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Forest teases $3.1 Trillion “Bitcoin Key,” profit from “The Bitcoin Bug” and “Bitcoin’s Underground Supplier” — What are those Stocks?

Strategic Investor pitch says this is, "Your Chance to Profit From The Tech World’s Unseen Flaw" -- and The Thinkolator has some answers...

By Travis Johnson, Stock Gumshoe, January 10, 2022

Dave Forest has updated his pitch about the “Bitcoin Key” to include some hype about a mysterious factory in the desert, including some aerial photos, so although he’s still teasing the same stocks he was with the first version of this ad back in October, we’re re-posting it with a few updates to help new readers figure it out. The first version of this article was posted on October 4, 2011, and I’ve left the original comments from readers attached at the bottom.

This is the intro from Dave Forest’s latest Casey Strategic Investor ($49, renews at $129) teaser pitch…

“U.S. Firm Races to Produce: The $3.1 Trillion ‘Bitcoin Key’

“The world’s top crypto requires ONE critical technology that could be lying inside this building….

“About 240 miles south of the Grand Canyon…

“In the Arizona desert…

“Could be one of the most critical Bitcoin operations on earth…

“I’d expect not 1 in 10,000 Americans know this site exists…

“And fewer could ever hope to gain access.

“But I’m about to peel back the curtain on what I believe is going on inside this building.”

But as we go along the rest of the ad is much the same as it was in October, with the focus on a “bitcoin bug”…

“Right now most investors haven’t yet heard of the ‘Bitcoin Bug.’

“And fewer have seen the severe financial damage it could cause.

“So they’re bound to get blindsided in the weeks ahead.

“But not you.

“Because ONE U.S. company has come up with a novel solution to fix the “Bitcoin Bug.”

“One that’s set to unlock a whopping $3.1 trillion windfall in coming years.

“That company is the one behind this mysterious building… “

So what is this “bug?” Really, it’s just his way of referring to the semiconductor shortages we’re seeing as the world continues to dig itself out of the COVID-19 shutdowns and transportation bottlenecks. Here’s where he comes clean on that…

“Massive demand has created a new chip shortage.

“And Bitcoin is at the heart of it all.

“That’s why I call it ‘The Bitcoin Bug.’

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“It’s eerily similar to what we saw back in the late 1990s with the Millennium Bug….

“Bitcoin’s booming demand for these chips is now running smack-bang into the broader tech world, with disastrous results.

“In short:

“WE’RE FACING WHAT MAY BE THE BIGGEST CHIP SHORTAGE IN HISTORY!

“Major news outlets have gone as far as calling it a ‘chipageddon.'”

So part of the problem is that there’s high demand for chips for Bitcoin mining, since that’s an intensive process and always requires the newest and fastest chips to win those mining battles… and part of it is just that demand for chips for bitcoin mining is but a (small, I’d say) part of the overall high demand for chips, causing demand to soar at a time when supply is having trouble catching up.

But that begins to lead into his tease about the specific savior here, our secret company…

“… this company has the world’s most critical chip locked up in a patent.

“You’ll see how this company holds the solution to patch the Bitcoin Bug….

“THE FUTURE OF OUR ENTIRE TECH-BASED ECONOMY HINGES ON THIS SINGLE TYPE OF CHIP OWNED BY THIS COMPANY…

“And that includes the $8.6 trillion banking industry…

“Over 4,000 cryptocurrencies

“As well as the technology that powers Bitcoin.”

And they show a little piece of a patent, titled “Optimized SHA-256 Datapath for Energy-Efficient High-Performance Bitcoin Mining” as proof that they’re the unique leaders here:

“They manufacture the critical chip required in every single Bitcoin mining computer.

“Meaning, they have a solution that could fix the Bitcoin Bug…

“And help us avoid a total tech meltdown.

“And, just to make sure that no other company in the world can knock them off.

“It’s come up with a unique way to develop this chip”

More clues?

“The CEO of this company was voted #1 in all of America in 2019.

“The company’s biggest customers include Facebook, Google, and Amazon.

