It’s a little unusual for me to be covering the same pundit and the same newsletter for two days in a row, but, well, sometimes we’re unusual people here at Stock Gumshoe. And when readers clamor for answers, we aim to provide.

So today’s pitch, like yesterday’s, is from Eric Wade at Stansberry — we covered a crypto/FedNow pitch from him yesterday, but today it’s maybe the only topic in the investment newsletter world that’s hotter than FedNow: Artificial Intelligence. Wade is teasing his “#1 AI Stock for 2024,” and he’s dropping some hints about what it is… so let’s get some answers.

And actually, that’s a bit of a bait and switch… we will get to that “#1 AI Stock” they tease in a moment, but this ad actually teased a few different ideas and “special reports,” so we’ll go in order.

First, here’s how Eric Wade launches the ad…

“The man who predicted the rise of the internet and cryptocurrencies uncovers…

“ELON MUSK’S ‘PROJECT DOJO'”

“Elon Musk is set to make an announcement that could mint a new generation of millionaires. Take these five steps to prepare.”

Our “#1 AI stock for 2024” is one of those five steps, so we’ll get there… but this turns out to be a teaser pitch that’s largely built on the idea of autonomous vehicles — which is why Wade is in Phoenix, one of the areas where there’s been heavy testing of self-driving cars.

And no, he’s not pitching Tesla (TSLA) or any other Musk-specific investment… but putting a photo of Elon Musk at the top and including his name in the headlines is a pretty easy way to get some attention from investors. Here’s a bit of the ad:

“At the center of this revolution is none other than Tesla maverick Elon Musk.

“You see, a few years ago, he announced a new initiative code-named ‘Project Dojo’ that will do more to fast-track this technology than anything else in the works today.

“I’m not talking about the Cybertruck, Starlink, Neuralink, or even Musk’s upcoming mission to Mars.

“I believe ‘Project Dojo’ will happen faster and have a far bigger impact than all of those projects combined.

“That’s because on August 28, 2023…

“After four years of development…

“Musk finally turned it on.

“And get this…

“It was so powerful it tripped the power grid.”

Well, that reference to “tripped the power” grid goes back to 2022, actually, when they were just beginning to test Tesla’s Dojo supercomputer, in Palo Alto. They are using their Dojo supercomputer for AI work, specifically for processing video from Tesla cars to improve self-driving. Elon Musk is still, as of yesterday’s conference call, saying that Tesla will remain dependent on both their own chip designs and on NVIDIA GPUs for their AI work, and also referring to the Dojo supercomputer specifically as a “long shot” that’s making progress and could give Tesla enough computing power to make some real self-driving breakthroughs.

The ad seems to imply that “Dojo” breakthroughs will come quickly, and generate headlines and turn some investments into huge winners.

“And by March 15, his “Project Dojo” could become the spark that ignites this $30 trillion powder keg.

“And while Morgan Stanley expects Tesla to soar by 80% as a result…

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“I predict that still another firm will reap the lion’s share of the profits from this technology.

“My research indicates that its sales could spike by as much as 829%.”

Dunno where that “March 15” date comes from — could just be made up to create an artificial deadline (ads with deadlines work much better, even if you have to make them up), could be that one of the stocks he teases will report around then, who knows… Tesla doesn’t have any particular events scheduled for mid-March, to my knowledge, though they did hold their first “Investor Day” last year, and that was in early March.

So… something to do with AI and self-driving technology, perhaps juiced by what ever Elon Musk announces next. Not so different from Teeka Tiwari’s “Forget NVIDIA, buy Elon’s Supplier” pitch (also filmed in Arizona, and also still circulating — though that one was primarily pitching Taiwan Semiconductor, so Tiwari took a different tack from Wade).

What else do we learn from the teaser ad?

“At the center of all of this is the convergence of three major technologies.

“MAJOR TECHNOLOGY No. 1: AI….

“I believe this is less a bubble than the early stages of a long and lucrative bull market in AI stocks.

