Whew, we’ve got another doozy today! Michael Robinson is peddling his Radical Technology Profits by hinting at another life-changing technology idea, all based on a “shape shifting” smart metal called X-31 that he says will replace silicon.
So, naturally, we want to dig in. As usual, we go in with eyes wide open, well aware that the compelling-sounding ideas and the math about 45,798% sales surges will be ridiculous… because sometimes, if you ignore the hyperbole, a rational person might find the actual stock being teased to be worthwhile. So we’ll go through the hype and the clues, see if we can name this “secret” stock for you (hint: yeah, we can), and give you a chance to think about it for yourself before throwing $1,950 at Money Map Press for this “limited time 500 slots only!” subscription.
Here’s what catches the eye first:
“This Shape-Shifting ‘Smart Metal’ Is Set to End Silicon’s 30-Year Reign… And Spark a 45,798% Sales Surge for a Tiny $7 Company!”
And some images of this miracle metal follow, with lots of exciting blather about it — here’s a small sampling, to give you an taste:
“It’s incredibly strong – watch what happens when I hit it with a hammer.
“And yet, when I pick it up…
“This chunk of solid metal literally SHAPE-SHIFTS in my hand….
“Within seconds, it transforms into a pool of liquid….
“… this metal is not steel…
“And it’s not mercury…
“Or any other metal you’re familiar with.
“I’d wager that 99 folks out of 100 have NEVER heard of this metal.”
People are not terribly well-informed, so perhaps that’s true. Heck, 90 out of 100 might not know what nickel is if there wasn’t a little reminder in their pocket.
More hints and hyperbole….
“The U.S. Government calls it a ‘smart metal…’
“And, as you’ll see in a moment, it truly does possess an intelligence of its own…
“… this shape-shifting metal already helped win the Nobel Prize.
“Dr. John Zolper, VP of Technology at Raytheon, says this liquid smart metal is ‘changing the world.’
“An MIT professor agrees, calling this metal a ‘once in a lifetime opportunity to change not only electronics, but the entire energy industry.’
“And Dr. Kent Moors, a 30-year veteran of the U.S. intelligence community – and one of the leading resource experts in the world – says:
‘This shape-shifting smart metal has an IQ of its own. Genius level. It’s already having an unprecedented impact on modern-society. And the new wealth it’s about to create? STAGGERING!'”
Dr. Moors is, of course, a fellow newsletter flack from this same publisher — haven’t seen him tease this particular metal or technology before, but perhaps that quote’s from one of his actual newsletters.
And, of course, one of the best newsletter copywriter tricks is “make up a new name!” Makes it sound more mysterious, makes it harder for the hoi polloi to just “google up an answer”… in this case, it’s the very James Bond-sounding “X-31.”
“Around the Silicon Valley venture capitalists and neuroscientists, I call this metal and its various compounds X-31…
“That’s because when you break this metal down to its molecular level…
“It has EXACTLY 31 protons in its nucleus.
“At the same time, it has 31 electrons.
“In fact, it’s got a one-of-a-kind molecular structure – unlike anything else in the entire universe.”
OK, so leaving aside the fact that every atom, as far as I know, has perfect symmetry — the same number of protons and electrons in its neutral state (otherwise it would have a charge and be an ion, or be otherwise radical or unusual), we’ll accept that there’s a mysterious metal here that has some fantastical qualities… so how does that make us rich? More from the ad:
“At the center of this revolution, sits a tiny $7 company holding 42 critical patents.
“This company is small, less than one-half of one percent the size of Apple…”
OK, so that doesn’t have to be that small — half a percent of Apple could still mean that you have a company worth nearly $5 billion.
So that’s our basic roundup — there’s this magical mystery smart metal that Robinson says is ready to take share from silicon when it comes to semiconductor substrates (and some other applications), and there’s apparently one smallish company that has a bunch of patents and will make us all rich. With me so far?
