Dear Reader,
It has been fascinating to watch the impact of the pandemic on the technology sector. Of course, we all wish that it never happened.
But as perverse as this might sound, the technology companies were happy to leverage the pandemic to accelerate the growth of their businesses.
We need not look any further than Google as an example of this dynamic.
The search and advertising giant grew its revenue 12.8% in 2020 compared to 2019. And its free cash flow grew from $30.9 billion to an incredible $42.8 billion year on year. Equally as impressive, the 2021 forecasts for free cash flow are yet another jump of more than $10 billion to $53.4 billion this year.
Google is now sitting on $136 billion in cash, which is growing at a rapid pace. So much so that the company simply doesn’t know how to allocate it and put it to use. It should be paying dividends to its shareholders.
Needless to say, business has been good.
What will Google do with all that money?
It just released its plans to invest $7 billion in growing both its offices and data centers. While $7 billion is just a drop in the bucket for a company like Google, spending excess free cash flow on large capital expenditure items is always smart… assuming the spend is for good investments.
Google is still struggling to catch up to the cloud-based service revenues of Amazon Web Services and even Microsoft for that matter. The company brought in $13 billion in revenue, but at the expense of a negative $5.6 billion in operating income. I would say “ouch,” but for Google, that won’t even make the company flinch.
Google’s late entry into the cloud services market – a market that it should have dominated – remains a stain on the company’s reputation. It is one area that Google will continue to lose money in for years while it works to boost its standing among its competitors.
And Google is planning on hiring at least another 10,000 employees in the U.S. alone this year. This is part of its efforts to both support its existing advertising-driven business and continue to aggressively grow its cloud services division… even if at a loss.
And just like Microsoft, Google is already giving direction to its employees about returning to work.
While the company provided earlier direction that the option to work from home would be in place until September, offices will actually start opening up this summer. The current plan is for the company to require employees to work in person for at least two days a week to start.
Google has been clear to set the expectation that employees need to plan to spend most of the week in the office.
This might come as a surprise to some. But the reality is that when companies see productivity declines from remote work, we should expect things to snap back to pre-pandemic practices quickly.
And with the vaccination rollout in the U.S. set to be pretty much completed by May, these tech companies will have cover to implement post-pandemic policies to get employees back into the office.
Ironically, a recent survey that I reviewed indicated that 86% of employees would prefer to work remotely at least two days a week starting in the fall.
This will be the great reckoning of 2021…
And while Google and other tech companies have already been profiting from the “digital leaps” that the pandemic put into motion – forcing us to adapt and use technology to deal with the new work environment – I see another big “digital leap” on the horizon.
A massive $11.9 trillion industry is getting ready to go digital, which means investors should prepare now to profit…
If you’d like to find out more about this opportunity, readers can go right here to sign up for my upcoming investment summit, happening on April 7 at 8 p.m. ET. It’s a night you won’t want to miss.
Now let’s turn to today’s insights…
Amazon is gearing up to launch its next big technology product – code name: Vesta.
Vesta is a robot that Amazon has developed in secrecy for nearly four years now. It’s the tech giant’s next smart home product.
At first glance, a home robot may seem like a big jump for Amazon. But we should keep in mind that Amazon has had remarkable success with its product launches. The Echo, the Kindle, and the Fire TV/tablets have each seen strong consumer adoption.
And get this – Amazon put more than 800 employees to work on Vesta. We don’t have an official timeline on the robot’s launch yet. But we do know that it is in the late prototype stage.
Amazon has kept the details of its new home robot under wraps.
But we do know that the robot is expected to be about a foot wide. It will also be equipped with a screen, a microphone that allows it to respond to voice commands, and several cameras for recording video that allow it to “see” its way around. The robot will also be able to navigate autonomously in the home and take readings for things like room temperature.
What we are talking about here is the next generation of home robotics.
Up to this point, mainstream home robots have just vacuumed the floor. Vesta will change that.
Equipped with Amazon’s artificial intelligence (AI)-enabled assistant Alexa, Vesta will be able to fetch a glass of water for anyone in the house. It will help us find a lost item such as misplaced car keys. A parent can even ask Vesta to go chase down the kids and tell them it’s time for dinner.
What’s more, Vesta will be integrated with other Amazon devices such as the Echo home speaker and Ring security devices. This will extend Amazon’s services throughout the home, helping to make Amazon an even more important feature in our everyday lives.
Given that Amazon defined the smartphone speaker market with its Amazon Echo – it still has about 70% market share – I see Vesta as a natural extension of its AI-powered smart home.
When thinking of home robotics, iRobot is the big player in the space. iRobot makes the popular Roomba robotic vacuums.
Well, iRobot has done over $1 billion in sales for the last three years now. And all a Roomba does is vacuum the floor.
So I think Vesta will quickly become a multibillion-dollar business for Amazon.
And I’d be willing to bet that Amazon will price Vesta at about half of what it costs to purchase an iRobot. This will position it well for more of a mass market product. I’m excited to try this product out myself.
One of the biggest trends I am following this year is the convergence of AI and biotechnology. This confluence of technologies is going to radically alter our approach to healthcare.
And as we’ve discussed before, it is going to provide savvy investors with some incredible opportunities.
One of my favorite companies in this space is an early stage company called Insitro. It is leveraging AI technology to discover and develop new precision medicine therapies.
The company is founded and headed up by executive Daphne Koller, whom I’ve seen speak at several tech & biotech conferences over the years. I was always impressed.
