Mad Hedge Technology Letter
December 20, 2019
Fiat Lux
Featured Trade:
(THE BIG TECH TRENDS OF 2020)
(AAPL), (GOOGL), (FB), (AMZN), (NFLX)
Posts
The year is almost in the rear-view mirror – I’ll make a few meaningful predictions for technology in 2020.
Although iPhones won’t go obsolete in 2020, next year is shaping up as another force multiplier in the world of technology.
Or is it?
A trope that I would like to tap on is the severe shortage of innovation going on in most corners of Silicon Valley.
Many of the incumbents are busy milking the current status quo for what it’s worth instead of targeting the next big development.
Your home screen will still look the same and you will still use the 25 most popular apps
This almost definitely means the interface that we access as a point of contact will most likely be unchanged from 2019.
It will be almost impossible for outside apps to break into the top 25 app rankings and this is why the notorious “first-mover advantage” has legs.
The likes of Google search, Gmail, Instagram, Uber, Amazon, Netflix and the original list of tech disruptors will become even more entrenched, barring the single inclusion of Chinese short-form video app TikTok.
The FANGs are just too good at acquiring, cloning or bludgeoning upstart competitors.
It’s the worst time to be a consumer software company that hasn’t made it yet.
Advertising will find itself migrating to smart speakers
Amazon and Google have blazed a trail in the smart speaker market but ultimately, what’s the point of these devices in homes?
Exaggerated discounting means hardware profits have been sacrificed, and the lack of paid services means that they aren’t pocketing a juicy 30% cut of revenue either.
These companies might come to the conclusion that the only way to move the needle on smart speaker revenue is to infuse a major dose of audio ads to the user.
So if you are sick to your stomach of digital ads like I am, you might consider dumping your smart speaker before you are forced to sit through boring ads.
Amazon’s Alexa will lose momentum
In a way to triple down on Alexa, Amazon has installed it into everything, and this is alienating a broad swath of customers.
Not everyone is on the Amazon Alexa bandwagon, and some would like Amazon’s best in class products and services without involving a voice assistant.
Privacy suspicion has gone through the roof and smart speakers like Alexa could get caught up in the personal data malaise dampening demand to buy one.
Your voice is yours and 2020 could be the first stage of a full onslaught of cyber-attacks on audio data.
Don’t let hackers steal your oral secrets!
Cyber Warfare and AI
Hackers have long been experimenting with automatic tools for breaking into and exploiting corporate and government networks, and AI is about to supercharge this trend.
If you don’t know about deep fakes, then that is another thorny issue that could turn into an existential threat to the internet.
Not only could 2020 be the year of the cloud, but it could turn into the year of cloud security.
That is how bad things could get.
A survey conducted by Cyber Security Hub showed 85% of executives view the weaponization of AI as the largest cybersecurity threat.
On the other side of the coin, these same companies will need to use AI to defend themselves as fears of data breaches grow.
AI tools can be used to detect fraud such as business email compromise, in which companies are sent multiple invoices for the same work or workers duped into releasing financial information.
As AI defenses protect themselves, the sophistication of AI attacks grows.
It really is an arms race at this point with governments and private business having skin in the game.
Facebook gets out of the hardware game because consumers don’t trust them
Remember Facebook Portal – it’s a copy of the Amazon Echo Show.
The only motive to build this was to bring it to market and expect Facebook users to adopt it which backfired.
Facebook will find it difficult convincing users to use more than Facebook and Instagram software apps.
Don’t wait on Facebook to roll out some other ridiculous contraption aimed at stealing more of your data because there probably won’t be another one.
This again goes back to the lack of innovation permeating around Silicon Valley, Facebook’s only new ideas is to copy other products or try to financially destroy them.
China continues to out-innovate Silicon Valley.
The rise of short-form video app TikTok is cementing a perception of China as the home of modern tech innovation, partly because Silicon Valley has become stale and stagnated.
China has also bolted ahead in 5G technology, fintech payment technology, unmanned aerial vehicle (UAV) and is giving America a run for their money in AI.
China’s semiconductor industry is rapidly catching up to the US after billions of government subsidies pouring into the sector.
Silicon Valley needs to decide whether they want to live in a tech world dominated by Chinese rules or not.
Augmented Reality: Is this finally the real deal?
Augmented reality (AR) is still mainly used for games but could develop some meaningful applications in 2020.
Virtual Reality (VR) and AR will play a big role in sectors such as education, navigation systems, advertising and communication, but the hype hasn’t caught up with reality.
