Dear Reader,
Yesterday, we witnessed something remarkable in the technology market.
A few days ago, I wrote about some of the upcoming software IPOs that I have been anticipating… including one opportunity Warren Buffett invested in through Berkshire Hathaway. It was the first new issue he had ever invested in.
At the time that I wrote about it, the offer being discussed was to sell 28 million shares in the $75–$85 range, resulting in a $2.2 billion raise at the mid-point of $80 a share.
By Tuesday, there was so much demand for the issue that the share price was increased by 50% to $120. That put the company’s valuation at $33 billion.
Yesterday, Snowflake (SNOW), became the largest software IPO in history. The company raised $3.36 billion. Yet this isn’t the remarkable bit.
The stock opened at $245. That’s a bit more than double the IPO price of $120. It also means that there was no way for normal investors to pick up shares anywhere between $120 and $245 a share. And the stock went as high as $295 a share, 2.5 times the $120 offering price. The stock closed at $254, resulting in a $71.4 billion valuation.
But here’s the thing.
Snowflake’s current fiscal year sales forecast is around $403 million. That puts the enterprise valuation (EV) at 177 times annual sales. SNOW’s current valuation is equivalent to 177 years of revenue (not profits). The company is far from profitable and nowhere near generating free cash flow.
In no world does this make any sense. I really like Snowflake’s technology; it is a bleeding-edge cloud-computing software company. In fact, I’d really like to recommend it… but I won’t. Investing at an EV/sales of 177 is a very quick way to lose a lot of money.
Some would call this a bubble. I wouldn’t blame them. Insane valuations like this are a warning sign. I have referred to this, however, as a “splintering” in the market. Some companies are ridiculously overvalued and destined to collapse to rational levels. Others are still very attractive valuations with tremendous upside.
If you’d like to find out more about this splintering… and which stocks are on my list to profit immensely from the new world order… you can go right here to find out more.
What we are seeing is the incessant demand for new high technology IPOs. Companies like Snowflake have been “bottled up”… under pressure like a bottle of champagne that has been aging for years.
Snowflake has only been around since 2012 and just became worth more than $1 billion in early 2018. Now it is worth $71 billion.
Cheers to the team at Snowflake for one heck of an IPO. We know what they were drinking last night.
Now let’s turn to today’s topics…
PC Magazine (PCMag) recently did some field research on the fastest mobile networks in the United States. It also compared 5G network performance to existing 4G networks. The results are now in…
This won’t be a surprise to us, but Verizon came out on top. Verizon’s networks were by far the fastest, with maximum speeds coming in at over 2 gigabits per second (Gbps). For perspective, that’s about 20 times faster than the average 4G connection on AT&T’s network.
Verizon also demonstrated the lowest latency of the big three network operators. This refers to delay. The lower the latency, the more “real time” or instant the connection will seem to a user.
However, PCMag dinged Verizon in its ratings for coverage. That’s because Verizon’s 5G network only geographically covers 4% of the U.S. This is where PCMag’s mainstream reporting approach misses the key context. There was no mention of population coverage.
As we have talked about before, AT&T and T-Mobile are taking a marketing-centric approach to building out their 5G networks. They have been developing 5G in the low-spectrum bands. This allows both companies to build the networks out faster. The goal is for one of these providers to be the first to claim that it has nationwide 5G network coverage.
The problem with this strategy is that it doesn’t enable the super-fast speeds that we expect with 5G, which have been demonstrated by Verizon’s network. In fact, AT&T and T-Mobile’s 5G networks are slower than 4G in many cases.
Let’s have a look at the chart below:
When we see the bar going to the left of zero, that means the 5G network is slower than the 4G network in that city. AT&T is in blue, and T-Mobile is in orange.
As we can see, AT&T’s 5G network is slower than 4G in nearly every market it is in. That’s the case for T-Mobile in seven cities as well.
And in the cities where T-Mobile’s 5G network is faster than 4G, it’s often not much faster. It’s only twice as fast in four markets. Remarkable!
Simply put, that’s not real 5G.
So this led PCMag to conclude that 5G isn’t ready yet. The article says that 5G is “still the future.”
Of course, we know this is not true at all. My team and I have tested Verizon’s network, and the performance is nothing short of extraordinary.
But here’s why this inaccurate journalism doesn’t bother me. For us as investors, this is fantastic news.
As we know, Verizon is going the hard route. It is building networks in the higher-spectrum bands that allow for 1 Gbps speeds that are at least 10 times faster than what we are used to with 4G. This is a much slower process, but it enables true 5G.
And yes, Verizon only covers 4% of the U.S. geographically… but guess what? That encompasses major population centers. Verizon’s strategy is to build out the highest quality network in the most population-dense parts of the country as a way to differentiate itself from the competition.
Verizon’s 5G network is up and running right now in Atlanta, Boise, Boston, Charlotte, Chicago, Cincinnati, Cleveland, Columbus, Dallas, Denver, Des Moines, Detroit, Grand Rapids, Greensboro, Hampton Roads, Hoboken, Houston, Indianapolis, Kansas City, Little Rock, Los Angeles, Memphis, Miami, Minneapolis, New York City, Omaha, Panama City, Phoenix, Providence, Salt Lake City, San Diego, San Jose, Sioux Falls, Spokane, St. Paul, and Washington, D.C.
Looking at the most recent population estimates suggests that roughly 43.9 million people live in these cities. If we compare that to the U.S. adult population of 253.8 million, we can see that 5G could potentially cover 17% of American adults today. And that doesn’t include all the people living within a short commute of those cities.
5G isn’t in the near future. It is here now. It’s just not yet evenly distributed.
