We so often see ads about how we’re on the verge of the “greatest technological disruption of all time,” with fortunes to be made that recall the gilded-age empires of Andrew Carnegie and John D. Rockefeller, and that’s probably my favorite kind of financial pornography: Daydreaming about the charitable foundations we’ll found, and the universities that will bear our names as our vast fortunes, too large even really to be counted, let off a glow that reflects on the adoring faces of our friends and family.
So yes, this latest pitch from Jeff Yastine caught my eye. It’s going to be ridiculous and misleading, I’m sure, they all are, but the daydreams persist… here’s how the ad gets us started:
“The End of the Internet
“Within the next three years … a little-known technology could make the internet obsolete … and unlock a potential $48 trillion windfall. (It’s NOT 5G)
“Breakthroughs THIS BIG have been known to turn small stakes into $52,000 … $76,000 … $340,000 … even more than $1 million….
“We’re at the threshold of the greatest technological disruption of our time.
“What the automobile did to the horse and buggy …
“… the personal computer did to the typewriter …
“… and the smartphone did to landlines…Are you getting our free Daily Update
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“Is happening again…”
It’s a pitch for his Total Wealth Insider, which is one of Banyan Hill’s “entry level” newsletters that they use to build marketing “upgrade” lists for their more profitable high-end newsletters (most publishers do this, by the way, not just Banyan Hill — most of the profit is in the $1,000+ letters and “trading services”, and the best time go get someone to buy those is when they’re in the first glow of excitement about their first $99 or $49 subscription).
And as Banyan Hill has been doing for a while with these ads, it’s a sneaky offer in that they let you subscribe for as little as $47 for your first year, but they also throw in a small-print “bonus” of a three-month subscription to Automatic Fortunes, and then each of those newsletters automatically renews at $97/year. So if you don’t pay attention or cancel anything, your $47 sub quickly becomes a $194 annual commitment.
But anyway, the basic gist of the ad is that the internet is about to be replaced by the “Hypernet” that will be much, much faster — and as the pitch notes, it’s not about 5G (though 5G will also increase the demands on networks, since it will increase data transmission, so the hypernet will help with that as well). Here’s how Yastine describes it:
“The internet — as we know it — is on the road to extinction.
“In as little as three years, it could cease to exist in its current form.
“Instead, you’ll be accessing the world’s information through a faster, more powerful new breakthrough technology I call…
“Researchers at Oxford University have clocked the Hypernet at speeds 1,600 times faster than even the fastest home internet connections.”
Well that sounds good, right? Faster is better? What else do we learn about this “Hypernet” business? More from the ad:
“… the Hypernet is not an untried technology.
“The Navy SEALs are already using the Hypernet for high-speed super-secure communications.
“NASA has begun developing ways to use the Hypernet to send and receive messages in outer space.
“BMW is turning to the Hypernet to improve production on factory floors…
“And corporate offices in the U.S., England, France and India are already making the leap to the Hypernet….
“The Hypernet is not 5G … it’s not artificial intelligence … the Internet of Things … virtual reality… or blockchain.
“Yet it could prove critical to the success of ALL of these technologies…”
So what is the story with this technology? We’re told that Apple has “already started” to make its iPHones “Hypernet ready” and that all the big tech companies are “joining the revolution”… but that Yastine has, of course, a better way to invest in this idea.
“I’ve found what I consider to be the perfect way for you to multiply your money 10 times over…
“As the world shifts to this new, and super-fast, Hypernet.
“It’s a company at the forefront of this $48 trillion tech windfall the Hypernet’s set to ignite.
“And while few outside the high-tech world know the true impact this company’s innovations are having on the world…
“I believe this firm is leading the charge to replace the internet as we know it — with the Hypernet.”
So what is “Hypernet” and why is it going to replace the internet? Apparently it’s going to be that we’ll replace radio signals with light signals. Here’s some more from the ad:
“…research from the NCTA — the Internet and Television Association — reveals that 90% of all internet traffic comes to us over radio waves.
“Not only that — within the next three years, the amount of internet traffic on this spectrum will triple in volume.
