I need to start with this part, the most ludicrous promise made in the ad:
“This little-known company, which you can still get in early on today, is at the forefront of this $15.7 trillion economic revolution.
“Right now, it does about $3.3 billion in revenue annually…
“Next year, I expect it to hit $100 billion in annual revenue.”
Crazypants, right? Revenue does not go up 3,000% a year, especially not from a high level like $3.3 billion. So what’s the reality behind this ridiculous forecast?
It does get sillier, by the way…
“And that’s just a bare minimum, assuming it captures less than 5% of this $2.9 trillion.”
“Realistically, that number could be even higher.
“From there, it could hit $250 billion in revenue… $500 billion in revenue…
“All the way up to $1 trillion in revenue or higher over time.”
I put the cart before the horse here a little bit, no? This is an ad from Ray Blanco for his Technology Profits Confidential, and he’s teasing that he has identified the “Stock of the Decade” — which, naturally, will let you not only retire in happiness but buy Ferraris for your grandchildren and perhaps pick up a nice little private island for yourself. (OK, fine, those are my words… he just says you could pay off your mortgage, travel the world in luxury, and turn a modest investment into “generations of wealth for you and your family”).
Just to get you a little more fired up, here’s more from the ad:
“But I believe this situation I’m telling you about today is, without a doubt, the biggest opportunity I’ve ever seen.
“That’s not something I say lightly… but the fact is I’ve never been more certain of anything in my life.”
That kind of language must work, because they keep using it over and over — but do not get yourself worked up about whether Ray Blanco (or any other newsletter editor) is really “putting his credibility on the line” in making these claims. All the hype-sellers “feel” this certainty about every one of the ideas they pitch, that’s how they sell them so rapaciously — just in the last 18 months or so he’s also stated that he’s “never been more certain of anything in my life” about 5,000% one-year returns in Esperion starting back in the Fall of 2018 (didn’t happen, shockingly enough), and about March 29, 2019 being the “most profitable day in history” as PharmaCielo turned their Colombian flower-growing greenhouses into a marijuana empire.
I don’t want to bang a broken drum here for too long, but here are the charts of those stocks starting on the day Ray Blanco told us he had never been more certain of anything in his life:
And PharmaCielo will “build the fastest fortunes in history”…
Ray Blanco isn’t the only one who makes these kinds of promises to get your money, of course, and he’s not even the only one who does it without offering a refund after you’ve seen the emptiness of what’s behind the curtain. We may even be charitable and look back fondly on those and say, “hey, well, he didn’t really mean 5,000%, I knew he was being ridiculous” — but those numbers are really part of these ads, and even if we think we don’t take them seriously our subconscious does.
Those little signals go into your head and skew every other thought you have about that company, particularly if you’ve never heard of the company before and those ideas can be planted on fresh ground in your noggin… so it’s important to try to reset those kinds of ludicrous daydreams before you buy shares of a stock or commit to a ludicrously expensive newsletter. Your “first impression” and foundational expectations of a company or a stock matter — if you think they’re going to change the world and give you 5,000% gains, you might bet too much or be too accepting of future missteps or mistakes by the company. If you think they’ve got a decent chance of a double or a triple in a few years on some good clinical or regulatory news, but you go in expecting that there will be a couple binary moments when it could all go really well or really badly, your future responses and reactions will be different. How you start matters.
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And, of course, there’s also the real risk that if you spend $3,000 to find out a “secret” stock that you’re convinced will change the world… your brain is going to go into overdrive trying to justify that expense by believing in the story, and maybe by over-committing to the stock. None of us likes to admit a mistake, and we subconsciously try to justify all our actions — sometimes by “doubling down” on that mistake.
Phew, sorry, got on the soapbox there for a minute — I don’t know why, but sometimes these Ray Blanco ads fire me up even more than similar stuff from other pundits. I’d like to say I’ll stop sermonizing on these points as my New Year’s Resolution, but, well, I don’t want to lie to you… Shall we get back on track with today’s teaser solution?
To be fair, this is NOT an ad for one of Blanco’s $3,000 newsletters like those FDA Trader and Penny Pot Profits pitches noted above — this is for his entry-level letter, Technology Profits Confidential (they say list price is $199/yr, but I don’t think I’ve seen it promoted for much more than $49, the current price). And unlike the pricey letters, the entry-level services almost always offer a refund/trial period option — the goal being, of course, to get you “in the fold” as easily as possible, with no stress, so they can then upsell you into those more profitable newsletters.
OK, fine, back on track — what is the stock Blanco is talking up today? Let’s get back into the clues… what’s that mysterious business he’s describing?
“Today, the market for this is only $9.5 billion…
“In other words, there’s still time to get in early…
“But that’s quickly changing.
