Keith Kohl is selling his Topline Trader service, which is a weekly trading advisory, by using the promise of a “next Intel” investment in the early stages of the quantum computing era. Topline Trader used to be sold as a trading service that bets on biotech catalyst events, but I guess they’ve branched out.

It’s teased as a small company, and this is pitched as a limited-access newsletter, so you’ll be unsurprised to hear that they’re asking for $1,999/yr (for the first year, at least, they don’t mention the price at which they’ll renew you — though unlike other $1,000+ newsletters, they do at least promise you a 90-day period during which you can request a refund if you don’t like the product, so we should give them some credit for that).

We’re not going to throw a couple thousand dollars at a newsletter we’ve never heard of just to learn about a secret investment idea, though… right? That would be ridiculous. So let’s sniff through Kohl’s clues, figure out what these quantum computing companies are that he’s teasing, and let you think them over for yourself. If you want to subscribe after that, go for it, that’s your call — but don’t pay someone $2,000 to reveal a secret stock tip, if you do that you’re setting yourself up for a lot of risk (and it’s not just $1,999 at risk… in this kind of situation, what would you have to invest in what might be a risky little penny stock just to convince your own brain — or worse, your spouse’s brain — that the $1,999 subscription was worthwhile? How likely are you to think over the merits of an investment with some discipline once you’ve paid $1,999 just to learn the ‘secret’?)

So let’s save you from that potential risk, shall we? The ad starts off with a photo of one of the quantum computers that Google announced they were using (and offering for use by researchers) back in 2019…

“…the device you see here is kicking off a groundbreaking technological revolution…

“Something bigger than anything else we’ve ever seen since the dawn of the personal computer.

“It has nothing to do with cryptocurrency, 5G, or smartphones…

“But like so many technological breakthroughs before, it’s about to make a small group of investors unbelievably wealthy, and very soon.

“You see, this device is ushering in the next $1 trillion tech industry.

“And there is one publicly traded company with a critical set of patents that’s sitting at the center of it all.”

And as always, there’s a ridiculous promise of gains:

“Using historical valuations as a baseline, I’m confident that this company could return investors as much as 31,594% in the coming months… possibly more…

“And I’ll show you exactly how I came to that conclusion in a minute.”

Would that be in the coming two or three months, you ask? Or maybe in the next 10,000 months? I guess “coming months” could mean either, at least according to the lawyers who approve these pitches (“confident that this company could” we recall, is just a salesman’s way of saying “might”), but clearly the implication is “you gotta buy now, quick quick quick! Get out your credit card!”

So what’s the stock? Who wants to bet on whether it’s “one tiny company” at the heart of this revolution?

Ding ding ding! You win again!

More from the pitch:

“… much like Intel in 1981, one tiny, publicly traded company is currently holding the keys to the next major revolution in computing…

“And I’m not talking about a single consumer gadget or piece of software…

“But rather the very foundation of how we store and transmit information….

“To put it simply, a growing number of investors and I are confident that this company is going to be the “Intel of quantum computing”…

“And will one day soon take its place as what I’m calling ‘the Quantum Computer King.'”

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OK, so that’s where the 30,000% gains come from — that’s what Intel and Qualcomm and some other foundational chip companies earned through the period when personal computing, the internet, and mobile computing came to take over the world.

And this is not a startup, apparently, Kohly says it’s actually already profitable:

“Just to be clear, this company isn’t some far off moonshot burning through cash and hoping to hit it big.

“It’s already leveraging quantum technology today.

“And even better, it’s selling that technology at a profit.”

What other clues do we get?

“… at the time of writing, the company is valued at less than 0.2% of Intel Corporation.

“Meaning that even if it climbs to just half the size of Intel in the coming years, its stock would climb as much as 31,594%.”

