You’ve almost certainly seen these ads from Paul Mampilly, the ones that start with the headline “These Warehouses Hold the Key to a $3.1 Trillion Dollar Revolution…”
The ad has been running since at least the Summer of 2018, and has not really been updated at all in the interim as far as I can tell… but I never really wrote about this particular ad, and there is a new email out from Mampilly and Banyan Hill touting this as a coronavirus-related idea — that’s sending a new wave of questions my way, so I thought I should check it out for you.
The ad “presentation” starts with Paul Mampilly holding up a photo of some generic-looking warehouses…
“Take a good look at these warehouses…
“While they may seem like any ordinary warehouses — storing machinery or supplies — what’s inside is something only a privileged few have ever seen…
“It’s a sneak peek at the future.
“Because what’s being developed inside of ordinary warehouses across America just like these hold the key to a technological revolution that is about to transform the entire global economy.
“A technology that experts project to soar 77,400% as it explodes from a $4 billion industry into a $3.1-trillion mega industry over time.”
As with most of these Banyan Hill ads, the “look carefully at these warehouses” photo is not really anything that has to do with the business being teased — it’s just a hook to get your attention and to bring up the theme they’re using, the photo itself was just from a stock image catalog.
And there’s plenty of other “big picture” stuff in the early moments of the ad to make you feel like you’re getting in on something huge…
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“The Economist hails this as ‘the next big thing’ and Fortune says it will ‘change the world.’
“Marc Andreessen, creator of the world’s first web browser, even calls it ‘the most important technology since the internet itself.'”
Those quotes are all about blockchain, the distributed ledger technology underlying all the cryptocurrencies (bitcoin, ethereum, etc.)
More from Mampilly….
“… what’s happening inside warehouses like these at this very moment is going to ‘hit the reset button’ on all human activity.
“Every record we generate, every dollar spent, every visit to the doctor … in sum, everything we do is about to improve.
“It’s going to make life easier, wealthier and more joyous … for everyone.
“And any company that harnesses this technology will thrive.
“Which is why the biggest companies are rushing to get a head start … already pumping $4.5 billion into this little-known technology.”
And, of course, with governments and businesses investing in this technology (they were in 2018 when the ad was written, and they still are, though it’s not really in the headlines as much anymore), there’s always, at least once you translate an idea into a newsletter ad, the notion of “one tiny company” who’s going to win…
“Because I have identified the one company at the center of it all that is the absolute best way to take advantage of this fast-emerging opportunity.
“Investing in this company today could be like scooping up Microsoft in March 1986, before the dawn of the PC revolution sent its stock price up 80,962%.
“Or like buying Intel in September 1990, just before the rise of the internet exploded demand for its microprocessors and made early investors 7,021%.
“And it could be even better than investing in Amazon in March 2001, just before it began to dominate the global retail industry, sending the stock soaring 15,590%.”
So what is this company?
Well, first I should share with you the most recent addition to the tease — the ad itself appears to be completely unchanged, including the nonspecific references to “you have to get in this month” because of big changes that are just about to happen, but the email that sent the ad my way from Banyan Hill this week specifically references the coronavirus outbreak… here’s a bit of that:
“Something incredible is developing in the fight against the coronavirus.
“One technology, seldom seen by the public, was recently uncovered by Paul Mampilly. And it is being utilized all over the world in the fight against coronavirus issues.
“For example, one project has been developed to track donations to Chinese hospitals currently fighting the virus to prevent rampant corruption…
“Another project is using this technology to process coronavirus insurance claims….
“Paul Mampilly has the inside scoop on this amazing technology, he has been researching it for years now … it’s already being used to change how the entire world works right underneath us…
“But the coronavirus presents what could be their most massive profit opportunity.
“And one company could benefit above all others.”
So who is this blockchain superstar? Thinkolator sez it’s still Advanced Micro Devices (AMD), and that’s been borne out by feedback from other readers as well as different variations of the teaser ad we’ve seen over the past 30 months, though I should note that the ad is not specific enough for me to promise 100% certainty in this answer. Yes, I’m sure it’s AMD… but I can’t prove it.