“And that’s where the trouble begins.
“Simply put, the radio spectrum cannot handle today’s massive data needs….
“More than 200 billion devices are projected to be communicating on the Internet of Things as early as next year…
“All those phones and computers and devices are generating MASSIVE amounts of data every second of every day…
“And it’s ALL traveling on radio waves….
“The radio spectrum cannot handle today’s massive data needs.
“It’s simply getting overloaded.”
And here’s the bit where he finally reveals, 2/3 of the way into the presentation, that the Hypernet is based on light:
“The Hypernet harnesses light waves — the fastest-moving thing in the universe … and uses it to create a virtual network that’s 10,000 times bigger than the radio wave spectrum.
“By using light waves, instead of radio waves, the Hypernet achieves virtually unlimited capacity to deliver and receive information.
“Now, anywhere there is light — you can have safe, secure high-speed access.
“The Hypernet will turn your car headlights into a high-speed router, receiving messages from other cars, alerting you to traffic or debris in the road before you get to it.
“Street lights on every corner of every city can be transformed into high-speed access points … creating endless connectivity, no matter where you are around town.”
Now, “light is fast” isn’t exactly a revolutionary discovery — we’ve been using fiber-optic cables for transmission since the 1970s, and most of the backbone of the internet is made up of huge fiber-optic trunk lines that move tons of data over long distances very quickly. That’s partly because light moves very fast, but electrical current moves fast as well — the real distinction is that visible light includes a much broader range of frequencies than can be conveyed using a copper wire, so a lot more data can be transmitted. More bandwidth, that is. It’s also effectively faster and better because electric pulses on a copper wire are more subject to interference than light is.
So is that the story, is Yastine just promoting fiber-optic cables? No, he’s really talking about light as an alternative to wireless communication using radio waves — a radio or WiFi alternative, not a copper wire alternative. Here’s more from the ad:
“… researchers discovered that by minutely varying the pulses of digital light … millions of times a second…
“LEDs can transmit and receive digital information…
“When the digital light hits your computer or your phone … it’s transformed back into information — emails, videos, webpages — whatever you need….
“Light can be confined to a predetermined space — or spread out over an entire room … an entire office … or even an entire building.
“This ability to control the signal range makes the Hypernet not just faster … but infinitely safer and more secure than the old internet.
“This increased signal security is why…
“The U.S. Military is depending on the Hypernet to secure vital communications.”
OK, so what he’s talking about here is what a lot of folks have taken to calling “LiFi” after Harald Haas of the University of Edinburgh coined the term in 2011, though at times it has also been called Visible Light Communication (VLC) or Photonic Communication. And yes, it’s basically using the fast response capabilities of LEDs to transmit data from a sender to a receiver by using rapidly changing frequencies of visible light. Think of a flickering light bulb, but flickering so fast that it isn’t visible to the human eye, and a receiver that receives the signals of those flickers sort of like morse code.
There are dreams of using this technology in many ways, both in small areas where light can transmit data without causing electromagnetic interference, like in a hospital or airplane, and, more broadly, as a way to get past the “bottleneck” as the current wireless frequencies fill up. Haas’ company, PureLiFi, has some interesting background on the technology and the potential if you’re interested in learning more, and there’s also a good explanatory article from Photonics Media here. (No, Yastine isn’t teasing PureLiFi as an investment — they’re very small and still private).
And yes, the military is certainly experimenting with it as a more secure option to wireless communication, with tests last year by the Navy, and ongoing testing from even before the LiFi term was used into the feasibility of underwater “photonic communication.”
So that’s the basic idea — LiFi as a possible supplement to or improvement on radio frequency communication… and it’s a real idea, though I’d characterize it as still mostly a research project with just a few test implementations. What, then, is the “secret” investment being teased? We do finally get into some clues…
“I’ve found what I consider the perfect way to take advantage of this incredible new breakthrough…
“A company ideally positioned at the forefront of the Hypernet revolution.
“With the know-how to take it from little-known technology … to internet killer … to global game changer.”