“But customer service robots, automated warehouses, and hi-tech drive-thrus won’t power AI’s rise to the top. They’re just a small part of the story…

“A story that’s poised to shift into overdrive and trigger the biggest moneymaking run since Bitcoin when Elon Musk announces the results of ‘Project Dojo’ by March 15, 2024….

“MAJOR TECHNOLOGY No. 2: Electric Vehicles

“By the end of this decade, nobody with a tiny bit of financial sense will choose gas over electric.

“In fact, I predict that 50% of all new cars sold will be electric by 2030.

“But you don’t have to wait until 2030 to start making big money from this transition….

“Because once this convergence gets off to the races by March 15, 2024, there may not be any cars – whether new or old, gas or electric – parked on your street…..”

“MAJOR TECHNOLOGY No. 3: Driverless Vehicles

“It’s the technology that’s enabled fleets of electric ‘robotaxis’ to take over numerous U.S. cities.

“If you live in San Francisco, Las Vegas, Austin, Los Angeles, or Phoenix, you can book a ride using an app on your phone… and have one of these cars pull up to the curb in minutes….

“Most people have no idea that 24/7 robotaxi service is now a reality in both San Francisco and Phoenix….

“And they are blown away when they discover that Walmart, FedEx, UPS, Kroger, Sam’s Club, are all employing autonomous trucks to make deliveries. “

Most of this is very similar to the various EV/AV pitches we’ve seen over the past few years — touting the huge savings and quality of life improvements that could be possible with mass adoption of autonomous vehicles, and therefore the profits to be made by people who buy the right autonomous vehicle-related companies.

Personally, I think a lot of that is a much longer-term trend, since the turnover of the automotive fleet in the United States and the evolution of infrastructure take SOOOOO LOOOOONG. Cars routinely run for 15 years now, and people were buying every new car that could be built for the past three or four years, it’s not like we’re updating and refreshing our automobiles anywhere near as fast as we do our mobile phones. It’s going to take a long time before the majority of cars sold in the US are electric, and at least another decade after that before the majority of cars on the road will be electric.

Then Wade name-drops another big tech player…

“Over in Silicon Valley, Apple is quietly putting the final touches on ‘Project Titan,’ a new product that could become the iPhone of autonomous vehicles.

“They’ve assigned more than 1,000 employees to this ‘iCar’ and recruited experts from the likes of Tesla, BMW, Porche, and Lamborghini to bring their vision to life.

“Just as iPhones popularized smartphones… iPads popularized tablets… and Apple watches popularized smartwatches… many expect the 2026 launch of the iCar to popularize driverless cars.”

That’s a little out of date now, word has leaked now that Apple is having yet more trouble with their “Project Titan” car project, and is now saying it will probably be much less autonomous than planned (reaching only about the level of autonomy that current Tesla “autopilot” offers), and will be delayed until at least 2028. This is one of the most-promised “next Apple product” ideas, and has been for about ten years now (people have been using “Project Titan” to sell newsletters since at least 2015), but progress has been elusive, and they’ve been through a lot of fits and starts — hiring lots of people, then scrapping projects and doing layoffs, then hiring new leaders, all the while trying to keep it pretty secret, in typical Apple style, but apparently not really getting anywhere.

Back to the ad:

“‘Project Dojo’ is the code name of Musk’s new supercomputer that’s designed from the ground-up to train autonomous vehicles.

“You remember how I mentioned that these vehicles need tons of data to operate successfully?

“Dojo will be capable of calculating 1 quintillion data points per second.

“In other words, it can process more data than the entire human population combined.

“This could be the breakthrough that takes driverless cars to the next level.

“And I’m not alone in this assessment. Morgan Stanley estimates that Dojo will add $500 billion to Tesla’s value and send shares 80% higher over the next year.

“After years of development, Musk finally flipped the switch on Dojo last August.

“And by March 15, 2024… I expect him to go on stage and reveal a LIVE DEMO of Dojo in action for the first time ever.”

Maybe he will, Musk is awfully unpredictable… heck, maybe he’ll have to if he wants to gin up investor interest in Tesla again, during what seems destined to be a rough year for the leading EV maker, with sales volume falling, Cybertruck failing to get much momentum, and a steady stream of price cuts to try to keep their cars moving off the line. I can’t imagine betting on or against Musk at this point, he’s such a wild card, so maybe he’ll talk up Dojo more in the months to come, we’ll see.