“In the next 12 months alone, a massive $2.9 trillion will be spent on this technology…
“That’s a 305x increase… in a single year!”
Those are big-picture numbers, and, of course, they’re exaggerated — spending is not going to go up in any major product category by 305X in a year, so it’s very likely he’s making a apples-to-watermelons comparison and using two different estimates for different interpretations of the business… but what he’s actually talking about, as he gets to eventually, is artificial intelligence (AI), a nebulous concept also referred to as “machine learning” and “autonomous computing”.
“AI will revolutionize just about every industry as you and I know it.
“Point being, AI isn’t just the next big thing…
“It’s the single biggest technological advancement the world has ever seen…
“And it’ll change just about every aspect of our lives, from where we shop to how we do business.
“Which brings me back to what’s inside this package over here…
“The final missing piece to make AI possible.”
That “package” is, of course, a little microchip that he holds on the tip of his finger. And apparently it’s a critical one….
“This may look like any other computer chip you’ve seen before…
“But it’s not.
“Without millions of these specific chips, AI wouldn’t be possible.
“See, AI works because it’s able to process millions of data points at once…
“Utilizing and learning from these data points to become more effective.
“But with ordinary chips, this data is worthless to AI.
“That’s because these specific chips, unlike ordinary ones, are able to reprogram themselves constantly…
“Allowing the AI to learn and adjust from data.
“Meanwhile, once an ordinary chip leaves its factory… it can’t be reprogrammed again.
“Making it virtually useless when it comes to AI.”
Ah, so now we see where we’re headed. That almost certainly means he’s talking about programmable silicon, so he’s probably talking about field programmable gate arrays (FPGAs). They’re often used in new products or technologies because they’re not “hard wired” for a specific function but can be reconfigured after they’re made — thus “field programmable.”
That obviously makes them relatively less powerful than chips that are designed to efficiently carry out a specific task, since you have to give something up if you’re demanding flexibility, so the challenge with FPGAs in the past has been that they are often used in the early days of a new product but, once the demands for that product or technology are better understood as the first wave of innovation has washed through, they are replaced with custom silicon designs that are specifically tailored to that product (and therefore are more efficient and powerful for that one purpose, and significantly cheaper).
Maybe AI will be different, since there is some logic to an AI system being able to not only learn from data but to reconfigure its own silicon, I have no idea. Moving on with more from the ad.
“… this is the ONLY chip that can power the future of AI…
“Without it, AI simply wouldn’t work.
“And there’s one company — the company I’ve been telling you about today — that has a virtual monopoly on these chips.
“That’s because to date, they’ve secured more than 4,000 patents on this technology.”
Other clues about that company? Here you go:
“Their revenue has exploded 9 straight quarters in a row, showing no signs of slowing…
“Take it from someone who knows: That kind of growth is unprecedented.”
Growing revenues nine quarters in a row is NOT unprecedented, to be clear. It’s not even particularly unusual.
Other hints? I thought you’d never ask!
“… the CEO of this company has done this before…
“Just recently, shares of the last company he was a part of went from $2.78 to a high of $44.25.
“But this time around, the opportunity is much, much bigger.
“He no doubt agrees — he’s bought up thousands of shares of his own company…
“He knows, just like I do, that this stock is about to explode to unprecedented highs.”
And we get some hints about the big institutional investors…
“But the good news is that all it takes is a small stake in this company — even $100…
“And you could easily amass significant wealth.
“No wonder some of the biggest Wall Street institutions are rushing in…
“Vanguard has invested $3.6 billion in this company.
“BlackRock has invested $2.1 billion.
“JPMorgan has invested $470 million.”
That’s all balderdash, of course — the $100 is a clue to the share price, but every single company of meaningful size has Vanguard and Blackrock at or near the top of its list of major holders… that’s because those are the custodians for the largest index funds and ETFs in the world, it’s not because they’re seeking fortunes in this particular company for some company-specific reasons.
So who is it? As you might have guessed from my mention of FPGAs above, the Thinkolator confirms that this is Xilinx (XLNX), which is indeed a semiconductor industry pioneer — they are credited with introducing the first FPGA chip, and with spearheading the fabless semiconductor business model (designing chips but outsourcing all their actual production to manufacturers, something that hundreds of chipmakers do now).
How else do we match? Well, the CEO, Victor Peng, was last at AMD, from about 2006 to 2008 after the GPU company he was working for (ATI) was acquired by AMD. It’s true that AMD subsequently went from under $2 to over $44, though that was eight years after Victor Peng left to take a job at Xilinx — during his time at AMD it went from about $25 to $4. Not that this really had anything to do with him specifically, AMD was a disaster and was being crushed by Intel at the time.