OK, sure, it’s true that going from 0.2% of the size of Intel (which would be somewhere in the $400 million range) to half the size of Intel (which would take them to about $100 billion) would indeed be a massive gain. I wouldn’t put the term “just” in front of “half the size of Intel”, even in today’s era of bloated market caps that would mean they suddenly launch to become one of the 30 or so largest technology companies in the world. That does happen sometimes, usually over an extremely long period of time, but it’s important not to get too caught up in the daydream of a 30,000% return (the examples he gives, of Qualcomm and Intel, took 20-40 years, with some huge ups and downs along the way — and, of course, those are the survivors of an epic battle for market share though those decades, their eventual success was not written in stone, and they stand on top of the dried and worthless skeletons of the publicly traded stocks who failed along the way.

More hype:

“Because even tech giants like Intel and Qualcomm may end up looking small next to this stock when quantum computing takes hold.

“Remember: The quantum computing industry is expected to be 66% larger than desktop PCs and mobile devices COMBINED… in a matter of years.

“And this obscure tech stock, which has a robust library of quantum technology patents…

“Is already selling quantum technology at a profit today…”

And then a few specific clues to flesh out that “already profitable” bit…

“I’m looking at the company’s most recent financial statement as I read this and it shows an incredible 53.7% net profit margin…

“Not to mention quarter-over-quarter sales growth of 56.5%.

“Of course, the company cannot legally disclose who it’s selling its components to or where it’s licensing its intellectual property…

“But my guess is that every major tech company is already paying this firm for access.”

So… how is this connected to quantum computing? Well, first I should try to explain what quantum computing is — and that’s going to be a disaster. Basically, my understanding of quantum computing is that it’s an evolution of binary code — current chips and computers work on a binary system, meaning every single thing they do is based on processing a series of signals that are either on or off, either 1 or 0.

Quantum computing leverages the quantum world, where there’s more than one state of being for an electron — it can be charged or not charged, of course, but it can also be many different things at once. That opens up the possibilities for a much more powerful thinking machine, because instead of each unit of “thought” being a 1 or a 0, it can be any of dozens of things, with the storage or processing being based not on an on or off signal but on the many different physical states of a subatomic particle in the quantum realm. Basically, think of it as a way for a computer to become dramatically more capable.

There are lots of different theoretical models for quantum computing, and I don’t really understand any of them. The hope is that they will be hugely helpful for major projects that would overwhelm a conventional computer, even a supercomputer, like simulation of complex systems or cryptography. They would also have the potential to dramatically speed up artificial intelligence processing and “learning.” There’s a pretty readable Medium article here that tries to explain the basics, if you’re interested, and there’s a widely recommended book called Q is for Quantum that effectively explains quantum mechanics without any upper-level math.

And if you want a little caution with your cereal this morning, here’s a quote from a Scientific American column published in April (also a good read, “Will Quantum Computing Ever Live Up to Its Hype?“)….

“Lots of other technologies—genetic engineering, high-temperature superconductors, nanotechnology and fusion energy come to mind—have gone through phases of irrational exuberance. But something about quantum computing makes it especially prone to hype, [Scott] Aaronson suggests, perhaps because ‘”quantum” stands for something cool you shouldn’t be able to understand.'”

Here’s how Kohl explains it…

“… quantum computers don’t read information in bits.

“They read them in quantum bits, or qubits…

“And qubits aren’t just 0s or 1s…

“They can be 0s, 1s, or anything in between. Heck, they can even be 0s and 1s at the same time….

“We can’t represent qubits with 0s and 1s, so we need something different…

“And that’s where the company I’ve been telling you about comes in.

“You see, while normal electronic devices use electric charge to represent bits of information, quantum computers need to take a completely different approach to represent qubits.

“And the optimal method of doing this, according to a growing number of experts, is to use the directional ‘spin’ of subatomic particles known as electrons….

“… the ability to manipulate and read electron spin is going to be critical to developing quantum computers.”

So that’s what people call “spintronics”, and it is part of understanding some areas of quantum mechanics, but that part is not exactly a brand new idea. Some of that technology is used in the heads that read magnetic hard drives and in other memory technologies. More from Kohl:

“As a growing number of scientific research papers now confirm, spintronics will be the key to unlocking the full potential of quantum computers.

“As Phys.org reports, “It is only a matter of time before [spin-based devices] cement their spot in the road map for quantum technologies.”