I noted that yes, this teaser is thematically very similar to past autonomous car pitches, but it goes beyond that — they even throw in the same “freebie” pick that Stansberry colleague Whitney Tilson offered up in his TaaS pitch about four years ago (Tilson’s Empire Financial was half-owned by Stansberry, but that company has now been dissolved and he is writing for Stansberry letters now). What is it? Good ol’ Alphabet… here’s how Wade puts it:

“Step No. 1: Buy Waymo

“Remember how I told you that I would give you the name and ticker symbol of a great stock in this space that you should buy immediately?

“That company is Waymo, a pioneer in autonomous vehicles with a clear first mover advantage.

“Now there’s good news and bad news.

” The bad news is that Google owns Waymo, so the only way to own Waymo is by buying Google stock.

” The good news is that Google owns Waymo, so the only way to own Waymo is by buying Google stock!

“You see, as an investment, Google – or Alphabet as it’s better known – is a total no-brainer.

“But not because it’s one of the most profitable companies in the world.

“It’s because there’s never been a bad time to own it.”

I won’t argue with that, since Alphabet has been one of my largest holdings for more than a decade, and I do think it’s still the most attractively valued of the big tech names (with the possible exception of Meta Platforms (META)), at only about 23X forward earnings and with a fortress balance sheet (about $120 billion in cash, which is close to $10 per share), but Waymo hasn’t done the stock any favors just yet, it has mostly just been a reminder of how much money Alphabet can afford to lose on a R&D project. Alphabet’s value is still driven almost entirely by advertising revenue, primarily on Google search but also in YouTube, and even their nascent Google Cloud, which is just barely profitable, and their non-driving and money-losing AI projects are adding more value to the company today than Waymo is.

People have made wildly different estimates of the value of Waymo over the years, including Morgan Stanley guessing that it might be worth $175 billion five years ago, one of many estimates in the $100-200 billion range when there were rumors that Waymo might be taken public, but they have also raised a bit of venture capital from other sources and the fair “if they had to sell it” valuation is probably dramatically lower now (Alphabet now owns probably about 80% of Waymo, since they’ve raised $5.5 billion in outside capital since 2020 to spread the risk around a bit, and the latest valuation at which they raised capital was probably about $30 billion).

So fine, buy Alphabet (GOOG, GOOGL), that’s a reasonable and very mainstream idea. Even if it is, of course, right around all-time highs right now, having just bumped up over the high price it set during the mania of late 2021. Alphabet reports its fourth quarter and full-year earnings next week, on Tuesday, so the story could change pretty quickly.

Then he goes on to the real tease of the ‘secret’ stuff…

“Alphabet is a long-term investment. It could be a few years before you see the returns that could really maximize your portfolio.

“Most people know it’s easier for a $1 billion firm to go up 10-fold than it is for a $1 trillion company to triple.

“Fortunately, there are several smaller companies in this field that could make you a lot more money than Alphabet in a fraction of the time.

“That brings me to step No. 2…

“Step No. 2: Own the Critical Technology of Electric Vehicles”

OK, so which electric vehicle stock does he like? More from the ad:

“There are more than 3,300 car brands in the world, and all of them are actively building up their line-up of electric models. Each of them is dreaming of becoming ‘the next Tesla.’

“That’s why the smartest way to invest in electric cars is to buy the stock of a company that furnishes the technology all of these EVs need.

“Fortunately, there’s an investment that enables you do exactly that. It lets you own the component every electric car requires to function. Without this technology, an EV is no more than a metal husk…..

“It’s the PERFECT way to invest in the booming future for electric cars.

“As of late November, this stock is up 56% since 2020. And I expect it to absolutely soar in value in the years to come.”

