Dear Reader,
Nobody likes bad news.
Days are a lot more fun when the world doesn’t feel like it’s coming to an end, and there are positive things for us to focus on. Needless to say, 2022 has been one heck of a tough year.
And not just for consumers and investors, but also for corporations. Forecasting in this kind of environment is a nightmare, and if you’re a private company looking to go public, good luck. This is about the worst market imaginable for an IPO.
We can see the effect of the current market and economic conditions in the chart below:
IPO Activity Slowed in 2022
Source: Renaissance Capital
This is a remarkable year, and not in a good way.
The amount of capital raised from IPOs this year is currently less than 5% of last year. Admittedly, 2021 was a record year. But seeing as this year is only 8% of 2020… no matter how we look at it, IPOs have completely collapsed.
The reason for this is that no board wants to take a company public in a market like this. Pretty much any IPO will fall flat, and with valuations so compressed, any company that wants to issue shares is going to have to do so at a less desirable valuation. That means it has to sell more of the company for less capital raised.
That basically means that those choosing to go public in this market need to go public. They’ve run out of any other good alternative…
Which is what makes Intel’s announcement to take Mobileye public so unusual.
Intel bought Mobileye back in 2017 for what was at the time an insane purchase price of $15.3 billion. Intel had been floundering, having missed several huge market opportunities in the semiconductor industry (like chips for smartphones or GPUs).
So it lashed out and overpaid for a then-tiny company that made chips for advanced driver assistance systems (ADAS).
The “spin” used by Intel was all about self-driving cars. But Mobileye’s product was really about the far simpler application of ADAS. I liked, and still like, Mobileye for its technology. But Intel’s offer price just didn’t make sense.
And Intel appears to be at it again.
Intel announced that it’s looking to take Mobileye public at a targeted $30 billion valuation. That might look great on the surface… after all, Intel would roughly double its money on the IPO, right?
But does the valuation make sense?
Mobileye generated $1.4 billion in revenue in 2021. And first-half revenues in 2022 are up 21% year over year. If we extend that to the full year—which may be quite generous—we’d be looking at annual revenue of $1.694 billion. That equates to an enterprise-value-to-sales multiple of 17.7.
That’s a valuation of 17.7 times annual sales… for a semiconductor company. For comparison, Intel trades at an enterprise-value-to-sales multiple of 1.61. And NVIDIA, the most valuable semiconductor company in the world, trades at an enterprise-value-to-sales multiple of 10.5.
Intel is dreaming… and we’re not falling for it.
Let’s ignore anyone who tries to sell us shares in a Mobileye IPO at 17.7 times annual sales. In fact, in this terrible market, it wouldn’t make sense to accept anything above 5 times annual sales. It’s a promising company, but the valuation has to make sense.
The investment banks will probably be able to pull off the IPO at an inflated valuation, but I assure you that protections will be in place. And I predict a classic pump and dump post-IPO.
But one thing is certain: If Mobileye does go public anywhere near a $30 billion valuation, the stock is going lower—much lower.
For Intel to consider a spinoff of Mobileye in a market like this tells us something. It has the ability to keep Mobileye in-house, but Intel’s stock has dropped more than 52% since the first trading day of the year.
Revenues will have declined about 12% this year, and growth is forecasted to be tepid for the next several years. And with $35 billion in debt and negative $3.4 billion in free cash flow, Intel needs to do something to improve its metrics this year.
At best, the spinoff of Mobileye will help Intel pay down, and probably restructure, a lot of debt. This is actually important considering Intel’s plans to spend $100 billion building the largest semiconductor manufacturing campus in the world outside of Columbus, Ohio.
Not only will Intel need the money, but also the ability to raise a lot more debt to fund such an ambitious plan.
Genetic sequencing giant Illumina just launched a new line of sequencing machines called the NovaSeq X Series.
These new machines can sequence up to 20,000 human genomes a year. That’s 2.5 times the output of existing sequencers.
As we’ve discussed before, whole-genome sequencing is the process of determining a person’s unique DNA makeup. It unlocks the blueprint for an individual’s genetic code.
And this allows for more targeted treatment when it comes to healthcare. That’s what precision medicine is all about.
So the NovaSeq X release is big news for Illumina. And it’s game-changing for the healthcare industry. Here’s why…
Gene Sequencing Costs Keep Falling
Source: NIH
As we can see, the cost to sequence a human genome was over $100 million back in 2001. But costs have fallen consistently year after year. Since 2007, this trend has accelerated at a pace even faster than Moore’s Law.
As a result, the cost to sequence a human genome hit $600 at the end of last year. That was a big milestone. At $600, it was in the range for many to pay for sequencing out of pocket.
And it’s about to get even better…
Illumina’s NovaSeq X machines will be about 60% more efficient than the current sequencers. And that will drop the cost to sequence a human genome down to just $200.
At that price point, many health insurance companies will decide to cover genome sequencing for patients. It will make business sense to do so. And that would make the tech available to everybody. Precision medicine for the masses.
This will dramatically save costs on unnecessary and ineffective treatments based on individual genetic makeup. More importantly, it will result in better outcomes for patients.