“And as the National Physical Laboratory of India explains, ‘Spin-based quantum comput[ing] is the most revolutionary concept.'”

That Phys.org quote is from this academic preprint article from 2019 that ties to sum up a lot of quantum ideas, the Indian one is from an Indian physics journal in 2017. I can’t vouch for either being a particularly brilliant summation of the future potential of spintronics, but you can read them if you want.

So what’s the stock? Beyond the hints already dropped, we learn that this is “a powerhouse in the spintronics industry with over 100 worldwide patents….”

And that there’s a real business already, they don’t have to wait for quantum computers to become reality — first in hard drives…

“… even though Google doesn’t expect to release its commercial quantum computers until the later half of the decade, conventional computing companies are already clamoring for this company’s quantum technology.

“That’s because spintronics offers a long list of benefits over conventional integrated circuits today on top of its incredible promise to revolutionize quantum computing in the near future.

“For instance, unlike most conventional data storage systems, spintronic-based memory devices are non-volatile, which means they can actually store information without using power.

“Unlike flash memory, they can read and write data quickly…

“And unlike SRAM, they can do so without taking up too much space.”

And then in sensors…

“Spintronic sensors are also playing a crucial role in improving battery performance of electric vehicles (EVs).

“By precisely measuring electric fields, spintronic devices can allow EVs to more efficiently monitor and respond to energy consumption.

“Spintronics is also being utilized in industrial motors, the internet of things, and cloud computing storage, to name just a few industries.”

So what’s the pitch about here? Thinkolator sez Kohl is teasing… NVE Corp (NVEC), which is indeed a company that’s leveraging spintronics, though it’s not particularly involved in quantum computing on the more theoretical future level.

Maybe NVE’s long experience in spintronics-driven products (yes, it’s mostly memory and sensors) will lead to playing a meaningful role in whatever the quantum computing world looks like in ten or twenty years, I don’t really know, but there isn’t much indication that there’s a large growth business bubbling below the surface at the moment.

The good? They’ve been pretty steadily making money for a decade or more. On average, their net income comes in between $10-15 million a year, with no particular growth over time, and they have a small investment portfolio for some reason (I didn’t look into where it came from, could be shares in industry partners) that has also generally risen in value, generating another $5-8 million a year, and they use essentially all of that cash flow to pay out about $20 million a year in dividends.

The dividend was initiated about five years ago, and is fairly high, at $1 per quarter (it has been unchanged for those five years), so you get a decent yield (5.7% at $70 a share), but the stock, despite some ups and downs as the shares fluctuated as it caught some attention, hasn’t really done anything in ten years (the dividend helps, but the total return for the past decade even with the dividend has only been about 100%, well short of the 350% gain you would have gotten in the S&P 500).

The bad? There’s no indication, at least in the limited research I did, that they’re going to grow or change in any big way. They introduce new products every now and then, they keep chugging along and remain profitable, but for whatever reason they’ve never really surged — they did grow in their first decade, going from a couple million dollars a year in revenue up to the $20 million range, but they’ve since been kind of stuck there, this is what their revenue has looked like over the past ten years (that’s their revenue in orange, their share price in purple):

Unless you think that story is about to change meaningfully, then what you have is a fairly stagnant company that can usually average out to a little bit of revenue growth over time (though not every year), and that pays out more in dividends than the company generates in operating income. To get excited about that, you’ve have to dig pretty deep inside — I’d suggest with starting with at least a few of their quarterly conference calls, to try to get some idea of whether they see rising interest or have any reason for longer-term optimism about the demand for their products, or whether there’s something exciting in their product roadmap that you think has the potential to be genuinely dramatic.

This company notes on its website that they came public on the Nasdaq in 2002 at a price of $7.85 — YCharts indicates that the shares were trading before that and at much higher prices, perhaps it was on the pink sheets or something during the dot com bubble, but if we go by that 2002 date and price we can get a good reminder of the power of time… yes, the stock is up 900% since then, but we’re talking about 19 years, that’s a compound annual growth rate of about 13%. It has beaten the S&P 500 over those 19 years, but not all that dramatically, and it has actually trailed the Nasdaq Composite.