Well, from January 1, 2020 to late November of 2023 the S&P 500 was up about 50%… and if you go back to the March 2020 lows, which lots of folks do when claiming fantastic past performance, the returns are dramatically higher, so I don’t know that this 56% performance claim is particularly notable, but perhaps it will help us narrow down the suspects…

And that does get us to a reasonable guess… can’t say we’re 100% certain of this one, but the best match we can find for a “56% gain from 2020 to November 2023” that’s also conceptually in the “providing the guts for electric cars” business is longtime electrical infrastructure leader ABB Ltd (ABB in Stockholm, ABBNY OTC in the US).

Should you buy ABB? Well, it is indeed a leader in factory automation and the electrification of the world, generally speaking, about half of their revenue and earnings come from “electrification”, so it ought to be a beneficiary of the general trend to use more electricity (and therefore modernize the electric grid and lots of legacy power systems, including building heating and cooling, diesel equipment for mining, etc.), but it’s not super tied-in to the electrification of automobiles, specifically. They do work in automotive, and supply parts both for cars themselves and for automobile factories, but that’s currently only about 5% of ABB’s business, according to their latest “factsheet” presentation. Buildings, renewable energy generation, data centers, electricity distribution, those are all bigger businesses for ABB than is automobile electrification. I wouldn’t be surprised to see that impact grow, but it would take a lot to really move the needle for ABB when it comes to their revenue and earnings growth.

And ABB’s “motion” business, which is basically selling electric motors and generators, should be a beneficiary of the growth of EVs… but it’s not the core of that business now, they’re making much more from industrial equipment, pumping equipment, and even electric railroad equipment than from electric automobiles, dealing with big industrial motors in many cases, not so much little EV motors. Again, that could and probably will change, and the general theme of “electrification” that’s driving EVs will also drive a lot of below-the-headlines stuff that should benefit ABB, but EVs are not likely to be a main driver of their revenue or profits anytime soon.

The one area in “e-mobility” where they do have a big lead is not EV motors, but EV charging station equipment, where they say they’re “#1” in market share — so that’s probably also going to continue to be a growth area for ABB, but that business brings in much less than a billion dollars a year at this point, and ABB’s annual revenue is about $30 billion, so again, even doubling that business would have a limited impact on the company’s revenue or profits.

Which might be good, given how much the “narrative” about EVs has changed in the past few months — I haven’t seen a story collapse that quickly since the metaverse. Yes, EV sales are still growing, but nobody’s getting on “waitlists” for EVs these days, production has caught up to demand in this moment, now that pretty much every automaker offers a variety of electric vehicles, and EVs are getting marked down, which has changed investor perceptions. It probably doesn’t help that most investment writers are in the colder parts of the US, and we had a deep freeze over the last month or so that really wreaked havoc on unprepared EV owners, given how sensitive batteries are to severe cold.

And, of course, that weakness and the shift in narrative has been a big part of Tesla’s share price collapse over the past month or two. That doesn’t mean EVs are dead, companies and governments have made long-term commitments to fleet electrification, and EVs keep getting better and cheaper ,and charging infrastructure continues to grow around the world, so I’m sure EVs will continue to take share over time… but the sexiness has faded. EVs are not a favorite hot story for investors right now. That could change, of course, narrative and sentiment change a LOT faster than a big industrial business can shift.

Should you buy ABB? It’s easy to see them being a leader of “electrification” in general, and also benefiting from general trends in factory automation and robotics, but it’s also such a large and well-established company that it doesn’t grow at a particularly dramatic rate. They’re trying to improve and focus more on their most profitable businesses, generally speaking, like most big industrial conglomerates, but as of now they’re likely to earn something like $2 per share both this year and next year (consensus estimate is $1.99 for 2023 and $2.07 for 2024), which would give them average earnings growth of about 10% from 2019-2024, with revenue over the past five years growing at about 3% per year, so they have already improved profitability to some degree.

With those analyst forecasts, we’d currently be paying just over 20X earnings for a company that has had decent ~10% earnings growth, on average, but might grow much more slowly than that this year. For me, that falls into the range of reasonable, but not super-compelling… if the next five years are similar to the last five on the growth front, ABB is likely to be a decent investment. The average analyst rating is a “hold,” and that sounds perfectly reasonable to me. They’ll probably report their fourth quarter and full year 2023 numbers late next week, so the story could change a little bit, but this is not a high-flying growth stock, so I’d think “evolution” more than “revolution.” Not that there’s anything wrong with that.

