the size of the wafer market put it at more like $7 billion. And that includes not just silicon wafers for semiconductors, but for solar panels as well.
So at $98 million in revenue, this particular company would be about 1.4% of that wafer market right now, in terms of sales… getting to 5%, which is a remarkable achievement in any industry, might only put them at a few hundred million dollars in revenue.
Which is still a nice jump from $98 million, of course, but it’s nowhere near the crazy promises made by Cooper in this ad — he talks up that jump from $98 million to $20 BILLION as if its rational, even though that’s three times as much as the world’s chip companies and solar panel makers spend on their silicon wafers right now. I guess it’s possible, if this is some proprietary new miracle technology that the world is suddenly willing to pay more for — but the story of silicon and semiconductors has never been one of rising prices, it’s been one of massive cost cutting and scale and industrial efficiency and a desperate pace of innovation to allow chip designers to hold on to their gross margins.
So cool your jets with that “$1,000 into $467,000” silliness. But still, even after we’ve done away with the crazy rose-colored glasses, we still do want to know what the stock is… right?
Indeed, so the Thinkolator obliges: This is AXT, Inc (AXTI), the maker of gallium arsenide chip substrates. And yes, gallium is that “miracle metal.”
And that brings us to our “why does this sound familiar” bit — we saw this same stock teased by an entirely different newsletter, from a different publisher, just six months ago… and Ian Cooper’s ad copywriter either wrote both pitches, or “borrowed” a huge chunk of Michael Robinson’s “Shape-shifting Smart Metal” ad that we covered back in May. It’s not just the company that’s the same, whole sections of the ad are either minor rewordings of the same pitch or, for some big chunks, the exact same words. Doesn’t particularly bother me that these ads are so close to identical, but it is curious — particularly when they come from different publishers (Cooper’s newsletter is published by Wealthpire, which I don’t think is affiliated with Robinson’s Money Map or its parent, Agora, but you never really know).
So what has happened in the interim? Is AXTI any more exciting now than it was back in May when Robinson pitched it… or in September when Cooper’s ad started running?
Here’s what I said about it back in May in my Irregulars Quick Take for that article:
“This is a small semiconductor substrate company, specializing in compound materials like gallium arsenide wafers (gallium is the “smart metal” teased). They’re doing fine, with decent growth predicted, but have generally been a small time supplier for 20 years and it would take a lot for them to jump meaningfully out of that niche. Analysts think they’ll double their earnings over the next couple years, with revenue growth of something like 10%, but Robinson’s wild predictions of 4,000%+ sales growth are completely irresponsible. Not a bad company, priced similarly to other semiconductor suppliers, but it’s not likely to change the world in the next six months so you can take your time and do some research before getting excited about the Robinson-inspired 15% jump the stock had this morning. Gallium is a really cool metal, but chipmakers have been working with it for decades and cool doesn’t automatically make you rich.”
The shares had a bit of a run-up into their second quarter in July, and the company did beat analyst estimates slightly, but pretty much all of the semiconductor stocks have come down in the past few months thanks to China fears and the trade war chatter. AXT has the additional risk that they’re dealing with of moving their gallium arsenide facility out of Beijing, at the “request” of the government, which could result in some downtime or some delays as they get things set up at the new factory.
Otherwise, things are pretty much the same — they sell gallium arsenide substrates for semiconductors, indium phosphide substrates for optical components, and germanium wafers, which are apparently used mostly for satellite solar panels, and they also have invested in a half-dozen raw material providers in China to help ensure they have supply (of germanium, gallium, etc.).
They are still expected, by the few analysts who cover them, to have revenue growth of about 10% this year and 16% next year, leading to earnings per share of 38 cents for 2018 and 51 cents for 2019. Don’t know if they’ll hit those numbers, but that means they’re valued quite similarly to most of the big semiconductor equipment and supply companies I’ve looked at (KLA-Tencor (KLAC), Applied Materials (AMAT), Lam Research (LRCX), etc.).
And, well, that’s about where I land: It’s not a high-optimism sector, so you’re not overpaying dramatically for AXTI or any of the other wafer or equipment suppliers in semiconductors… but if you’re expecting big growth, then your expectations are different than the market. Sometimes that’s how you make money, of course, being different, but I don’t see a huge reason for immediate optimism with AXTI… particularly if they are also at risk of having a disastrous quarter or two if their factory move hits any hiccups.
Your mileage may vary, of course, and you may see brilliant riches where I see something a bit more ho-hum… if you’ve got thoughts on AXTI or gallium or anything else to share, well, feel free to shout it out with a comment below — thanks for reading!