And yes, I thought it sounded a little familiar — so I dug into the archives, and it turns out that this stock was teased, for very similar reasons almost 12 years ago, by Patrick Cox when he was at Breakthrough Technology Alert (he later moved on to write a newsletter for Mauldin, but seems absent from their lineup now).

Which really illustrates the risk: Yes, it’s a real company, it’s making money… but the idea that its patents on anything to do with spintronics or quantum mechanics will be key drivers of their move to a much higher value in the future is a tempting sales pitch but, from my perspective at least, a very speculative one. If you search the US Patent and Trademark Office for patents on quantum mechanics, you will quickly become overwhelmed — there are 30,0000 patents that include the terms “quantum” and “spin”. Maybe the 100 or so that NVEC claims as either filed applications or granted patents will indeed be critical… but I’d have to know a LOT more about quantum mechanics and about the progress of quantum computing to some commercial use in the future to have any way of judging whether NVE’s technology is foundational or critical to future advancement.

And that means for me, this would be a wild guess — and since the company has not really established anything that looks like growth on the top line over the past decade, and has had no takeover offers that I’m aware of from major chip companies or technology companies who are in many cases very active in researching quantum mechanics, I’ll take that as a reason to think that companies are not banging down their door to get access to their technology. Which means I’m a long way from having the hubris to assume I know more about the path of quantum computing than all the other investors in the world who’ve had the opportunity to buy the stock or even acquire the company over the past 20 years, and have passed.

In the end, this smells to me like a story that’s easy to sell to people who don’t really understand quantum computing, but hasn’t been proven out in the company’s operations in any way… and I’m certainly in that “don’t really understand quantum” camp, but I’ll pass on the sales pitch. Sometimes when you are not an expert on a technology, you need to let the income statement tell you what’s happening — and at NVEC, right now that’s “not much.”

That doesn’t mean it can’t work out. Maybe Kohl is really a deep expert in the commercialization of quantum mechanics and knows what’s going to happen in the next five years, and I’m just being too skeptical (to be fair, he has most pitched himself as an energy expert over the past 15 years, and more recently a biotech expert… though yes, thankfully, people can learn and change). It might not hurt much to buy the stock — they do have the balance sheet to support that dividend for a little while, and they are profitable, even if they can’t quite cover the dividend with profits — but from the evidence of the past decade, I’d conservatively assume that the dividend will provide most of your return. I’ll wish them the best, but do so from the sidelines. In case you find the whole area fascinating, there’s also another “spintronics” related company in the memory space that has been teased now and then, that’s Alex Koyfman’s pitch for Everspin that I wrote about last summer (the stock hasn’t moved much in the interim, just FYI).

And there’s a second pitch, too, for a “bonus report” about quantum computing — here’s how they pitch that:

“When it comes to quantum computing, there aren’t many attractive opportunities available yet on the public market.

“We’ve chosen our ‘Quantum Computer King’ not just because it has a bright future but because it is selling quantum technology at a profit today.

“This gives investors the security of a solid business but also the enormous upside of the next major revolution in computing.

“But there is another quantum computing stock I’d like to share if you’re the kind of person who has an appetite for high-risk, high-reward stocks…”

So they’re throwing in a “bonus report” with this subscription offer, the report is called “Quantum Lotto: The Quantum Computing Company Shooting for the Moon.” What’s that stock? Clues…

“… this company is the only quantum computer pure play on the market right now…

“That is to say it’s actually building quantum computers TODAY.

“The company boasts ‘the world’s most powerful quantum computer’ on the market and holds 61 patents and applications.

“It gives its customers access to its quantum computers through the cloud and opened up its services in 2021.

“And it’s already partnered with Microsoft, Google, and Amazon to deploy its technology.”

And it’s not just the big three cloud companies that get name-dropped, we also hear about their investors:

“The company recently raised $650 million in proceeds from its investors, including:

“Fidelity Management & Research Company
“Silver Lake
“Breakthrough Energy Ventures
“Hyundai Motor Company
“Kia Corporation

“The company’s leadership team also includes a number of key figures, including a prominent MIT grad, a Nobel laureate, and the man who led the team at Google that first demonstrated quantum supremacy in 2019.”