And what’s next? This “Step 3” is the area that interested me and got me to dig into this ad, frankly, so I’m glad we’re finally there…

“Step No. 3: Own the Most Important Technology in Artificial Intelligence

“Like electric vehicles, AI is another market that’s both critical to driverless technology and set for explosive growth.

“One estimate even suggests that AI will boost productivity to the tune of $56 trillion over the next eight years.

“And according to Forbes, 90% of new vehicles sold globally will have some form of AI in them by 2028.

“I’ve identified a company that’s uniquely positioned to take advantage of this boom. It produces software that in my mind represents the PERFECT synthesis of big data and artificial intelligence.

“This under-the-radar AI stock is an open secret in the tech world with a partner list that includes Amazon, Microsoft, Oracle, Salesforce, and Adobe… and customers like Uber, Lenovo, Spotify, and eBay.

“Amazingly, it trades for around $25 a share.

“This is the perfect set-up for my next potential 1,000% winner.

“I’ll give you the full rundown on this company and how to buy it in my report, My No. 1 AI Stock for 2024.

“I’ve said it before, but it bears repeating…

“The simplest and most lucrative way to succeed at investing is to put yourself in front of a megatrend… and then just sit back and enjoy the ride.”

That’s not quite enough hints to get us to 100% certainty… but given that list of partners, and the teased share price, this is very likely to be the business automation company UIPath (PATH).

This is a software/business process automation company that was thought of as a SaaS company a few years ago, when that was the hot acronym, but I guess it’s fair to also call them an artificial intelligence company now that AI is the hot acronym. The numbers are quite impressive, they have about $1.38 billion in annualized recurring revenue (ARR), and a 121% dollar-based net retention rate (which should mean that customers are staying with them and spending 21% more, on average), and they have a growing user base of high-spending customers (1,974 customers who spend more than $100K/year on UIPath). Those would have been enough to make people go gaga in 2021 — and they did, that’s when PATH had its IPO, and they raised a ton of money and got to a $40 billion market cap.

Now that valuation is down below $13 billion at $23/share, so the valuation has dipped below 10X ARR, and they’ve begin to report profits, they’ve now been profitable on an adjusted basis for the past year or so — which isn’t quite the same as GAAP profitability, they’re probably still a year or two from that, but the years when a company first begins to report profits can be very attractive as investor sentiment shifts and the movement from a few pennies of profit shows up as huge ‘earnings growth’ (they’re still spending about 30% of their revenue on stock-based compensation, which GAAP calls an expense but which most small tech companies and their analysts ignore in their “adjusted” earnings).

Here’s how the company describes itself:

“UiPath is on a mission to uplevel knowledge work so more people can work more creatively, collaboratively, and strategically. The AI-powered UiPath Business Automation Platform combines the leading robotic process automation (RPA) solution with a full suite of capabilities to understand, automate, and operate end-to-end processes, offering unprecedented time-to-value. For organizations that need to evolve to survive and thrive through increasingly changing times, UiPath is The Foundation of Innovation™.”

I find the PATH story and setup interesting enough to maybe be worth a little growth speculation, given that their tack is a pretty relentlessly practical and business-focused AI that meshes well with the established business process automation business they’ve built over the past few years… and I like that they’re still sitting on roughly $1.8 billion in cash, mostly the result of going public at such a steep valuation back in 2021, and aren’t burning through cash now, that should set them up well to continue trying to take share and build the business. I don’t know the company well enough to really commit to owning the equity, but I think they’re at an interesting inflection point and could break through if AI enthusiasm continues to bubble for investors, with a couple good quarters of earnings “beats” under their belt, so I did dabble in some call options… we’ll see how that plays out. They have an unusual fiscal year, so will be reporting their fourth quarter (of FY24, which ends this month) in mid-March… so there, at least, is a potential match to Wade’s “March 15” deadline tease, though UIPath has no particular connection to Tesla.