One use case is training programs that companies use to prepare new workers.
However, AR applications aren't universally easy or cheap to deploy and lack sophistication.
AR adoption will see a slight uptick, but I doubt it will captivate the public in 2020 and it will most likely be another year on the backburner.
Apple’s New Projects
Apple has two audacious experimental projects: a pair of augmented-reality glasses and a self-driving car.
The car, for now, has no existence outside of a few offices in California and some hires from companies like Tesla.
And, at the earliest, the glasses won’t hit shelves until 2021,
The car is likely to fizzle out and Apple will be forced to double down on digital content and services to keep shareholders happy which is typical Tim Cook.
The 5G Puzzle
Semiconductor stocks have been on fire as investors front-run the revenue windfall of 5G and the applications that will result in profits.
Select American cities will onboard 5G throughout 2020, but we won’t see widespread adoption until later in the year.
5G promises speeds that are five times faster than peak-performance 4G capabilities, allowing users to download movies in five seconds.
With pitiful penetration rates at the start, the technology will need to grow into what it could become.
The force multiplier that is 5G and the high speeds it will grace us with probably won’t materialize in full effect until 2021.
Each of the nine tech developments in 2020 I listed above negatively affects US tech margins and that will follow through to management’s commentary in next year’s earnings and guidance.
Tech shares are closer to the peak and the bull market in tech is closer to the end.
Innovation has ground to a halt or is at best incremental; companies need to stop cloning each other to death to grab the extra penny in front of the steamroller.
Profit margins will be crushed because of heightened regulation, transparency issues, monitoring costs, and the unfortunate weaponizing of tech has been a brutal social cost to society.
Tech is saturated and waiting for a fresh catalyst to take it to the next level, but that being said, tech earnings will still be in better shape than most other industries and have revenue growth that many companies would cherish.
Mad Hedge Technology Letter
December 16, 2019
Fiat Lux
Featured Trade:
(THE PELETON BUBBLE IS ON)
(PTON), (PLNT), (NFLX), (AMZN)
Own a Peloton (PTON) bike, but don’t buy the stock.
That is the conclusion after deep research into this wellness tech company.
Peloton is an American exercise equipment and media company that bills itself as a tech company.
It was founded in 2012 and launched with help from a Kickstarter funding campaign in 2013. Its main product is a stationary bicycle that allows users to remotely participate in spinning classes that are digitally streamed from the company's fitness studio and are paid for through a monthly subscription service.
Peloton is wildly overpriced with the enterprise value of each subscriber at $15,631.
Contrast that with other comparable firms such as Planet Fitness (PLNT) whose enterprise value per subscriber is $553 or even streaming giant Netflix (NFLX) whose enterprise value per subscriber comes in at $895.
There are three massive deal breakers with this company – software, hardware, and the management team.
The management team acts as a bunch of cheerleaders overhyping a simple exercise bike with a screen that has no deeper use case and in turn an unrealistic valuation that has disintermediated from all reality in the post-WeWork tech world.
What’s the deal with the hardware?
Some recognition must be given to Peloton for creating a nice bike and interactive classes that mesh with it. That idea was fresh when it came out.
The marketing campaigns were attractive and allured a wave of revenue and these customers were paying elevated prices.
But the bike itself has not developed and advanced in a meaningful way since it debuted in 2014 and back then the valuation of the company was $100 million.
The first-mover advantage was a godsend at the beginning, but the lack of differentiation is finally catching up with the business model and now you can get your own Peloton carbon copy on Amazon (AMZN) for $500 instead of $2,300.
Instead of focusing on the meat and bones of the company, Peloton has doled out almost $600 million over the last 3 years in marketing to capture the low hanging fruit that they most likely would have seized without marketing while competition was low.
Competition has intensified to the point that some of its competitors are giving away bikes for free justifying to never cough up cash for a $500 exercise bike let alone a $2,300 genuine Peloton bike.
The first-mover advantage when Peloton had the best exercise bike is now in the past and the company is attempting to move forward with a stagnant bicycle.
The Peloton treadmill came out much later but has not caught on and has many of the barriers to success I just talked about.
What about the case for owning the stock for the software?
Peloton is charging an overly expensive $39 per month for a “connected experience” to anyone who has bought the $2,300 Peloton bike.
But if the user happens to not buy the bike, they can download the digital app and pay $12.99 per month for the same connected experience.
