Dear Reader,
I just returned from a whirlwind visit to Washington, D.C. for the Legacy Investment Summit. The last time one was held was in Carlsbad, CA back in 2019.
It was fantastic to be back together again and reconnect with those of you who attended in 2019, as well as meet with so many more first-time attendees. Thank you, sincerely, for saying ‘hello’ and sharing your stories. It is such a rare chance to meet subscribers in person.
Our time together is so valuable, and I appreciate those of you who made the journey to D.C. to participate, as well as those of you who joined online.
My main presentation was about something I call “The Great Recalibration.” It is something that I have been researching for years.
The actual data paints a very different picture for us than what we read from the mainstream media. The reality is, the world is recalibrating from a highly centralized manufacturing infrastructure to one that is far more decentralized and resilient to supply chain disruptions.
This trend has been unfolding over the last decade, but since 2016, this shift began to pick up in pace. And it hasn’t been government-driven… Executives and corporations have been taking action for years to rearchitect their businesses in a way that is more efficient, resilient, and even better for the environment.
And of course, technology is what enables all of this to happen.
The latest advancements in robotics, combined with artificial intelligence (AI), put manufacturing automation within reach of almost any business. Better yet, this technology is an answer to the persistent labor shortages that we experience today.
There are certainly some important investment implications as well. This is an area that is well researched at Brownstone Research, and both our Near Future Report and Exponential Tech Investor portfolios have exposure to this trend.
Not surprisingly, at the conference, there was also a lot of talk around inflation, rising interest rates, geopolitics, and war. It’s been a volatile start to 2022.
I know many readers are concerned about the market and their investments in this climate. And for good reason…
The current climate has led me to assess our overall asset allocation plan. Right now, it’s all about becoming inflation-proof, recession-proof, and crash-proof – in that order.
For those of you that didn’t have the chance to attend the Investment Summit, that’s what my strategy session will be about. It’s scheduled for this Wednesday, April 6, at 8 p.m. ET. I’m going to share with viewers my thoughts on how we should navigate the current environment.
I’m leaning heavily on some established plays in the wealth playbook here. The world’s wealthiest families have used these plays to protect their investments from depressions, deflation, wars, inflation, and all kinds of other black swan events throughout modern history.
We need to be aware of these tried-and-true strategies. And here’s the key – we can put a modern twist on them. We have a lot more options available to us now than they did in the past.
So please set aside some time to join me Wednesday evening. This session will be a bit different compared to my normal investment presentations. And I’m confident viewers will walk away with actionable ideas and strategies.
For those interested, just go right here to register. See you Wednesday evening.
We talked about NVIDIA’s big hardware announcement at its annual GPU Technology Conference (GTC) last week. That was when the company released its next-generation artificial intelligence (AI) semiconductor architecture.
NVIDIA also made a noteworthy announcement about a new AI software development at the conference. It’s called NeRF… And it will have a tremendous impact on how quickly we build metaverses.
NeRF stands for “neural radiance fields.” It’s a neural network – the same kind of AI technology that our Perceptron uses to identify crypto trades.
However, NeRF isn’t for trading. It creates three-dimensional (3D) images from two-dimensional (2D) photographs. Here’s how it works…
Users simply feed the neural network a handful of 2D photos of the same person or object from different angles. The AI analyzes these pictures in milliseconds, then it produces 3D images of the same person or object.
Here’s a visual:
Turning 2D into 3D
Source: NVIDIA
Here we can see the AI take four photos and turn them into a complete 3D rendering of the person and the room. All in a matter of milliseconds. That’s incredible.
And here’s why this is important…
We have been covering the rise of metaverses quite a bit in these pages over the last 12 months. As a reminder, these are virtual worlds in which people can interact with the world and each other through a digital avatar.
Many of the early metaverses are cartoonish and “blocky.” But the next-generation metaverses will be very immersive and some of them will be completely photorealistic. The idea is to provide an experience that looks and feels just like real life.
Of course, it’s a lot of work to build out a realistic virtual world.
Graphics designers must render all the buildings, people, animals, trees, rivers, rocks, hills, mountains, and objects that will exist in their metaverse. This is a process that could take months or years using more traditional design techniques.
But if we think about it – we have all kinds of photos of all these things already. That’s where NVIDIA’s NeRF comes in.
NeRF could take 2D pictures of any building, object, or natural habitat and quickly convert them into a 3D rendering for a metaverse. All of a sudden, we could build entire metaverses and populate them in hours or days – not weeks and years.
And NVIDIA made this technology open source. That means anyone can use the tech at will.
We will see NeRF adopted very quickly for this reason. That will greatly accelerate the metaverse trend.
And here’s NVIDIA’s motivation…
NeRF runs on NVIDIA’s graphics processing units (GPUs). The more we use the software, the more GPUs we need to purchase from NVIDIA.