OK, here’s a bit on the “silicon is at the end of its rope” assertion:
“After decades of pushing the envelope, silicon has reached the outer-limits of its capabilities.
“Silicon simply can’t go any faster.
“It can’t get any smaller.
“And it can no longer support the incredible technologies that are becoming essential to modern society….
“Wired Magazine reports that IBM has already placed a $3 billion bet on the DEATH of SILICON!
“And Intel – the biggest silicon-chip maker in the world – has signaled that they’re abandoning silicon for their new 7nm chips.
“In addition, Intel has announced plans to tear down their massive 600,000 square-foot silicon-chip factory in Hudson, Massachusetts.”
And then some about how this “X-31” is moving in, with more power and more potential…
“In fact, X-31 can be up to 100 times faster than silicon…
“Plus, it could be many times more powerful than silicon.
“And it can do it with minimal effort.
“… the difference this speed-power combination makes in smartphones, computers, and even radar systems is profound.”
And heat is at least part of the issue… no surprise, since we know that overheating is a major limiting factor for silicon chips (and computers, and whole data centers).
“… raw X-31 melts at room temperature, about 85 degrees Fahrenheit.
“But here’s the thing: When you add a second ingredient to X-31, it can withstand extreme heat, up to 4,532 degrees Fahrenheit!
“No cooling fans necessary!”
So are we on the verge, today, of this new revolution? One more hint for you…
“According to Dr. Alex Lidow, a Ph.D. in Applied Physics from Stanford University, just one use of X-31 has ‘taken the torch’ from silicon and is now sprinting full speed.”
OK, so that’s all about gallium… which, yes, does have 31 protons (therefore its atomic number is 31, so you can see where the X-31 bit comes from), and is being used, as gallium nitride or gallium arsenide, for some chip applications, and is touted as a silicon alternative… you can see that quote from Dr. Lidow in this IEEE Spectrum article from about three years ago, so again, we’re reminded that the urgency of the investment newsletter pitch is usually a bit out of pace with the slow and iterative movements of actual companies and technologies.
Lidow, by the way, is one of the standard-bearers for the “gallium nitride will rule the day” cohort, and has been for years — a lot of the language about how gallium nitride will take over the semiconductor market comes from Lidow and the materials published by his company, Efficient Power Conversion (which is not publicly traded, though does have 60+ patents and has been a “startup” designing and trying to sell GaN chips and chip designs for eight or nine years now).
And, in fact, gallium has apparently been researched and pushed for next-generation semiconductors for many, many years — though cost has probably been an issue, and with something as critical as chips, industries seem reluctant to make big changes without a LOT of data and testing.
So what else does this “X-31” do for us? Lots of talk in the ad about the revolutionary things that are possible with this new material:
“Already, doctors at the University of Illinois have used X-31 to develop an “electronic tattoo” that can monitor a patient’s vital signs.
“Instead of being tied to a hospital bed, the patient can go home early while doctors monitor his heart rate, blood pressure, and even brain activity remotely!”
There’s been a team at Illinois working on various “electronic tattoos” for many years now, including some that were directly printed onto the skin, in some cases using gallium arsenide or as a kind of “biostamp.” Seems pretty cool, though I don’t know that gallium nitride or gallium arsenide is a core enabler of the technology.
Including a “liquid computer” and the “liquid robots” that conjure up images of the Terminator II baddie…
“Scientists at Carnegie-Mellon are using X-31 to create the world’s first liquid computer…
“Yes – a LIQUID COMPUTER!
“The possibilities are endless…
“Imagine having an X-31 liquid computer programmed and injected into your arm. Just like getting a flu shot…
“Imagine it shape-shifting its way into your arteries, and through your entire cardiovascular system…
“Seeking out dangerous blood clots…
“Dissolving them instantaneously…
“All the while beaming vital information and video images to a world-renowned heart specialist… 3,000 miles away!”