“Plus, there is some speculation that Microsoft and Qualcomm could soon be this company’s customers.

“These two tech giants spent over $25 billion on research and development last year.

“So it’s no surprise this company’s annual revenue is estimated to hit over $72 billion.”

And this is how they put it on the order form:

“Inside, you’ll find the name and ticker symbol of the company that has a solution to patch the ‘Bitcoin bug.’ Plus, you’ll also see how they’ve locked-up the world’s most valuable chip in an iron-clad patent.”

OK, so that’s an odd stock to pitch in this way… but it is, at least, an inexpensive stock thanks to the fact that it’s not really growing. This is a tease for Intel (INTC), for years the largest chipmaking stock in the world, and still by far the largest company in the space in revenue terms, but these days somewhat of an afterthought, at least among retail investors.

How do we match those clues? Well, the lock is that the patent hinted at by Forest in his ad is an Intel patent, more on that in a moment, but yes, this company is also expected to “hit over $72 billion” in revenue this year and next (and no other chip company is even close to that)… which will actually be about a 5% decline from last year’s all-time-high revenue number of over $77 billion. Intel’s CEO was voted #1 in the US by Glassdoor users in 2019… though thats’ Pat Gelsinger, and at the time he was CEO of VMWare, he’s only been at Intel for less than a year now. And yes, just like most of the large chip companies, they number all of the big tech companies as meaningful customers.

And since the latest version of Forest’s ads talks up those aerial photos of that secret location, the building that holds “one critical technology,” we can confirm that yes, those photos are of Intel’s Fab 42 facility on what was already a large manufacturing campus for the company in Chandler, Arizona, one of their US locations that’s expanding to help meet rising demand for semiconductors.

Do bitcoin mining rigs require an Intel chip? No. A lot of basic mining is done with “regular” computers using CPUs from Intel or AMD, of course, and I’m sure plenty of bitcoin farms have some Intel server chips in there somewhere… there are all kinds of interrelationships when it comes to hardware and software, but Bitcoin and Intel need each other less than most.

Intel is still a very big company, with a $225 billion market cap, and it’s one of the largest and cheapest companies in the semiconductor space, trading at only about 10-12X earnings and with a nice dividend yield of 2.5% or so, but the past few years have not been so kind to Intel — losing the technology lead and some important market share to firms they used to laugh at, like AMD (AMD) and Taiwan Semiconductor (TSM), posting almost flat numbers for revenue and earnings over the past three years (earnings up 1.5% since 2019, revenue and share price up about 10%), and generally being caricatured as a floundering titan. And to make matters worse, analysts think their earnings are going to reset at a much lower level, down 25% or so from the 2021 high, so their forward PE is actually more like 14.

That characterization of “floundering” may well not be fair, and Intel is probably better than its share price… and will be a big part of increasing semiconductor manufacturing in the US, if that really pushes through to reality as we all worry about the political situation in Taiwan… but it’s hard to get super excited here unless you’re just looking for a fairly stable “value” stock (which is fine, but that’s not the kind of thing that usually gets highlight-reel spin from the newsletter pitchmen).

The big excitement for Intel is that the downside is probably pretty limited, since we’re already expecting revenue and earnings to be pretty flat and the company already trades at about a 50% discount to the average market valuation, and they are obviously very exposed to rising demand for semiconductors in general. The shares did drop after they gave a disappointing forecast in mid-October, a couple weeks after this ad first caught our attention, but they’ve now recovered to about where they were three months ago. I’d say they’re in better shape than IBM (IBM), if only because they have a physical manufacturing footprint that should become more valuable as demand for chips continues to soar and investors look for Taiwan alternatives, but in some ways it feels like they’re in that same kind of investor purgatory, with the technology dinosaurs who haven’t really gotten investors’ attention in recent years.