NVIDIA has done a brilliant job over the years applying this business strategy to multiple markets.
Whether it has been gaming, self-driving technology, artificial intelligence software, and now metaverse development; NVIDIA seeds the market with open source software and hardware reference designs that accelerates both development, and use, of its own semiconductors.
As expected, SoftBank is now preparing to take semiconductor technology company ARM public.
This is exactly what I predicted would happen when NVIDIA’s $40 billion acquisition of ARM fell through last month.
However, there is a surprising twist we need to be aware of…
SoftBank has been shopping ARM around on Wall Street. Goldman Sachs is rumored to have signed on as the lead underwriter for the initial public offering (IPO).
Naturally, we would expect the IPO valuation to be around $40 billion based on NVIDIA’s previous offer, but that’s not the case.
SoftBank is pushing for a $60 billion valuation. That’s a steep premium.
For the record, SoftBank acquired ARM for $32 billion in 2016. So it’s no surprise the firm is pushing for as high of a valuation as it can get.
This is SoftBank’s exit. And it will pocket the difference between ARM’s IPO valuation and its $32 billion acquisition price, less underwriting fees.
But here’s the thing – we now know that ARM’s annual revenue is around $2.6 billion. Going public at a $60 billion valuation would value ARM at over 23 times sales. That kind of valuation just doesn’t make sense, especially in the market we have right now.
Don’t get me wrong – ARM is a fantastic company with a great business model. But the company focuses on semiconductor architectures for high-performance, low-power chips. These chips tend to be less expensive, which makes ARM’s licensing fee per chip quite small.
Plus, there are some questions about how much ARM can grow from here given expected competition from up-and-coming companies like SiFive, which we profiled two weeks ago.
Based on my rough estimate, I would value ARM at around $25 billion. That’s a respectable 9.6 times sales.
So I’m curious to see what kind of deal SoftBank and the investment banks work up.
If they value ARM anywhere close to $60 billion, then we know that they are just trying to dump the company on unsuspecting investors. At that valuation, my prediction is that ARM will fall by at least 50% after the IPO hype dies down – maybe even more.
As I’ve said many times before, great companies can be bad investments if the valuation is too high. And that’s likely going to be the case for ARM at first.
That said, I’m still bullish on ARM’s prospects long term. The company will make a great investment target if it falls to a reasonable valuation after going public. We’ll be waiting patiently for that to happen.
We just got another interesting development from Instacart. This is something we don’t see very often…
We talked in November about how Instacart was gearing up to go public. For the sake of new readers, Instacart allows consumers to shop for groceries online and have them delivered right to their door.
Instacart is a lot like DoorDash and Uber Eats, except it employs “personal shoppers” who fulfill orders. And these shoppers communicate with consumers when the store is out of a requested item. They suggest alternatives and give users the chance to say “yes” or “no.”
Obviously, this was a vital service during the COVID-19 pandemic, and Instacart’s business has exploded ever since. In fact, DoorDash engaged Instacart in potential acquisition talks last summer. It’s rumored that Doordash was willing to pay $45 billion for the company.
Those talks fell through, however. And that’s why I suggested that Instacart was primed to go public in 2022. The market assumed that its IPO would happen somewhere around that $45 billion valuation.
But something unusual just happened…
Instacart just made public something called a “409A Valuation.” This is an internal valuation that a company conducts to determine its own worth.
Companies typically communicate 409A results to key employees and shareholders, so they can price their stock and/or option incentive plans. It’s a way to keep morale high and improve employee retention. For that reason, companies seldom reveal their 409A results to the public.
Except that’s what Instacart just did.
Instacart announced that their 409A valuation came out at $24 billion. That’s down 47% from the $45 billion figure thrown around in acquisition talks. And it’s down over 38% from where Instacart was valued after its Series I funding round last March.
Of course, this begs the question – why would Instacart drop its own valuation like this? After all, it means that any investor or employee that bought or received stock in the last 12 months is now underwater.
The answer is that Instacart’s management recognized that they weren’t going to be able to go public anywhere near the $45 billion valuation.
That means that issuing stock to employees at that level wouldn’t have been an incentive at all. Stock and options should ideally reflect the current valuation and have plenty of upside ahead. And that’s what Instacart needed to accomplish with its 409A.
So Instacart is addressing this now. It is clearly a sign that it is gearing up for its initial public offering (IPO). And I’m sure the company will issue new incentives around these levels… That way, employees feel like an IPO is worth sticking around for.
It can be painful for a company to hit the reset button like this… I’m sure management took some heat from a few major investors by doing so.
But this was a smart move by management. And we can look forward to watching the company go public either in the second or the third quarter of this year. I’m sure it will be one of the most anticipated IPOs of the year.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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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.