That’s some textbook Robinson future-hype, for sure, but there is a real technology behind it, albeit one that we’re nowhere near injecting in our veins, and it does make one interested – is gallium really going to be used for all that?
More from the ad:
“Why hasn’t X-31 completely replaced silicon already?
“One word: COST!
“Remember: Silicon became the go-to semiconductor because it was cheap…
“But now, silicon can’t get the job done.
“For technology companies to meet the demands of modern society…
“X-31 is a MUST!
“And guess what?
“Thanks to manufacturing advances, as well as shifting market factors…
“X-31 is now cheaper than silicon in many cases!”
And he says that this isn’t just theoretical, that there’s now a X-31 (OK, gallium nitride) chip that is both cheaper and better…
“Dr. Bin Lu of MIT says:
‘We are fabricating our advanced [X-31] transistors… at the cost of silicon. The cost is the same, but the performance is 100 times better.'”
OK, so that quote is also from three years ago, as noted in this MIT News report. Again, gallium has been tested in chips for a long time — both gallium nitride, GaN, and
gallium arsenide, GaAs, which has been talked up as a silicon replacement for at least 40 years.
And gallium is certainly used in some chips now, though it seems like it’s primarily used in high-power situations where the heat resistance is key — mostly in amplifiers.
So that’s as much coverage as I can give to the technology without revealing that I don’t know much about it at all (oops, let the cat out of the bag!) How about the company? More clues…
“The thing that makes this company so extraordinary is the vision…
“Quite frankly, they remind me of Intel.
“When Intel first emerged, mainframe computers like the massive ENIAC computer were still hot.
“But instead of chasing the quick money in the mainframe market, Intel focused on the future.
“In short, they developed and patented technology to manufacture silicon chips for personal computers.”
OK, so being compared to Intel is lovely… though, of course, it also means we’re jumping aboard the “survivorship bias” bus — remember, a lot of early chipmakers from the 1960s and 70s no doubt disappeared, despite the fact that many of them were working on shrinking silicon chips (memory chips at first, then microprocessors starting in the early 70s)… only one of them turned into the global colossus that is Intel, partly because of Intel’s status as the sole supplier to IBM. There was certainly foresight there in focusing on microprocessors after the memory market got commoditized early on, but it’s also the kind of story that only looks obvious in retrospect.
But anyway, more clues about this little stock?
“This tiny $7 company has followed a similar path.
“You see, instead of chasing quick money in the silicon market…
“The founder of this tiny $7 company made a decision to focus on the future…
“He turned his back on silicon right from the start…
“… this tiny $7 company makes WAFERS from X-31.”
OK… other hints?
“The CEO is a physicist and a Ph.D.
“The management team has 120 years of semiconductor experience.
“Heck, their Client Support team alone has 7 Ph.D.’s among them!
“… they own what could be the BIGGEST X-31 manufacturing plant in the world…
“A 300,000 square-foot state-of-the-art masterpiece.”
OK, so those are good clues… what else?
“This tiny $7 company has a dominant advantage that Intel never had….
“X-31 is 27,000 times scarcer than silicon.
“Most X-31 is a byproduct of bauxite manufacturing.
“According to the U.S. Government, there has been ZERO X-31 produced in the United States since 1987….
“Yet demand for X-31 is surging off the charts….
“However, in a stroke of visionary genius, this tiny $7 company set up 10 off-shore joint ventures.
“They are the ONE AND ONLY compound semiconductor company to have a direct source of raw X-31.”
OK, don’t know if I can verify that “one and only” status, but sounds pretty impressive. What about a few more clues for the hungry Thinkolator?
“… this tiny company currently generates $98 million in annual revenue.
“So even a jump to a modest $20 billion would represent a 20,000% revenue surge for this tiny $7 company…
“Yes. That’s right.
“A 20,000% revenue spike!
“And while there is no direct correlation, you can bet the stock price would skyrocket in the exact same direction.”
Stop laughing! Why are you rolling around on the floor? Come on, we’re trying to get rich here!