I wouldn’t try to talk you out of investing in Intel, but don’t do it because of bitcoin. They do not have a uniquely magic cure for Bitcoin’s inefficiencies, and Bitcoin mining does not specifically depend on Intel chips. Cryptocurrencies are part of the reason for soaring demand for chips in general, so in that way Intel is connected, since the rising tide lifts all the boats to some degree, but they don’t own a unique Bitcoin breakthrough as far as I can tell, and they’re not making the specialty ASIC mining chips and hardware used by the biggest mining farms. A lot of the semiconductor shortage is really irrelevant to the high-end producers, because there isn’t really a dramatic shortage of expensive high-end chips — there’s a shortage of the cheaper stuff that’s almost literally everywhere, the simpler chips that are much less profitable but very much needed by makers of automobiles and appliances and all kinds of electronic equipment. When chipmakers are prioritizing investment and even deciding which lines to keep open when COVID clobbers their staffing, where possible they prioritize the high-end stuff.

Far more important to their future, is Intel’s ability to maintain market share in chips for servers and personal computers, an area where they’re having trouble keeping up with Advanced Micro Devices (AMD) but do have a nice embedded lead with their large customers, and presumably will continue to have substantial market share. It’s no longer accurate to say that Intel is the best chip manufacturer in the world, I guess, as they were 10 and 15 years ago, that title seems to have moved to Taiwan Semiconductor in recent years… but it’s not like they went from “consensus number one champion” to the bottom of the pile, they’re still a global leader.

And if Taiwan becomes more frightening, and Intel gets attention for its expansion in the US (though they have some important assembly and testing operations in China, too), perhaps they’ll begin to trade at more of a leader’s valuation. Though that will probably require at least some semblance of revenue growth, and analysts don’t see that coming anytime soon — top-line growth for Intel has averaged something in the 5-10% range over the past decade or more, and the next few years are expected to be on the 0-3% range… so expecting Intel to ramp up revenue growth from here, and therefore earn a higher valuation, is a non-consensus view. Doesn’t mean it’s wrong, but most people don’t see it happening.

The stock has mostly kept up with the S&P 500 over the past decade, at least until the past year or so, but it’s hard to see them leading the charge if they can’t grow their top line any faster than that. What seems to be driving interest in Intel in the past few weeks is not just their semiconductor leadership or any news of new products from the Consumer Electronics Show… it’s the fact that the stock is cheap and pays a high dividend, so it shows up in “value” indexes and dividend growth lists, and investors are thinking about rotating to relatively safe positions.

Here’s that patent that Forest cites, by the way — it was filed in 2016 and granted in 2018. I don’t know if it means anything, that patent award did get some glowing attention at the time but there are thousands of cryptocurrency patents, and a ton of them that focus on making bitcoin mining (or other crypto mining) more efficient… and the Bitcoin community is really anxious about anything being patented in that realm, anyway, since that goes agains the democratization and openness push to some degree.

I’m no expect on which technologies will win out in Bitcoin mining, for sure, but I do expect that as much of the cryptocurrency world moves beyond high-energy-use mining as the foundation of future blockchain projects, mining efficiency will probably become less and less relevant, anyway. Probably we’ll see cryptocurrencies evolve the same way economies have — in early industrial capitalism it was the people who built the infrastructure and operated the factories who made the money, in the later stages it became the bankers. So we’ll probably continue to move more from “proof of work” cryptocurrencies that require high-intensity mining, to “proof of stake” cryptos that just require you to own the tokens to earn your vigorish from the network. It’s overly simplistic to say this, but my impression is that the world drifts quietly to be controlled less by work and innovation, and more by ownership and access to capital, same as it ever was. Why should cryptos be any different?

But sure, buy Intel if you want — decent yield, low valuation, low growth. Investing in a stock like INTC might actually be a way to buttress your portfolio a little against the wild moves of actual cryptocurrencies or more directly blockchain-related stocks. I don’t expect it will be among the top performing stocks in the market, but even if we have a down cycle in semiconductors, a notoriously cyclical sector of the stock market, their continuing market leadership and vast size mean Intel is also very unlikely to be among the worst performers.

And that’s not all, dear readers, we also get a second “Bitcoin Bug” stock tease… here’s a little from that section of the ad:

“THIS KEY CHIP REQUIRES ONE CRITICAL SOFTWARE

“This software is what will allow this single type of chip to efficiently mine new Bitcoin.