For example, let’s take a patient who has unusually high cholesterol. The person may be in great health. They have a good diet. They sleep well. They get plenty of exercise. They aren’t overweight.
So there’s no obvious reason why this person should have high cholesterol. But the numbers show they do.
In this case, the physician may feel the need to prescribe a number of different tests for the patient. The physician may even decide to prescribe a particular treatment, hoping it brings the patient’s cholesterol down.
But there’s no guarantee any of it will work.
This all changes if the patient’s health insurance covers a whole genome sequencing.
Sequencing would become the doctor’s first recommendation. Then, if the patient consents, a geneticist can analyze their genome and pinpoint specific genetic mutations that may be the root cause of the problem.
At that point, it’s just a matter of prescribing a therapy designed specifically to correct those mutations. It could be a specific drug that’s determined to be most effective for that specific genetic condition. Or, in time, it could be a genetic editing therapy to “correct” an unwanted mutation. No more guesswork required.
Ultimately, this dynamic will save the industry tens, maybe hundreds of billions in wasted expenses on unnecessary tests and treatments that don’t work for individual patients.
If we understand the patient’s personal genetic makeup, we can address the root of the problem immediately.
So Illumina is about to revolutionize the entire healthcare industry.
Its new machines will ship in the first quarter of 2023 and will immediately reduce sequencing costs to $200 per genome.
And there’s even a path to get that number down to $100. At that point, I’m confident most health insurance companies will choose to cover sequencing.
This will send the precision medicine trend into hyperdrive… and help us eliminate genetic disease as we know it. We’ve entered a golden age for biotechnology. It’s just that most don’t realize it yet.
Amazon just revealed its new pinch-grasping robot. And it’s quite impressive, as this footage demonstrates:
Pinch-Grasping In Action
Source: Amazon Science
Look at how fast the robotic arm moves. It quickly identifies objects of varying shapes and sizes. And it can deal with different packaging as well. Some of these objects are in boxes. Some are wrapped in plastic.
Still, the robot identifies each object and then skillfully grabs it and sends it down the conveyor belt. It’s remarkable how gentle and precise this is.
It’s funny—I remember back in 2019 when then-CEO Jeff Bezos predicted that Amazon’s robotic systems would be just as dexterous as a human hand within 10 years.
Here we are three years later, and Amazon’s robots are almost there. Bezos was far too conservative.
And get this: Amazon’s new robotic arm can handle 1,000 items an hour. And, of course, it can run all day long. That means it can far outwork any human at the same task.
So this is a fantastic development. It eliminates the need for humans to do monotonous picking and sorting work.
And as we’ve seen, humans basically don’t want to do this work anyway. That’s why Amazon has been dealing with steep labor shortages in its warehouses. This is the solution.
If we think about where this can go… the robotic arm is powered by a neural network. That’s artificial intelligence (AI)-based software.
Improving the AI is just a matter of software training. The more the robotic arm works, the better the AI is going to get at picking and sorting.
So I think Amazon’s robotic arm will be near-perfect within 12 months. It will be just as dexterous as a human hand. And the AI will be just as quick to identify specific objects as a human mind.
At that point, I’m sure Amazon will deploy these robotic arms in every one of its warehouses around the world. And labor shortages will become a thing of the past.
We’ll wrap up today with another major augmented reality (AR) launch from a company called Nreal.
Nreal just launched its next-generation AR eyewear in the U.S, called the Nreal Air AR glasses. At $379, these glasses are well-priced for consumer adoption and available right on Amazon.com.
Now, these aren’t full-fledged AR glasses. They aren’t built for all-day, every-day use.
Instead, Nreal’s glasses focus specifically on entertainment and gaming. Here’s a great example:
Nreal’s 130-Inch AR Screen
Source: Nreal
Here we can see a person using Nreal’s AR glasses while sitting on a flight.
The glasses themselves tether to a laptop or a smartphone. And that enables them to project what appears to be a 130-inch screen about 13 feet in front of the wearer (that’s what it feels like to the viewer).
This is great for streaming video and watching movies. It certainly beats hunching over and looking at a laptop screen.
Nreal’s glasses also enable wearers to play existing computer and console games on the “projected” screen. That’s another great feature.
So this is a product that has great functionality for specific applications. It focuses on the two functions consumers use most.
But this isn’t everyday AR. The glasses don’t currently have applications that augment real-world experiences as consumers go about their day.
This is why Nreal raced to release this product ahead of Apple and Meta’s upcoming AR launches. Those will be full-fledged AR releases.
That said, I think the Nreal Air Glasses are an interesting intermediary product. I suspect there’s a market for this kind of product, and AR applications can certainly be built on top of the platform in the future.
So I’m interested to see what adoption looks like, and whether or not consumers are holding off until Meta, Apple, Google, or someone like Niantic launches their product.
This will tell us a lot about whether or not consumers will want to remain anchored to the smartphone operating ecosystems around Google’s Android and Apple iOS, or if they’re looking for a new, less-familiar experience.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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.