She has a computer science background from Stanford. And she was the co-founder and president of educational technology firm Coursera for about five years.
Then she jumped to a leadership role at Alphabet in an executive position at Calico, which was one of Alphabet’s healthcare-focused initiatives. That was the jump into the healthcare space.
What I like about Insitro is that its approach is comprehensive in nature, rather than just focusing on one single data set. Given Koller’s computer science background and experience at Calico, this makes perfect sense.
Insitro unleashes its AI on a collection of genetic, phenotypic, and clinical data to find new development candidates.
This drastically reduces the time it takes to discover new therapies. And it speeds up the development process by eliminating all the trial-and-error lab work that traditional development methods require.
As a result, Insitro’s approach promises to accelerate the entire process by years, saving tens of millions – maybe even hundreds of millions – of dollars in the process.
And that’s not an overstatement.
Using traditional drug development methods, it takes an average of 12–15 years to get a therapy from the discovery phase to regulatory approval. And the Tufts Center for the Study of Drug Development estimates that it costs an average of $2.6 billion to complete this process.
It’s hard to wrap our heads around how expensive, time-consuming, and risky drug development is. That’s the problem Insitro is out to solve. And the company is starting to turn some heads in the industry…
Insitro just raised a massive $400 million in a Series C funding round. This comes on the back of a $143 million Series B round that closed last May.
So it’s a pile-on right now. Top-tier venture capitalists like Andreessen Horowitz, ARCH Venture Partners, Two Sigma Ventures, Third Rock Ventures, and others are plowing money into Insitro to acquire pre-IPO shares.
And we’re starting to see late-stage money come in from BlackRock, T. Rowe Price, and the Canada Pension Plan Investment Board. This is a key indicator that Insitro is gearing up to go public.
What’s more, Insitro has secured major multiyear deals with biopharma giants Gilead and Bristol Myers Squibb. The Bristol Myers Squibb deal alone is potentially worth more than $2 billion.
So Insitro is cashed up, making terrific progress, and on track for an initial public offering (IPO) within the next 12 months or so. This is absolutely a company to add to our early stage watchlist. Insitro will make a fantastic investment opportunity at the right valuation.
And Insitro isn’t the only early stage biotech company making waves right now. We talked about the immense opportunity in the biotech space at our Timed Stocks: Final Countdown event this month.
For those who missed it live, I’ve asked my publisher to keep the replay up for a few more days. Readers can find it right here.
We’ll wrap up today by checking back in on Cruise. We last talked about this company back in November of last year after it announced a partnership with retail giant Walmart for self-driving deliveries.
To bring new readers up to speed, Cruise is General Motors’ (GM) self-driving division. GM acquired the self-driving startup for $581 million back in 2016.
At the time, many in the industry thought this was an outrageous investment. What was a 112-year-old dinosaur doing paying so much for a self-driving upstart that didn’t even have a finished product? And the expectation was that GM would just smother innovation once Cruise was assimilated.
But I have to say that GM played it smart.
Instead of fully integrating Cruise, GM decided not to retain 100% ownership. It allowed other companies like Honda, SoftBank, and Microsoft to invest in Cruise. This not only helped fund self-driving research and development but also drove Cruise’s valuation sky-high.
In fact, after taking in another $2 billion from these three investors back in January, Cruise is now valued at an estimated $30 billion. That means GM is sitting on 51X gains from its original $581 million investment. Not too shabby.
And Cruise just announced the acquisition of another early stage self-driving company called Voyage. Based in the heart of Silicon Valley, Voyage focuses on low-speed, self-driving vehicles in geofenced areas such as retirement homes and assisted-living communities.
Focusing on small communities like this is intentional. It allows for faster and more capital-efficient deployment of Voyage’s technology.
And it makes perfect sense. After all, these communities often employ half a dozen drivers or more to shuttle residents around throughout the day. Voyage’s self-driving cars will reduce operational expenses here while extending shuttle hours.
But make no mistake about it – Cruise didn’t buy Voyage to focus on retirement communities. It’s more interested in Voyage’s talent. This is how Cruise plans to grow its team.
As we can imagine, developers who know how to build self-driving technology are scarce. The easiest way to find them is by acquiring companies they already work for. That’s what this is about.
This move is all about a push to Level 5 autonomy. That’s fully self-driving cars that do not require safety drivers.
I’ve written often about how close Tesla is to crossing this threshold. (And if you’d like to see my recent demonstration where I tested out Tesla’s autonomous tech, go right here to watch.)
It’s just a matter of time until we see fully self-driving cars on the road.
And to get to Level 5, Cruise needs to expand its talent and technology. And that’s exactly what it is doing with the Voyage acquisition.
So Cruise has rapidly become one of the most prominent companies in the space. And I must tip my cap to GM for giving this startup room to grow.
This is a great example of how a large, corporate “acquisition” can be done without destroying the asset acquired.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. As we mentioned above, we’re coming up on an exciting event I call a digital leap. We’ve seen a number of digital leaps before… like when Blockbuster Video went broke while Netflix helped define the movie streaming space. Anyone who invested in that digital leap could have made a fortune. But there’s one $11.9 trillion industry that’s been held back… until now.
If you’d like to find out more about what I believe could be the last digital leap we see… and learn the best way to profit, then please go right here to reserve your spot for my upcoming presentation. I’ll share all the details on April 7 at 8 p.m. ET.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