And sure, blockchain is being used in some coronavirus-related applications — the basic rationale behind blockchain is that the technology can be used to create a transparent distributed ledger that can’t be changed or altered (or at least, not easily changed or altered), which is expected to be useful for authentication and tracking purposes for all kinds of stuff… including alternative currencies that are built on blockchain technology, like bitcoin.
There was indeed a blockchain project implemented to track donations to a hospital in China during the outbreak, in response to outrage over donations being mishandled or misused.
Blockchain is not magical. Yes, supply chains that are monitored using blockchain technology might further discourage theft or fraud, but they still depend on someone inputting information at one end and people monitoring and updating that information along the way, the same way you’d scan a FedEx barcode at various steps along a package’s journey. That doesn’t mean packages can’t get lost or stolen, even if nobody hacks the FedEx database… and, of course, you have to compare this not to a wild west system but to well-organized database tracking systems that aren’t using blockchain. FedEx has a system that works well without blockchain technology… banks transfer billions of dollars every day without using blockchain ledger systems. Yes, it might be that blockchain will offer huge advances in time, particularly for things like online security and for reducing the friction in financial transfers, but I expect it will be, at best, an evolution, not a revolution. And the reason I’m generally skeptical about the many, many blockchain projects out there, most of which are represented by “altcoins” or “cryptocurrencies” of one sort or another, is that we haven’t yet seen the companies who can profit from the rise of blockchain in any clear way.
Most cryptocurrencies (not all, but most) are essentially like venture capital without ownership — you’re backing a project without having any legal right to profits, if those ever emerge, you’re just hoping that the project will evolve in such a way that the holders of the cryptocurrency earn some return based on the computing work that was done to create those cryptocurrencies (since ledgers are distributed, you need collaboration among stakeholders to verify computations and transactions, which is computationally intensive and therefore “expensive,” and it’s those computers, the “miners”, who earn a small fee for their work).
And that work continues… so the argument for chipmakers like AMD is that this cryptocurrency mining work will become more valuable, so people will need more high-end chips like the GPUs made by AMD and NVIDIA, as well as specialized chipsets that have been developed for mining over the past couple years. That’s a big part of what caused the surge in revenue for both NVIDIA and AMD in 2018 and 2018, as blockchain “miners” bought up all the retail GPUs that were intended mostly for video gaming rigs… and also the drop in revenues in 2019, as the collapse in bitcoin (and other coin) prices cratered demand for those expensive chips, leaving a big inventory glut of GPUs that now, a year and a half later, has finally mostly worked through the system. Both NVIDIA and AMD knew that their chips were being used for mining, but they didn’t know what a large percentage of the retail demand for GPUs was being driven by miners.
I first saw these ads in my email in July of 2018, when AMD was much less beloved than it is today, and was indeed very close still to being a $10 stock (it last hit $10 a couple months prior, though it was actually in the $18 neighborhood by July of 2018). I didn’t write an article about it, though I commented on the ads for readers a couple times since they started circulating… and they have been circulating pretty steadily over the past 2-1/2 years, much like Mampilly’s similarly undated “big picture” teaser campaigns for STMicroelectronics (STM) (his first really successful teaser stock, starting in 2017), Myriad Genetics (MYGN) and, most recently, Micron (MU), and all of those were aggressively hyped throughout the boom and bust cycles in the past year or two, though AMD has most often gotten that “stock of the century” designation from Mampilly.
And it has done very, very well. I got my first copy of this ad on July 22, 2018, and here’s what AMD’s stock (in blue) has done since then compared to some near-peers (NVIDIA in orange, and Intel in red) as well as the broader market (S&P 500, green) and, for fun, the price of bitcoin (purple, using bitcoin because it’s the easiest representation for “blockchain sentiment”):
So that chart is your fair warning — I didn’t like AMD very much at the beginning of that chart, and I don’t like it as much as NVIDIA today, so I was certainly wrong before and I might be wrong today. It has been an extremely successful pick, and hopefully Mampilly’s subscribers who bought in back in 2018 held on through some rough periods and enjoyed that strong return.
I was skeptical about AMD at the time that these ads started running, thanks to their very long history of mediocrity and the fact that they were (and are) competing against two of the strongest semiconductor companies in the world in Intel and NVIDIA. I was wrong about AMD’s potential back then, and they have clearly made a strong recovery… I continue to have some lingering concerns about staying power, since the stock has had these surges and then fallen completely apart before, but it does look like they’ve got more staying power in the underlying business these days, and have in fact attained some technological leadership, working with Taiwan Semiconductor (TSMC) and jumping past Intel with their first 7nm chips.