“It’s the so-called accelerator that will make this critical chip even more effective.

“And that’s why I discovered one company that has a ‘lock’ on this critical software.

“As a matter of fact:

“I know of no other company in the world that can make this exact software.”

So what is this “software” provider teased? Apparently they’re also producing “critical software” for electric vehicles, in addition to Bitcoin… though why “software” would require 11 manufacturing sites in seven countries is a bit of a mystery…

“There could be 230 million electric vehicles worldwide in the next 9 years.

“Each and every one of them will likely require the software owned by this company.

“And yet this company is the only one I know of producing this critical software.

“In fact, with 18,000 patents and 11 manufacturing sites in 7 different countries…

“It’s no wonder this company hit $10.2 billion in revenue in 2020.”

OK, so that narrows it down a bit. And I expect he’s using a very broad idea of what “software” means. Other clues?

“Already Apple, Samsung, Intel, HP, Huawei, and Tesla are customers of this firm.

“And I expect all the other mammoth tech companies will soon follow suit.

“However, this stock isn’t a household name (or anything close to it for that matter).

“So that’s why I’ve put together all the details of this company in a special report.

“It’s called: Bitcoin’s Underground Supplier.”

Well, I hate to disappoint two times out but this is another established chip company whose connection to Bitcoin is, at best tenuous… this, sez the Thinkolator, is STMicroelectronics (STM).

STMicro has become a somewhat better company in the past decade, finally finding ways to get more efficient as it has operated under the constraints of its challenging ownership structure. The company was formed to build a European champion and better compete with large US and Asian chipmakers, it was the result of the merger of French and Italian chipmakers in the late 1980s, and those governments held effective control with more than 40% ownership until STM came public 20 years ago, and they still remain very large shareholders — I think each government still controls about 14% of the company at this point, a relationship that introduces some non-economic priorities, particularly when it comes to employment levels and the location of factories and other projects.

And yes, they did have $10.2 billion in revenue in 2020, though like many chipmakers it has been a very cyclical business and a wild ride — that was a good year, and it represents 50% revenue growth since the lows of 2016… but STM has not exactly been on a long revenue growth trend, they also had $10 billion revenue years way back in 2010 and 2007. The encouraging thing is that they’re operating more effectively now, so they’ve had net income above $1 billion for three years in a row… the discouraging thing is that the number hasn’t grown, their high water mark for income was 2018, when the had $1.43 in earnings per share.

Might that be about to change? Probably so, they should hit some new records on the income statement this year — they’re guiding for $12.5 billion in revenue, and they also believe they’ll be able to improve their gross and operating margins a little bit, probably hitting new highs on both of those margin numbers as well, so analysts expect that will lead to a new earnings record of $1.94 (and growth beyond that to $2.20 and $2.22 in the next couple years).

So the company is looking as good as they have in a very long time, at least, and is pretty reasonably valued — it’s not as cheap as Intel, but almost nobody is that cheap. Right now they’re valued at about 20X forward earnings, which means that if growth stays near the crazy levels of this year (25% revenue growth, 60% earnings growth), the stock is dirt cheap… and if growth tails off to the sub-10% revenue growth that analysts expect, leading to probably ~10% earnings growth, then the valuation is probably at the top end of reasonable here. The stock has climbed about 20% or so since we first published this teaser solution in early October, but the 2022 estimates have also climbed so the valuation is pretty similar.

What does STM do? They’re mostly in the “sensors and automotive” sectors of the chip market, including lots of the little MEMS chips that are key parts of the Internet of Things as well as a lot of secondary chips for all kinds of applications — not the CPUs that get the sticker on the outside of the laptop, to use that as an example, but the dozen or so other smaller chips that handle power management or touchscreens or temperature sensors or whatever else inside the box. I think the best comparisons for STM are probably other large chipmakers like the slightly more richly valued NXP Semiconductor (NXPI) and Infineon (IFNNY), and those other two are more closely associated with the auto industry so have probably gotten a bit more of a valuation boost of late (STM gets roughly a third of their revenue from the auto sector, NXP is closer to half). NXPI and STM shares have tended to trade very close to each other over the past decade or so, most of the time, and both have performed essentially like “average” semiconductor stocks over the past three years (which has been good, the group is up 130-140% since late 2018 while the S&P 500 is up only about 50%).