This is a gamble on my part, to be clear — I dabble in call options partly as a way to feed that gambling urge without risking real money. It works out often enough that it’s not completely stupid, but I wouldn’t call it “investing” — these options depend on a good surge of growth from UIPath, or, alternatively, on a tech/AI bubble forming that lifts everything, so the most likely outcome is a 100% loss, I bought both near term and longer-term options, the May 2024 $29s and the January 2026 $35s. And since I’m writing about them today, which can often cause options prices to bounce around, I’ll refrain from trading on those positions for at least a month.

So that was the part o the ad I found most interesting… but what else does Wade pitch?

“… the best way to profit from driverless cars is to invest in the technology that all these cars need to operate, without which they’d never be able to navigate cities without incident.

“That technology is 5G.

“The sensors on autonomous vehicles generate 2 petabytes of data per year. That’s the equivalent of 22,000 4K resolution movies.

“Even the fastest 3G and 4G networks are unable to manage all of this data.

“That’s the beauty of 5G. It’s up to 100 times faster than 4G.

“And with the 5G infrastructure market projected to grow 1,258% by the end of the decade…

“We’re going to see dramatically more 5G networks powering rapidly increasing numbers of autonomous cars.

“And one stock makes the 5G technology that’s crucial to enabling driverless vehicles to safely navigate the roads.

“That’s why I’ve named the report in which I reveal all the details, The Critical Driverless Technology You Must Own.”

There are a LOT of companies that could fit those clues, and he doesn’t drop enough hints for us to narrow it down, sadly — so I’ll just tell you that my favorite play on continued 5G investment is Keysight (KEYS), which sells test equipment and software for all kinds of electronic and communications work, but Wade’s probably not recommending that. This could be a pitch for anyone from STMicroelectronics (STM), Broadcom (AVGO) or Qualcomm (QCOM) on the silicon side, they all sell networking chips into the automotive sector, to Ciena (CIEN), Juniper (JNPR), Ericsson (ERIC) or Nokia (NOK) on the networking equipment side, or perhaps even someone like Cisco (CSCO).

And that list is not exhaustive, I just wanted to give you an idea of the kinds of companies that might fit here — the challenge, for anyone dealing with wireless networking and 5G equipment or services, is that the big telecom companies like Verizon (VZ) and AT&T (T) have slowed down their capital investment recently, and those are the primary customers of just about all of the “5G” companies, so there’s not a ton of growth right now. Investors tend to get out ahead of these kinds of thematic stories, so the excitement over 5G investments was peaking five years ago, when that technology was really just beginning to roll out… though it will probably only be a few years before 6G begins to capture everyone’s attention. I don’t see much specific reason to be excited about the potential for autonomous cars to be a meaningful driver for any of the “5G” companies, though that was certainly teased many times in the years before the pandemic (remember the “C-V2X” teaser pitches?)

So that’s steps 1-4 — buy Alphabet, buy ABBNY, buy PATH, buy (some kind of 5G networking company)… and his “step five”, no surprise, is “sign up for Stansberry Innovations Report.” So we’ll skip that, and turn the microphone back over to you, dear friends — whaddya think? Is this a good time to buy into Waymo through Alphabet, or to buy into ABB for it’s exposure to the EV business (or for other reasons), or PATH (which really has next to nothing to do with autonomous driving, but is at least selling real software with some practical potential, whether or not you want to call it “AI”), or do you see a big opportunity in vehicle-to-vehicle communications via 5G? I gotta say, I think the one lesson we should have learned over the past five years is just how slow and gradual the evolution of the automobile fleet is likely to be, regardless of the boldness of Elon’s promises, but I’d like to hear your thoughts… please chime in with a comment below.

And as always, thanks for reading… and thanks for your patience with this long one!

Disclosure: Of the companies mentioned above, I own shares of Alphabet, NVIDIA and Keysight. I also own call options on UIPath for both May 2024 and January 2026. I will not trade in Alphabet, NVIDIA or Keysight for at least three days after publication, per Stock Gumshoe’s trading rules, and will not trade in UIPath for at least a month, given the illiquid nature of those options.