Oh, wait, he said going from $98 million in revenue to $20 billion would be “modest.” OK, carry on, you can go back to laughing.
That’s a frequent tactic of these kinds of pitches, by the way — “what if this tiny little company got ONLY 5% of the global market, that’s a CONSERVATIVE forecast and yet it would mean gains of a bajillion percent!” In reality, of course, they end up talking about a market that’s far larger than the company is even thinking about addressing, and established companies don’t often go from nothing to 5% of the global market in short order… you can call it conservative or say it’s “just 5%,” but those top-down assessments are pretty much always ridiculous.
“… the tiny $7 company I’ve been telling you about provides X-31 for light-emitting diodes….
“Just like they’ve locked down the X-31 semiconductor market…
“They’ve got an iron-fist grip on the light-emitting-diode market as well.”
LEDs are everywhere, of course, from light bulbs to signage to the backlight for the screen on your phone or laptop. And this isn’t a brand new thing, they’ve been commercially important for a long time — so no, if this company has only $98 million in sales they don’t have a “iron-fist grip” on the LED market (and, it goes without saying, they have not “locked down” the semiconductor market just yet either).
Robinson then goes on to make another valuation prediction, which is where we find the so-called “conservative” 4,000% gains that we included in our headline:
“I’m going to throw out all the revenue sources, with the exception of semiconductors.
“That’s the bread-and-butter of this tiny $7 company, so let’s just play it safe.
“If this tiny $7 company captures just 1% of the $400 billion semiconductor market…
“They’d have $4 billion in annual revenues…
“Still a very small company – less than 1/50th the size of Apple…
“That’d be a 4,000% revenue surge.
“Will the stock match that?
“I’m confident. But let’s double-confirm by using the tried-and-true Price-to-Sales method, a staple of the technology industry.
“Plugging in $4 billion to the Price/Sales Ratio method…
“And using the company’s current P/S ratio of 2.7…
“We then divide by outstanding shares of 39.8 million…
“That gives us a target price of $281 a share….
“This is a conservative estimate. And it’s a 12-month target price.”
OK, so using $4 billion as a one-year target for revenues just because that’s 1% of the global semiconductor market is obviously a crazy starting point for a company with less than $100 million in sales… it’s absolutely not going to get anywhere near that in a year, that’s just a wholly made up notion that’s completely irresponsible for a short-term forecast. Instead of “conservative,” I’d go with “not even remotely feasible.”
The rest of that gives us some clues, of course (the current price/sales ratio and share count), but when it comes to the actual numbers it’s “garbage in, garbage out.” Please, please ignore that $4 billion forecast and the $281 one-year price target — having those numbers in the back of your head will make it impossible for you to rationally analyze the company (“it’s going to $281! What do I care whether I pay $7 or $12?! Must rush in!”).
That’s enough clueification, though, so we should get the Mighty Mighty Thinkolator running here… feed in those clues, wait just a moment, and aha! We’ve got our answer: This pretty well has to be AXT Inc. (AXTI), a maker of semiconductor substrates (yes, “wafers”) using gallium arsenide, among other materials.
How do the clues match? Well, they do indeed have a 300,000 square foot facility in Beijing that they believe is the largest factory complex dedicated to these compound semiconductors… though the location also hurt them a bit in the first quarter, as they noted in the first quarter press release that they were shut down for a while because of mandatory air quality restrictions.
And they did have $98 million in revenue last year (now up to $102 million for the trailing four quarters), and the diluted shares outstanding were just about 39.8 million last summer, though that number has bumped up a bit since, presumably from stock-based compensation.
And yes, they did claim 42 patents related to their Vertical Gradient Freeze (VGF) products and processes a year ago… though as of the latest 10-K, that number is now 46. Their joint ventures, which both source and supply raw materials and tools, also have a bunch of patents.
If you’d like a quick overview of the business, you can see their latest investor presentation here.