The fact that a mainstream technology publication doesn’t realize this tells us that the biggest gains in 5G investments are still to come. If any readers haven’t yet invested in 5G, go here now to watch a presentation I put together on this massive trend.
And with Apple’s 5G-enabled iPhone set to be announced next month, awareness will skyrocket overnight. That will be a boon for our 5G investments.
The U.S. Nuclear Regulatory Commission just approved the design of a small modular reactor from a company called NuScale Power. This company has an interesting vision for the future of nuclear energy.
NuScale Power is a small company out of Portland, Oregon. It is heavily backed by the U.S. Department of Energy, which has invested about $300 million into NuScale’s research and development.
And NuScale’s vision is small modular reactors (SMR) that it can mass-produce in parts and then ship to sites for installation and deployment. This model would make the construction of nuclear reactors much easier and far cheaper than it has ever been.
Up to this point, every nuclear reactor has been a massive, custom-designed plant that takes a ton of planning and is very expensive to build. And as we have seen with Chernobyl and Fukushima, when something goes wrong with these massive nuclear plants, it leads to disaster.
With NuScale’s modular reactors, the safety profile is much better because the plants are small, and the design is simple and standard across the board. It also uses the latest generation of nuclear reactor design, which is remarkably safer than the technology used in Fukushima.
The reactors will produce about 50 megawatts of power, which is 95% less than the giant nuclear reactors in operation today. They are designed to decentralize the power grid by moving baseload energy production closer to where it is consumed.
So this is a major paradigm shift in how we think of nuclear power. And NuScale is expected to submit an application for the construction of its first commercial modular reactor within the next two years.
That said, I’m not optimistic that NuScale will be able to overcome all the politics surrounding nuclear fission today. There will be great public resistance to these SMRs simply because they use nuclear fission technology.
This is sad because I think nuclear fission is one of the few technologies that could get the world off fossil fuels, reduce emissions, and still provide all the power our electrical grids need to function 24/7.
So I wish NuScale good luck, but I’m much more optimistic about the prospects of nuclear fusion.
As we have discussed before, nuclear fusion (not fission) harnesses the power of the Sun to produce 100% clean energy. With specific approaches to nuclear fusion, there is no radiation or waste at all.
Yet nuclear fusion can still provide all the baseload power we need to meet current and future energy consumption all day, every day. No CO2 emissions, no fossil fuels, no radioactive waste.
I’ve put together a special research briefing on nuclear fusion and the one early stage company that I predict will make it a viable energy source in the very near future.
I’m making this research available to Bleeding Edge subscribers to say thank you for reading. I know that this publication is free, but I do value your time and appreciate you spending some of it with me.
This isn’t a marketing presentation, but specific research that I did on the industry and one company in particular that I believe you’ll find valuable. To download your free report and learn more about the future of nuclear fusion, click here to read the research for yourself.
Just as we predicted last year, Grail is going public. The company will trade on the Nasdaq stock exchange under ticker symbol GRAL.
To bring new readers up to speed, Grail is an exciting biotechnology company that developed a method to detect early stage cancer with a simple blood test. I can’t overstate how incredible this is.
Up to this point, the only way to detect cancer was through extensive screening followed by a biopsy to physically extract a sample of cells or tissues suspected of being cancerous. This is an expensive and time-consuming process that most people don’t do until after they are worried about their health.
Grail’s liquid biopsy will allow anyone to check for cancer periodically with a quick blood test.
The technology is designed to notice slight changes in genetic makeup, which can then be linked back to certain types of cancer. This method is far cheaper than extensive screening. It’s easy to conduct. And the results come back fast.
Once approved by the FDA, this will be the first test that can be widely used to screen what appear to be perfectly healthy people as a precautionary measure. And that will lead to us catching cancer much sooner, when it is easiest to treat. This is excellent news for all of us.
The industry has believed in this technology from day one. Grail is backed by Bill Gates, Illumina, Google Ventures (GV), Jeff Bezos’ Family Office, Merck, Johnson & Johnson, Bristol Meyers Squibb, Celgene, and others.
So we’re not the only ones who are excited to see Grail go public.
That said, this isn’t a recommendation to buy yet. We need to see how the IPO is priced and how the market receives it. Too often these IPOs are overpriced and dumped on unsuspecting investors who then lose money right out of the gate.
Uber is a great example. The stock ultimately plunged 64% from where it closed on its first day of trading. And today, nearly a year and a half after it went public, UBER still hasn’t gotten back up to where it was right after the IPO.
So my plan is to watch Grail’s IPO closely, assuming it doesn’t get acquired prior to its IPO. It will make a great investment target at some point, but only at a reasonable valuation.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. Don’t forget about my Penny IPO presentation next Wednesday at 8 p.m. ET.
On that evening, I’ll reveal an investing method that I spent nearly five years perfecting. It’s a way for everyday investors to get access to early stage tech stocks (when the upside is highest) without buying pre-IPO shares or participating in extremely risky crowdfunding deals.
In short, it’s a way for everyday investors to turn the tables and invest like venture capitalists. And as long as you have a computer, you can participate.
I call this class of stocks “Penny IPOs,” and they are the best way for normal investors to gain access to early stage tech companies and see explosive returns quickly.
So on September 23 at 8 p.m. ET, I’m going to share my research on “Penny IPOs” with the world.
I’ll reveal why these companies go public so early. I’ll show how retail investors can buy them easily from their online brokerage accounts. And I’ll explain why they can surge hundreds of percent in days or even hours.
For those who are serious about building a portfolio of explosive early stage companies, please plan on joining me next week. Just go right here for all the details.
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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.