The coronavirus, however, has nothing to do with this, or with blockchain in the big picture — that’s really just marketing from Banyan Hill. Yes, blockchain and artificial intelligence (another big use for GPUs, which is what AMD and NVIDIA specialize in) are being used in medicine, with blockchain being used in some supply chain projects and AI used as a way to model diseases and organic functions and to scan through data for drug discovery and disease monitoring… but medicine is not going to be the market that makes a meaningful difference in the next several years for AMD specifically (or for NVIDIA or Intel, to be clear), it’s just not that big or chip-intensive compared to the other uses of blockchain, or for their parallel processing GPU chipsets in AI. The only reason to use coronavirus as your primary example for this “story” stock right now is that we’re all freaked out about COVID-19 and it’s easier to invest in stocks that seem to be fighting that viral outbreak… even if the test projects a few folks have done with blockchain in medicine and health (electronic medical records and supply chain management, mostly) are immaterial to any chipmaker’s income statement.
So what does AMD look like these days? Well, it has come down a bit, along with every other stock, but it is enough of a market and momentum darling, and it soared strongly enough early in the year, that it’s still in the green for 2020. Just barely, it opened trading for the year just under $46 and it’s near $48 (after touching both $60 and $39 in the past six weeks) but still, it’s been more resilient than most. And the business has been chugging along pretty well, as you might imagine — if you want a quick overview, probably the sum-up of their Investor Day a few weeks ago is a good start.
Which means, unlike some stocks, it still carries a pretty optimistic valuation — AMD is trading at about 8X sales and 160X earnings when you look at their trailing numbers (the past four reported quarters), and earnings and revenue estimates for 2020 have not come down really at all yet (they almost certainly will, but analysts don’t know how to model the impact of the coronavirus shutdown on the economy just yet, or have real guesses about what that will mean for businesses like AMD over the next quarter or two — I think a lot of analysts are waiting for guidance from companies before they make their coronavirus adjustments). If we think those 2020 estimates are worth watching at all, which is debatable, then AMD is trading at about 7X sales and at a forward PE of about 40 (or going a bit further ahead, with a 2021 PE of about 30).
NVDA is a much higher margin company than AMD, since they don’t make the lower-cost chips that AMD does (like the CPUs where AMD competes with Intel), and they focus only on the high end GPUs and associated services and AI systems, so NVDA trades at a much higher price/sales ratio (about 15), and the revenue growth is more or less on the same trajectory… but they’re also far more profitable, so NVDA is trading at “only” 57X trailing earnings and 35X 2020 earnings (actually, for them it’s fiscal year 2021), but was also already expected to have a down year on revenue. Like AMD, NVDA has not yet seen estimates come down for the coronavirus impact on business.
So whether or not you think AMD will grow into a giant like NVIDIA has, that’s really your call to make — it requires some optimism about the future, but AMD has come a long way in the past couple years despite my skepticism… so it might just be that you should listen to someone else when it comes to this particular stock.
Analysts have been unable to keep up with AMD — even without altering their estimates yet for whatever the economic impact of the coronavirus might be this year, the shares are already right around the average analyst target price of $48. Speculation among various pundits and analysts has held that AMD and several of the other strong semiconductor names (including NVIDIA) will be insulated from some of the impact of the viral outbreak, partly because they already went through an inventory correction and partly because their data center sales are relatively immune to consumer demand growth, with data center investment strengthening again after a weak year in 2019, and that may be true… but we’re very early in assessing the real-world economic impact of this “pause” in the global economy, so it will probably be a bumpy ride, and most of these stocks have recovered at least half of the March drop very quickly so it’s hard to call any of these big chip stocks “cheap” at this point.
But, again, I’ve been wrong lots of times about AMD… so I’ll turn it over to you to make your own call. If you’ve got an opinion on AMD or the other big semiconductor stocks, please feel free to share it with us in a comment below. It’s OK, we won’t bite.
Disclosure: I own shares and/or call options on NVIDIA, Amazon and Intel among the companies mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.