3D Printing Gen2: “The World’s Most Disruptive Growth Market is Taking Off – Again!”

What's Wyatt Research's "3D Gen2: The Only 3D Printing Stock to Buy?"

Tyler Laundon at Top Stock Insights has a new pitch out for the return of 3D printing as an investing phenomenon — if you’ve been watching the pundits or the newsletters for any length of time, you probably remember the huge push that the 3D printing stocks got in the press starting a few years ago, when small, personal, relatively inexpensive printers started to be commercially available and the companies that made them, primarily Stratasys (SSYS) and 3D Systems (DDD) suddenly took over the public imagination.

We all started thinking about whether there would soon be a 3D printer in every home, and whether, as the Motley Fool teased at the time, these “instant manufacturing” machines would make China obsolete.

And, it turns out, the hype got quite a bit ahead of the market — no big surprise there. I suggested the 3D stocks as we were early in the hype wave, because the investor enthusiasm was destined to drive them up, but I suggested selling them within a year as they got close to 100% gains and were really completely unjustifiable on any kind of valuation metric you could imagine. They doubled again after that, and a whole new crop of 3D printing stocks to ride that “bubble” mentality grew up quickly, but all the stocks have now come back down dramatically… so is it time to buy some kind of 3D printing stock? That’s what Laundon is suggesting, it appears — here’s a bit from the ad:

“The world’s most disruptive growth market is rapidly taking off.

“Launched in 2009, it tripled in size by 2013 – handing investors profit windfalls of 1,153% and 4,546% along the way.

“Its rise was one the most spectacular technological achievements of our time.

“Long dreamed of, many believed such an advance would be forever stuck within the realm of science fiction.

“No longer.

“So what is this hugely spectacular and highly disruptive growth market?

“3D printing.”

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Well, part of the problem with DDD and SSYS was that they weren’t really launched in 2009 — they had been around for a decade or more, steadily improving their huge, expensive machines that were largely used for prototyping, and the advancements in materials, speed, and precision have largely been iterative… the products didn’t suddenly become 10X better in 2009 and 2010 as the stocks were soaring, they just captured investor imagination and, to a lesser extent, the imagination of hobbyists who wanted to tinker with making their own action figures and doodads at home.

The revolution could well still be coming, but it’s coming slowly — so is there some new leap forward now that will make us rich, now that many investors have given up on the sector? More from the ad:

“For one thing, the humongous growth in the market for 3D printing technology will be unlike anything seen so far.

You see, from 2009 to 2013, the 3D printing market grew from $1 billion to $3.5 billion.

“That’s 250% growth in just four short years!

“Impressive, yes?

“But here’s the thing: The growth we’re going to see over the next 10 years will absolutely dwarf this.

“That’s because global consulting firm McKinsey & Co. believes that by 2025 the global market for 3D printers will reach up to $490 billion.

“That’s means the market could grow by 14,000% in just the next ten years!”

And, of course, the technology is going to have to get a lot better, faster and cheaper for that to happen (as is true with pretty much all breakthrough products that ramp up quickly).

Which is really the crux of Laundon’s tease: That the next generation of 3D printing, which he calls 3D Gen2, will dominate the market and help spur that next wave of growth.

So what’s this “Gen2” product? Here’s a bit about that….

“With 30,000 nozzles spraying 350 million drops of thermoplastic or other powdered materials each second, 3D Gen2 will be both 10 times faster and 50% cheaper than existing 3D printers.

“In other words, what takes current 3D printers 38 hours to produce will take next gen printers only 3 hours!

“What’s more, it’ll do all this without sacrificing strength or quality in the process.

“As a matter of fact, both strength and quality will be enhanced immeasurably as a result of this technology.”

And who’s making it? What’s this secret company that’s going to make us all rich? Your clues…

“… here’s the best part: 3D Gen2 isn’t coming from a risky startup or volatile tech stock.

“Instead, a seasoned tech dynamo is developing this amazing innovation. And this company knows a thing or two about manufacturing world-class products.

“What’s more, it has several billion dollars of cash in the bank…and is making sound investments in this technology innovation.

“In fact, last year the company spent more than $3 billion on research and development.

“That’s a huge investment…and should provide this company with a solid advantage over the competition.

“When news of the 3D Gen 2 was made public last November, the markets reacted.

“Specifically, investors sold shares of highflying 3D printing stocks…companies that could be put out of business by this innovative new technology.

“Shares of these stocks were crushed…falling by 27 – 51% in a few short months.”

Ah… interesting, your Mighty Thinkolator sez this is Hewlett Packard (HPQ). We were hearing about this company’s rumored entry into the 3D printing business several years ago (and its scrapped partnership with Stratasys to produce a HP-branded 3D printer about five years ago), but it has, indeed, introduced a new take on 3D printing recently that CEO Meg Whitman thinks they will be selling by 2016 sometime — and it certainly does sound more impressive than the current crop of 3D printers (though I don’t know what R&D from SSYS and DDD and others might have planned for the next couple years).