So if we’re talking about bitcoin being the secret driver of STM, I wouldn’t get your hopes up… but if we’re going with the general argument, that the world is accelerating its consumption of semiconductors like never before, and breakthrough technologies are going to demand ever more and better chips, then sure, that’s a pitch right in STM’s wheelhouse.

I’m probably still too biased against STM, having watched them disappoint over and over for 15 years, but if the past few years are an indication that they’ve finally righted the ship, well, good for them. You can check out their last quarterly presentation here, they claim to be getting some good design wins in automotive, particularly with electrification, in industrial IoT projects, and in consumer devices like mobile phones, along with lots of other hot-button sectors like AI and 5G.

And yes, their principal fabs are in Europe and Singapore, and they do have some exposure to China but, like Intel, their assembly and test operations are spread around lower cost centers in Asia and North Africa… that’s not necessarily unique to STM, but if investors begin to consider chipmaking capacity a strength again, after years of preferring fabless companies like NVIDIA and AMD who just design chips and outsource their manufacturing to Taiwan Semiconductor, well, maybe the “old school” chip companies will have a renaissance.

So you could do worse than STM and INTC, I’m sure, even though neither one is likely to make bitcoin mining particularly more efficient, or solve the semiconductor shortage on their own in any meaningful way. The world is working through the chip shortages, which have been caused by strange combinations of pandemic shutdowns (order cancellations, and factory shutdowns for brief periods), and surprise surges in demand that were also partially pandemic-related (suddenly everyone needs routers and laptops for work and school from home, then mass transit shut down so people want cars, and those stuck at home wanted to move to the suburbs, or renovate and get new appliances, so the panic shutdown reversed and car and appliance plants that shut down suddenly try to start back up and re-order twice as many parts as they had just canceled a couple months earlier… at the same time that some ports are backed up and a tanker jams up the Suez canal for a week). The consensus seems to be that supply will begin catching up soon and the backlogs for some chips should be much more reasonable in a year or so, particularly for automakers, but nobody really knows — we could also have a more meaningful recession and see demand collapse, and suddenly there’s no shortage at all. The best short sum-up of the chip shortage I read was from IEEE, “How and When the Chip Shortage Will End, in 4 Charts,” if you want a five-minute explanation.

And Forest also drops a hint about a 5G “special report,” which from his brief description sounds very familiar…

“But none of this growth will be possible without — you guessed it — a new generation of components that will power the 5G revolution.

“We’ve found one tiny company producing these 5G components.

“And you can find all the details of this company in your third special report.

“It’s called: The $17 Trillion 5G Flaw.”

He doesn’t drop any other hints for that particular pitch, but the photo he includes is a screen shot from his earlier teaser “presentation” about the “5G Master Key” (which itself was a repeat of an ad the prior editor of that newsletter put together a couple years ago), so that could be another pitch for the satellite antenna company Gilat (GILT), which has often been teased for its potential to profit from the growing use of satellites to provide backhaul for 5G cellular networks. That’s just a guess, though, given the lack of hints this time around… and for what it’s worth, GILT is getting back down to “cheap and forgotten” levels of valuation — they’re not the most important company in the world, of course, and they don’t “own” 5G, or even satellite backhaul, but they do have growing satellite broadband contracts and a variety of support contracts for satellite projects, and in the past a big driver for the business has been in-flight internet access for airlines, so if that segment really recovers next year they might see their revenue growth bounce back.

