This article was originally published on September 28, 2017. It has not been updated or revised. The stock teased, Xilinx, has been very volatile since the teaser pitch first circulated but has risen roughly 7%, just about in line with the broader market.
Charles Mizrahi has mostly pitched stocks that have a “value” bent in the past, but his latest ad for the Park Avenue Investment Club is much more “growthy” in nature. Here’s how it opens up:
“World’s First Trillionaires Will Come From THIS
“Google just started using it, and it made them an extra $9 BILLION in revenue…
“It’s expectd [sic] to be 18 times bigger than smartphones, tablets and PCs… COMBINED
“And it will unleash a $50 trillion new wave of wealth…”
The pitch is one of many that have quoted Mark Cuban’s sentiment that the first trillionaire will be an artificial intelligence entrepreneur, somehow harnessing the Internet of Things and Big Data and AI to create the next goliath… and that sentiment is widespread in the investing community, most experts I’ve heard talk about this echo that sentiment that deep learning and AI will be the basis for the next dominant silicon valley company (though they all tend to note that yes, Alphabet and Facebook and others who are investing heavily in AI will also benefit from this next wave of technology).
Artificial Intelligence and Deep Learning can mean many things, but the basic investment premise is that computers that can “learn” from new data that they collect, without having to be reprogrammed or updated by a person or a new reprogrammed algorithm each time something changes. That gives the capability for computers to become exponentially more capable, and enables not only self-driving cars and image search within videos, which are some of the current core applications of AI (a car gets better at spotting bicyclists after the computer has seen ten million bicycles on the road that look and behave slightly differently, for example, not just because a programmer tells it what a bicycle looks like), but also great new and unforeseen capabilities in the future… particularly as the vast network of Internet of Things devices creates more and more data that can be processed by the next generation of deep learning machines.
Mizrahi also takes a moment, as pretty much all newsletter pitchmen do, to boast about a few of his greatest performers — including Huntington Ingalls Industries (HII), which he did indeed feature in a teaser ad back in the fall of 2012 (it’s up 400% or so since then, and he says he still expects great things from that Naval contractor — that’s one of my “shoulda” companies that was appealing at the time but that I didn’t buy). So yes, like pretty much anyone in this business (or any investor, frankly) he has had some big winners.
I don’t know what his overall track record might be, but I do also own the stock he has pitched most aggressively over the past several years, Fairfax Financial (FFH.TO FRFHF), and I still like it… despite the fact that it has trailed the market pretty dramatically over the past year (and has been a mediocre stock for an extended period, returning roughly as much as the S&P 500 since the end of the financial crisis).
So that’s the big picture and a little background. What’s the actual investment that Mizrahi pitches as a play on this?
It’s some kind of chipmaker, and he compares this to investing in Intel before the personal computer revolution took hold (and to other successful semiconductor stocks, like NVIDIA)… but let’s dig some clues out of the ad so we can see what he’s talking about.
Here’s a taste:
“The Single Best Opportunity of the Next Decade
“Deep learning is the future of ALL technology.
“The time to get in is NOW.
“And at the nexus of it all is a tiny component made by a cutting-edge company that could hand early investors 10, 15, even 30 times their money.”
And, in case that isn’t tantalizing enough…
“… a remarkable — yet, overlooked — company is at the forefront of it all.
“If you were to make only ONE technology investment in the next decade, this company should be it.
“I have never been more certain about anything in my entire life.”
Every time I see language like that “I have never been more certain” bit, I have to remind myself that this is probably the ad copywriter talking, not the investment analyst. I’m sure Mizrahi isn’t putting all his assets into this one stock, which is what you would logically do if you were more certain about it than you had ever been about anything else in your entire life (choosing your spouse, loving your children, serving your country, whatever). Perhaps he has high conviction in this stock, even more conviction than he usually does about his investment ideas, I don’t know… but I find certainty to be elusive when it comes to investing, and probably more likely to lead to hubris and disappointment than to riches.
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But anyway, what else do we get by way of clues regarding this “first trillionaire” stock?
First, a bit more of the background that Mizrahi trots out to explain his understanding of AI…
“… this breakthrough technology is already powering advancements in a whole host of industries. It’s being used to:
“Identify potential treatments for Ebola, multiple sclerosis, and various types of cancer.
“Recognize potentially threatening climate events.
“Help farmers detect crop disease BEFORE it spreads.
“And, heck, even predicting trends in the financial markets.
“And we’re just starting to scratch the surface of the potential applications…
“Experts say that there will be roughly 50 BILLION devices connected to the internet by 2020.
“And I’m not just talking about your smartphones, watches, or tablets, but also internet-enabled thermostats, light bulbs, fridges, baby monitors, toasters, windows, and more…
“The term for all these connected devices is called the Internet of Things, or IoT….
“Without deep learning, the $7 trillion