OK, so that’s an interesting point — if LiFi is going to become a significant commercial opportunity it will have to be led by existing firms with the capital and product or consumer base to spur the eventual development of massive networks of LiFi equipment. Which company, though? More clues…
“Founded by two MIT graduates back in the 1980s, this company is already powering some of the most advanced communications systems in the world.
“The firm currently holds over 130,000 high-tech patents in its technology arsenal.
“AT&T, Verizon, Sprint, T-Mobile and Samsung are just a few of the firms relying on this company’s systems.”
And we’re told that some institutions are large owners…
“Giant banks like BlackRock, the Vanguard Group and State Street have invested more than $12 billion combined into these shares.”
Which doesn’t really mean anything qualitative, those are the biggest index fund managers and having them as major owners just means “it’s a big company” — but it gives us a little context, at least.
A bit more tantalizing tease for you:
“You could make an absolute fortune from this one stock…
“If you get in now — before the Hypernet becomes a global phenomenon.
“Will you make 200,000%, like Cisco’s investors?
“I can’t promise that.
“But if you only made a small fraction of that, say … 10 times your money…
“That’s enough to turn $500 into $5,500 … $1,000 into $11,000 … or $10,000 into $110,000.”
That’s what gives us the daydreams of founding our own Carnegie Endowment someday, of course, but that’s entirely misleading — even if we ignore the most misleading part of the “next Cisco” daydream, the fact that we’re under the curse of survivorship bias and are only thinking of the one company that was the biggest winner and ignoring the hundreds of other networking technology companies from 1990 that nobody knows the name of today, we’re still left with an apples to oranges comparison. Or, really, more of an apples to orangutans comparison — when Cisco started that big run in 1990, it was unknown and had a tiny market cap of something like $200-300 million, but what’s being teased here is obviously a large and established company if the big index funds already hold $12+ billion worth of shares.
But anyway, what other clues do we get?
“This company is already responsible for nearly ALL mobile communications in the world today.
“And it’s organizing its powerful technological know-how to bring the Hypernet into the mainstream.
“We’re standing at the threshold of a new golden age of technology…
“And this company is the ‘gatekeeper’….
“It’s estimated that over a trillion times a day — nearly 12,000 times every second — someone, somewhere, uses one of this company’s innovations.”
OK, so definitely not a “tiny unknown” company. What other clues do we get?
“… it controls an incredible roster of more than 130,000 patents … to some of the most important technologies of today.
“For example, it holds over 5,900 of the global patents for 5G communications … more than any other company in the U.S…
“As of 2017, they held 852 patents for the Internet of Things … more than any other.”
And apparently this “Hypernet” stuff isn’t all a “tomorrow” story for them — they’re already “rolling it out” in some fashion…
“This company has already rolled out its Hypernet technology in hundreds of locations across the country … including corporate and retail spaces.”
So who is it? Well, believe it or not, the good ol’ Thinkolator, after a few minutes of churning and cogitating, points us directly at… good ol’ Qualcomm (QCOM).
Which is certainly a far cry from the Cisco of 1990 — Qualcomm may indeed be an appealing investment as an established leader in the wireless communications world, with huge exposure to the first wave of 5G rollout… but it’s also almost a $100 billion company, with the opportunity balanced by some meaningful struggles in parts of its business as they have been continually challenged in recent years on their longstanding (and arguably usurious) royalty rates for using their foundational wireless technology patents. So the answer to “will you make 20,000%” is quite definitively “no”… and, frankly, I’d say the answer to “will you make 1,000% in the next ten years on Qualcomm” is also no. Which doesn’t mean it’s a terrible investment, of course, it just means you have to have expectations that are more in line with reality.
And yes, Qualcomm does have some test projects with LiFi, including some actual commercial uses of their Lumicast technology but nothing that really rises to the level of “LiFi networking” as far as I can tell.