HPQ is still planning to split the company in two, which will likely have much more impact on the stock price than 3D printing over the next year or so, but you never know — after the split, the computers and printers division (which is a drag on the business) will actually have a growth product to push, at least in theory (the enterprise/services business is where the growth is now — and that’s not all that much growth either, frankly).

So what’s the possible impact? Total sales for DDD and SSYS in 2014 were about $1.4 billion. If HP took that whole market from them in 2017, and it grows by 25% between now and then to $1.75 billion… or round it up to $2 billion… that would be about 2% of the expected HPQ sales of ~$105 billion that year (it may be two companies by then, but that’s the analyst-predicted total for both).

If HP actually manages to split the company, as planned into the enterprise/server business and the computer/printer business, 3D printing would be in the printing business, presumably, and it would be a part of what I expect will be desperate attempts to stop revenue from declining each year. HP does not have much brand power these days, though they do have strong corporate relationships (so they do get a bump when big new Windows versions are released that require hardware updates for corporate computer systems). No one, it seems to me, is rushing out to buy an HP computer unless it’s obviously better or cheaper than a Chromebook or a Lenovo or a Macbook… though that’s from my limited experience as a consumer, not an expert on trends on consumer electronics.

HP is, frankly, a pretty lousy business at this point that’s trying hard not to shrink, and quite possibly 3D printing will help with that, but it’s really hard for me to see this bringing 14,000% gains unless you really believe HP’s version of 3D printing is the last word, and will be as dominant and cash-gushing as their inkjet printing was in their glory days.

And yes, I would assume that whatever new product they come up with is going to be sold at a loss at first in order to generate future sales of printing powders and before they really get their production volumes up to improve margins, so presumably the real impact on the bottom line would take a while to hit. There is certainly potential if those printing powders are lucrative enough and if the next stage of 3D printing gets beyond prototype designers and hobbyists, but I think that’s more of a leap than this ad implies, and it will take a lot of investment to build up this new business.

3D Systems and Stratasys have gradually grown the business as almost a duopoly, and pricing remains pretty high for the machines and most of their revenue comes from their higher-end (not consumer) machines, so they do still sell with something like a 50% gross margin (meaning the machines and materials cost them about 50 cents to build for each dollar of sales, before taking account selling, general and adminstrative costs/overhead), so there is some gross profit to be had in this market — and HP can probably ramp up volume and invest in growing a market with much more muscle than SSYS or DDD ever could just because of its vast size and access to capital — but that has a flipside, too, the huge size of the company means it would take a lot to really move the needle on earnings or give investors real confidence in their growth potential.

Hewletter Packard under CEO Meg Whitman seems to at least be starting to get a little bit of the benefit of the doubt from investors again, but it’s still really a beaten-down value stock that’s been slashing costs. Their 3D printing technology does sound impressive, and it has even gotten some laudatory attention on CNBC from Jim Cramer and his pals (so it’s certainly not a “secret”), so I hope they’re able to turn that into a new growth engine for their computers and printers division as that gets spun into a separate company… and it might not take all that much optimism to give the shares a chance to go up a bit, given how cheap they are on many metrics, I just have trouble seeing real “breakout” potential of 1,000%+ gains just because this behemoth of a company might have a successful new product line over the next few years.

Don’t buy HPQ just because of their 3D printing technology, I find it hard to see the tail wagging that dog in the near future… but if you like HPQ at these valuations anyway, after a 25% or so drop from the highs of a few months ago (current PE is about 13, dividend yield a little under 2%), or you think that the anticipated split of the company will give them a better valuation, then maybe that 3D printing technology will give you a little extra confidence that their printing business can kick up its growth a little bit in the future.

Interested enough in 3D to jump on HPQ as a “Gen2” play? Think it’s safer or more prospective than the beaten-down former growth darlings DDD and SSYS? Have other favorite ideas to ride what’s still expected to be long-term growth in 3D printing? Let us know what you think with a comment below.


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Bill
Bill
5 years ago

Unfortunately, Carbon3D doesn’t quite fit the description but it is a radical new technology that will make modeling much more low cost (http://finance.yahoo.com/news/carbon3d-introduces-clip-breakthrough-technology-014000347.html). Carbon3D still appears to be privately held, so that doesn’t solve the riddle here, but it’s definitely a technology to watch in this space.

Loren
Loren
5 years ago

I recently attended a University of Minnesota / CSE (a.k.a. Institute of Technology) 50 year alumni meeting. A talk by a professor about 3-D printing had the following features.
1. 3-D printing is affordable by “people”. The teacher was buying one for herself, on a teacher’s salary.
2. Students are being trained in this technology (degree). The university must see a big future in 3-D printing.
3. Previous versions needed to create a “bridge” between parts not physically touching. Now a second nozzle applies a soluble bridge until the parts touch in upper layers. Great!
4. Different colors are possible but currently only one is possible at a time.
5. A printer was working in the background. It looked like about 2 or 3 cubic feet volume. Sorry to say, it malfunctioned and created an interesting blob.

aaronw
aaronw
4 years ago

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