That’s IonQ (IONQ), which came public earlier this year through a SPAC merger and has recently had a nice little surge from the $10 level before the deal was consummated, to about $22 now. Like most SPACs we’ve seen teased over the past year or two, this one is based on projections several years out into the future — IonQ believes they have the most reliable quantum computing platform, mostly because of they way they handle errors in the processing, but most of the hope for the business is based on continued scientific progress in their R&D labs that hasn’t happened yet. Not unlike some of the battery or other EV startups who profess to have an edge, but require patience.

It is indeed an impressive leadership team, and the story sounds impressive — this is how they describe themselves:

“Founded on more than 25 years of pioneering academic research, IonQ is developing trapped-ion quantum computers, bringing this powerful technology out of the lab and into commercial, industrial, and academic applications. Ionized atoms are the heart of our quantum systems, and as a result, we believe our computers can perform longer, more sophisticated calculations with fewer errors than any quantum computer yet built.

“Poised to be the first mover and a leading player in the quantum revolution, IonQ is deeply committed to expanding quantum access to more people in more places. We lead the market with the first and only quantum hardware integrated with all major cloud platforms, quantum programming languages, and quantum software developer kits, empowering people from all walks of life to solve real-world problems and optimization challenges across chemistry, medicine, finance, logistics, and much more.

“With a business model aligned to rapid quantum market growth, an unparalleled technological advantage, and a deep history of quantum innovation and leadership, we believe we are well-positioned to lead the way forward as quantum computing changes the world.”

And they have gotten off to a good start this year, it appears, with a fair amount of bookings for their quantum processing power, particularly through the big three cloud providers, and that has led to them tripling their “bookings” forecast for 2021. That’s still not a relevant number in the context of the company’s size, they’re talking about $15 million in potential revenue booked in 2021, and that revenue will take years to actually be recognized and hit the books, but it’s at least a nice indicator of interest — more SPACs have reduced their immediate forecasts than raised them after the deal goes through, in my experience, so that’s a positive. They now expect to have $60 million in bookings in 2024, according to their latest presentation. (If you want to go back to the original promise, their first SPAC deal slide deck is here, with their 2025-2030 projections).

So… this one is at least more quantum-focused and growth-focused than NVEC. Whether or not it’s worth the roughly $4 billion market cap it carries right now is an open question, and I don’t know enough to really have a handle on my opinion just yet… so I’ll leave that to you. The stock is basically a bet on 2025, which is when they have been projecting the huge scale leap in production that brings them to $237 million in revenue, and continuing to grow rapidly from there, and they say they should have enough cash from their PIPE and from the SPAC cash pile (a total of $600 million or so) to push forward with their R&D and scaling efforts (they didn’t have much in the way of SPAc redemptions when the deal closed in late September). If you’ve got a take on whether or not IONQ is worth the risk, or any insight into how viable you think their product will be in the years to come, I’d be delighted to hear it — just use the happy little comment box below. They do have the advantage of being the only real “pure play” quantum computing company that has a pile of cash and a meaningful market presence in these early days, and that has clearly appealed to investors over the past month… whether that continues for years to come, or they hit major roadblocks on their path to commercialization, that’s your coin to flip (or, I suppose, your electron to spin). Thanks for reading!

P.S. IonQ came public through a SPAC merger, so there are also warrants trading at IONQ/WS — assuming a typical SPAC warrant structure, those would give you the right to buy the stock at $11.50 for five years, but they should also have an early redemption clause that lets them redeem the shares for a penny if the stock stays above $18 for 20 trading days (or something along those lines). They’ve been above that level for about a week, so if you’re a warrantholder do watch your mail to see if the warrants get called for redemption, investors who get caught up in the warrant excitement and don’t read the fine print sometimes fail to react to those notices (usually by exercising the warrants, or just selling them to someone else who will exercise before the accelerated redemption date), and people can and do lose their warrants with no real compensation.

Disclosure: Of the companies mentioned above, I own shares of Amazon and Google parent Alphabet in my Real Money Portfolio. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.