And just to add some juice to the drama, Robinson also hints at a short-term boost possibility…
“… a takeover bid could be on the horizon!
“Bottom line: This is exactly the kind of thing that could drive this tiny $7 stock up to $14… $21… even $28 in the blink of an eye.
“Already, insiders are swarming, they’ve grabbed up 70% of available shares alongside institutions.”
That doesn’t really mean anything… most stocks are more than 70% owned by institutions (that’s who has most of the money, after all). But yes, AXT’s owners, particularly co-founder and CEO Dr. Morris Young, do own a substantial number of shares. If the stock is wildly undervalued, though, or primed for a takeover, no one has been telling the executives — they have sold a lot more shares than they’ve bought in the past few months (as is typical of all stocks, of course). Otherwise, there’s no one big investor that stands out, just a lot of index and small-cap fund managers who own shares.
So… will AXT end up dominating the semiconductor market? Or even taking 1% market share in wafers? I don’t know, but there’s no shortage of R&D or of large companies who have been working with gallium and other “exotic” III-V compounds for various semiconductors for a long time, including Infineon, which bought Wolfspeed from Cree to get their gallium nitride business a couple years ago, and there are plenty of other technologies that are in use to make viable substrates using gallium beyond just AXT’s Vertical Gradient Freeze process (there’s some discussion of other alternatives in this piece, for example).
It is worth noting, of course, that AXT is a teensy company operating in a world of giants — if they had a “lock” on the one viable technology that many of those giants believed to be critical, the company could have been bought by Intel or Applied Materials or any of the giant Chinese or Japanese chemicals and wafer companies at any point over the past decade, and at essentially no cost. For many of those companies, AXT’s little $300 million market cap would be a capex rounding error.
When you look at the financials, there’s no clear indication of much of anything — other than the fact that AXT has mostly been chugging along, with occasional good or bad years, for a decade now without any particularly noticeable trend in their top-line revenue or net income — the revenue has ranged from $55 million to $104 million and it looks like it’s as likely to drop a bit year-over-year as it is to rise in any given year… sometimes they make $20 million, sometimes they lose $5 million, they’ve averaged income of about $8-9 million a year in the past ten years, and last year was pretty close to that at $10.15 million… and while the share count has gone up over time, it hasn’t been crazy dilutive, it only rose about 20% over the past ten years. The overall impression, to a non-expert who hasn’t really done a deep dive into the operations or tried to figure out if there’s a secret growth engine hiding in there somewhere, is of fairly steady operations in a very cyclical business.
All I can do is add some skepticism for you, to counteract the crazy 4,000% gains talk — from the outside, the company is a $300 million small-time supplier of niche substrate products and wafers, primarily made of gallium arsenide and germanium compounds. They grew their revenue by 18% year over year in the first quarter, which was a bit of a disappointment for the market and the stock fell, but analysts are still predicting growth — there are only three analysts providing estimates, but they guess that AXTI will have revenue of $108 million this year and $125 million next year, leading to 50 cents in earnings per share in 2019. That would not be their best year ever, 2000 takes that prize, but it would be close.
That’s not so bad — it does trade at about $7 a share (though as you might expect for a massive ad campaign like Robinson’s, coated with a huge load of sweet predictions for gargantuan life-changing gains, the shares are already up a dollar or so this morning), so the stock trades at about 15X forward earnings (and 25X trailing earnings). That’s a little higher than most of the semiconductor supplier stocks that I’ve looked at, but it’s certainly not totally crazy.
And with that, I’ll leave you, dear reader, to make your own decisions — think AXT’s business is exciting? Or that they’ll somehow come to become a large player in next-wave gallium arsenide compound substrates, enabling the next great revolution? Think they’ll continue to be a small player, as they’ve been for 20 years? Have any insight into callium compounds and the future of the microchip that you’d like to lay on us? That’s what our happy little comment box is for, just scroll down a bit and let us know what you think.
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