And I’ll leave you there, dear friends — I’d argue that this “bitcoin bug” and “bitcoin key” language is just to get your attention, and that the chip shortages have little or nothing to do with cryptocurrencies and will not have much impact on the cryptocurrency world, but we are certainly seeing massive demand for chips from all parts of the economy since the pandemic hit, and big investments made to expand capacity… and that ought to be good for both chipmakers and the capital equipment companies who help build new chipmaking lines. As long as the demand stays high. Whether Intel and STMicro are going to be big winners in the years ahead I don’t know, I don’t own either of them or have much direct exposure to chip companies right now, but I’m willing to be talked into more exposure in this area… what do you think I should buy? Let me know with a comment below. And thanks, as always, for reading this far!

Disclosure: of the investments mentioned above, I own some Bitcoin and have either equity or call option exposure to both NVIDIA and AMD. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.

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youwannabet
youwannabet
October 4, 2021 10:57 pm

Been long STM since March 2019 and will continue to hold for the long haul.
But, a 473% surge from here in the near future? Not likely!!!

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ncarnelli
ncarnelli
October 5, 2021 2:34 am

This pitch doesn’t make a lot of sense. While it’s true that Intel applied for some patent in the crypto mining sector a couple of years ago https://www.investopedia.com/news/intel-applies-patent-crypto-mining-chip/ I don’t believe we have seen any chip for mining from INTEL (or STM). Bitcoin mining chips are highly specialized ASIC chips, designed by few producers.
Even if INTEL decides to start producing some I bet it would cover a very minimal % of their revenues

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vintee786
January 10, 2022 9:41 pm

HI
Happy new year !
do you think chewy right now is buying is good idea

chewy

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jharvard67
October 5, 2021 7:18 am

Which is better, a stock market tip from Barron’s newspaper, or one from a newsletter?

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SoGiAm
October 5, 2021 8:30 am

OT Telemedicine etc…
$UPH #UpHealth! Offering $40M at $1.75 dd 1st
#UpHealth Expands Globally by Signing Partnership to Bring State-of-the-Art Healthcare to the Democratic Republic of Congo https://uphealthinc.com #Best2ALL!

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metaworld
metaworld
October 5, 2021 8:53 am
Reply to  SoGiAm

This is relevant how?

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SoGiAm
October 5, 2021 9:14 am
Reply to  metaworld

OT Telemedicine etc… = Off topic
Have a great day!

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SoGiAm
October 5, 2021 8:57 am

$CRWD & $PATH CrowdStrike and UiPath Partner to Secure Robot-led Processes with First of Its Kind Integration

Alliance extends the power of the CrowdStrike Falcon platform to robotic process automation, providing unparalleled capabilities to enhance protection and speed of response
https://ir.uipath.com/news/detail/190/crowdstrike-and-uipath-partner-to-secure-robot-led
Best to ALL!

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kmann70000
kmann70000
October 10, 2021 5:00 pm

The Strategic Investor recommendation for October was Micron Technologies (MU) Buy up to $100

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outsider
October 15, 2021 7:34 pm
Reply to  kmann70000

MITK good in this space also

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Lqqing4nbt
Member
Lqqing4nbt
January 18, 2022 10:30 am

Tech sector overall likely to see further decline. Many multi billion $ money managers like Carl Icahn are warning about this market bubble. Should this correction continue and market turn bearish with a possible recession kicking in the Nasdaq could fall another 50% or more. During the dot com bubble the Nasdaq went from just over 1000 to just over 5000 from 1995 to 2000 only to lose about 80% over next 2 years. Take ROKU for example despite it’s decline from $480 still has a PE twice that of NFLX and Price to sales about 25% higher so could decline at least another 25% near term. As the ole saying goes don’t try to catch a falling knife. Many here have been averaging down when they should of sold in the $400’s $300’s $200’s and or shorting at those levels or hedging their positions at very least as Carl Icahn and several others have been doing. They seen this scenario play out more than once but that was without a covid pandemic causing major supply chain shortages and businesses shutting down. That said don’t get burned again as this correction likely is just the tip of iceberg and could become worse than dot com crash and 2008 meltdown.
For your family safety sake see news video about the ion smoke alarms in most homes that won’t wake your family up in smoldering smoke. http://www.smokealarmsafety.org

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