There are plenty of other companies who are also involved in LiFi testing projects, from my quick research skim, including other radio communication and networking giants like Cisco (CSCO) and Nokia (NOK) as well as lighting companies like Signify (which was spun out of Dutch giant Philips (PHG) not long ago). LightPointe, Oledcomm, Luciom, Lucibel (LUCI in Paris), Velmenni, LVX System are names I came across several times when looking into the emerging companies in the sector (all are tiny, most are private), and other big conglomerates like GE (GE) and Panasonic (PCRFY) are also involved. There’s also been early interest from the actual telecom operators (like Orange (ORAN) and Liberty Global (LBTYA, LBTYB, LBTYK), both of whom joined up as founding members of the Light Communications Alliance earlier this summer). So this is certainly not looking like a “one company dominates” technology at the moment, though we’re so far from meaningful commercialization on any grand scale that it’s way too early to guess at how things will develop. Or, really, even if they’ll develop.
And, yes, optical communications is fast, we rely heavily in fiber-optic cables and it’s possible that we’ll also start to see some wider use of wireless light communication in special situations… but there’s also the basic physical limitation. They’re using visible light transmission, which means this can never be a real replacement for radio frequencies or for “the internet” and wired communication — 5G has some trouble with walls, but WiFi signals and 4G can get through a building reasonably well and do some bouncing around corners… LiFi is just light, which means it can’t really get through a curtain, let alone a wall, and you’d be hard pressed to bend a signal around a corner.
So sure, it’s an interesting story, and I wouldn’t try to talk you out of buying Qualcomm shares — just don’t buy Qualcomm thinking that they’re going to dominate the LiFi world and make you 10X your money in a few years. LiFi probably won’t become huge, and if it does it won’t happen quickly… and Qualcomm is far too large right for this new technology to have any measurable impact in the foreseeable future. Qualcomm is really all about chipset sales and royalties on LTE and 5G devices, so the economic driver for them well into the future will be volumes of smartphones (and other wireless devices) sold, and whether they can maintain profit margins as they sell more Snapdragon chipsets and see a (probably) gradual reduction of their royalty rates.
It’s not a ridiculous idea, I’ve owned the stock in the past (and still own some call options on the shares), and Qualcomm is obviously the dominant leader in wireless technology, despite the royalty and pricing pushback they’ve received from Apple and other major customers and the growing competitive pressure from Chinese chipmakers. It’s even trading at what’s probably a not-crazy valuation, right now QCOM is at roughly 28X trailing earnings and 18X next year’s earnings, with a sustainable (though not currently growing) dividend of a little over 3%.
So the stock is not cheap, like it was when everyone gave up on them during their legal fight with Apple, and it is is certainly exposed to trade war fears so I imagine there’s a lot of uncertainty about what they’ll say in their next earnings call on November 6, particularly because of the weak results this week from Texas Instruments (TXN) and Nokia (NOK) that have shaken both the semiconductor stocks in general and the 5G story specifically… but as of today Qualcomm is also expected to grow both their top and bottom lines quite nicely over the next couple years — analysts expect revenue to grow from this year’s trough of $19.3 billion (which is down considerably from last year) to $22 billion in 2020 and $26.5 billion in 2021, powering earnings that they think will go from $3.45 this year to $5.95 in 2021.
And that’s about all I can tell you on this one — yes, Qualcomm is a reasonable bet on wireless technology in general, it’s certainly the giant of the sector and that gives us some confidence in the dividend… but Qualcomm’s hugely profitable licensing businesses and the legal and commercial fights over those royalties make the stock a bit more volatile than you’d expect for a dominant and cash-flowing “blue chip” in the tech sector.
P.S. In this ad, Yastine is also touting a special “bonus report” that he calls “One-Stock Millionaire: How to Get Rich With This Little-Known Tech Stock.” He says that “This Midwestern company has been quietly working on two projects that will allow it to totally dominate the 5G markets outside of the U.S.” That’s almost certainly another tease for Liberty Latin America, which he’s been similar touting for its “dominate a continent” 5G ambitions — which requires a bit of imagination (and the acceptance that Banyan Hill’s copywriters persist in claiming that Utah, Idaho and Colorado (which is where Liberty is headquartered) are all in the “Midwest”). You can see my article about Yastine’s ongoing tease of Liberty Latin America here.
Disclosure: I own call options and/or shares in Nokia, Qualcomm and Crown Castle among the companies mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.