And the revenue has actually grown for more than nine quarters in a row, though “exploding” is a bit of an exaggeration. Over the past three years, average revenue growth has been about 10-12% a year (it’s very volatile, late 2018 and early 2019 were extremely strong but it was much lower before that… and more recently).
Remember that bit at the beginning about going from $3 billion to $100 billion in revenue? Here’s a refresher:
“Right now, it does about $3.3 billion in revenue annually…
“Next year, I expect it to hit $100 billion in annual revenue.
“And that’s just a bare minimum, assuming it captures less than 5% of this $2.9 trillion.”
The first part is true, XLNX did have revenue of about $3.3 billion over the past four quarters, which is pretty good for a $25 billion (market cap) semiconductor company with strong margins. The $100 billion is ridiculous. The largest semiconductor companies have never approached that number — even mighty Intel (INTC), with its $260 billion market cap (10X the size of XLNX) and amazing performance as it dominates so much of the semiconductor world, only had revenue of $70 billion last year. Taiwan Semiconductor (TSM), an even larger company that does most of Xilinx’s fabricating, had revenue of only about $30 billion.
Sell-side analysts are not usually exactly right, but they follow the company more closely than anyone and they’re almost always pretty close, partly because the company tells them what to guess — they expect XLNX to see its revenue grow by about 5% in the current year, which has been a disappointment (they’re about halfway through their fiscal 2020), and then to accelerate a bit to about 10-12% revenue growth over the next couple years. Which should translate into earnings growth that’s a little stronger than that, probably in the 15% neighborhood (analysts say ~12% for 2021, ~18% for 2022).
Here’s my perspective on this one: I bought Xilinx shares earlier this year because I thought the huge drop on their first quarter earnings announcement was overdone… mostly because I expected volumes to pick up for 5G (5G is new and the operators will be tinkering with how the silicon works for a while, particularly given the vast number of different wavelengths being used, so the expectation was that equipment makers would use FPGAs heavily in the first year or two of 5G rollout before moving to custom silicon… which may still happen, but hasn’t helped their sales much yet, partly because Huawei was a large customer and the export ban created a significant headache). I stopped out of my shares at about $100 (a ~17% loss) during the Huawei/trade war scare in August. So I may be a bit jaded on this one, and I’m not currently invested.
Xilinx is a fine company, but they’ve grown in fits and starts — they have had trouble generating any really sustainable growth for long periods of time. Mostly, I would guess, because companies have become faster at customizing silicon and designing specific chips to replace the flexible FPGAs. There’s still a role for their product, they’re still innovating, and they’ve had a good decade, stock-wise (as long as you didn’t buy in the first nine months of 2019).
They do have a big role to play in artificial intelligence, but they are not the only provider who can say that — they do sell ZYNC chips for advanced adaptive systems, and they have edge devices that they say accelerate “inferencing” in AI, along with Alveo accelerator cards for enhancing data center performance and a new AI operating system called Vitis. I expect they’re all super impressive (I’m definitely not a technical expert), but they’re also, to some degree, competing with the beefier accelerator systems and inferencing chips and operating systems from giants like NVIDIA (NVDA) and AMD (AMD). To say nothing of the fact that the only other meaningful FPGA company is big ol’ Intel (XLNX is the market leader and likely still taking share from Intel, which has not been focused on FPGAs and programmable chips to the same degree, but they’re still a challenging competitor).
So I wouldn’t try to talk you out of Xilinx — it is fairly unique in being a “pure play” on programmable silicon and a market leader, and it is certainly levered to both 5G and AI to some degree, with some interesting new products that could help them get their growth potential heated up. But I would urge you to realize that everybody in the industry already knows this, and they see earnings growth in probably the low teens, with variability probably to come more from resolution of trade disputes or the Huawei blacklisting than from any fundamental explosion in their business. They’ll probably grow earnings at something like 15% a year, and the shares trade for about 30X earnings — which is a rational valuation, though not a particularly “cheap” one. Hold off on researching the private island.
It’s been a tumultuous year for XLNX, going from overly ambitious 5G-fueled excitement in January to Huawei/trade war despair over the summer, so I’d expect continued volatility as stories shift — if you’d like to get a better handle on the company’s plans you might check out their Investor Day presentations (that was back in May, but it’s still relevant — the latest quarterly guidance presentation from October is here.) I would expect the stock to react pretty sharply to the next earnings report, since it usually does, and that should come out in about two weeks (on January 28, after the market close) — so if you’re interested in building a position, keep that in mind.
And with that, I’ll leave you to it — interested in picking up some Xilinx? See great things to come in AI from this FPGA maker? Or do you think there’s still too much optimism embedded in the shares? Let us know with a comment below. Thanks for reading!
Disclosure: Of the companies mentioned above, I own shares and/or call options on Intel and NVIDIA. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.