Why would someone pay $2,300 for an overpriced exercise bike when they can just sign up to a full-service gym and just use the Peloton app with some headphones for $12.99 per month?
This illogical strategy means that less than 10% of Peloton subscribers have bought their bike.
Peloton’s competitors have shredded apart their strategy by essentially underpricing their bike and mentioning that they can use the Peloton app with their bike.
And even if you thought that Peloton’s live streaming fitness classes were the x-factor, users can just add a nice little removable iPad holder to the exercise bike and stream YouTube for free or any other digital content on demand.
The cost of adding an iPad holder is about $13-$15 which is a cheap and better option than paying $12.99 or $39 per month for Peloton’s fitness classes.
Users will eventually migrate towards cheaper packaged content because of the overpriced nature of Peloton’s digital content.
Is Management doing a good job?
Peloton’s CEO John Foley most recently told mainstream media that the company is profitable when it is not.
He has repeated this claim several times throughout the years as well. The company has never been profitable and lost $50 million on $228 million of revenue last quarter.
Each quarter before that has also lost between $30 million to $50 million as well, and Foley is outright dishonest by saying the company is profitable.
Peloton relies on top 100 billboard songs to integrate with their fitness streaming classes and the company just got slammed with a $300 million lawsuit from music publishers claiming they have never actually paid for music licensing.
Music is core to their streaming product and without the best songs, users won’t tune in just for the instructor.
Working out and live music go hand in hand and stiffing the music industry on licensing fees is just another example of poor management.
In March 2020, the lockup expires and top executives are free to dump shares which will happen in full force.
Management has one unspoken mandate now – attempt to buoy the stock any way possible until they can cash out next March.
This group of people is only a few months away from their payday.
There is no software or hardware advantage and management is holding out for dear life until they can kiss the company goodbye.
Do not buy shares and I would recommend aggressively shorting this pitiful attempt of a tech company.
Peloton is a $6 stock – not a $30 stock.
Global Market Comments
November 18, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE MELT UP IS ON)
(SPY), (AAPL), (UBER), (SCHW), (BA), (TSLA), (DIS), (NFLX), (TLT)
All of a sudden, and without warning, a buying panic has ensued in the stock market, breaking it out of a tedious two-year range.
The many concerns that kept investors out of stocks, like the trade war, interest rates, and a global economic slowdown, were shaken off like water off the back of a wet dog.
I could see all this coming. Even with my Mad Hedge Market Timing Index at 86, and trading as high as 91, screaming “SELL” I have been ignoring it. It usually has to spend 2-4 weeks at these elevated levels to make a real top anyway. Hedge fund compatriots who were sucked into selling too early by their own inferior in-house algorithms have been stopping out in great pain.
I’ll tell you the people who are really screwed by this move. Those who watched the economic data deteriorate all year, cut their equity allocations to the bone, and only started chasing the market upward once it broke new ground. It is a strategy that can only end in tears.
We here at Mad Hedge Fund Trader did a lot better. Followers of Global Trading Dispatch missed the breakout but bought every major dive of 2019. With double a good year’s performance in hand, we have no need to chase.
The newer Mad Hedge Technology Letter and Mad Hedge Biotech and Healthcare Letter have continued to go long pedal to the metal bringing in double-digit gains for all. Above all, we took profit on no less than four positions on Friday.
Can the market grind higher? Absolutely, yes. The world is awash in cash looking for any kind of return, and US stocks, with a (SPY) 1.81% dividend, are among the world’s highest yielding. In fact, the move could continue until the end of the year.
When will I come back in? After we get a substantial dip. Disciplines are useless unless you stick to them. In the meantime, while stocks are going crazy, there is fertile ground to harvest in other asset classes. I bought bonds (TLT) at the bottom last week and they are already performing nicely.
If you remember, I sold short, and then bought oil (USO) in September, taking advantage of a spate of volatility there. Such is the advantage of an all-asset class strategy I have been preaching and teaching for the past 12 years.
There will be no interest rate cuts in 2020, says Fed chairman Jay Powell, reading in between the lines. To do so would undermine our ability to get out of the next recession. We are still way below the 2.0% inflation target in this deflationary world.
The de-inversion of the yield curve is clearly driving stocks, with long term interest rates at last higher than short term ones. The markets are backing the recession out of the forecast. “Fear of missing out” is replacing just fear.
Consumer Prices rose faster than expected as tariffs feed into prices, up 0.4% in October. It’s going to take a lot more than that to move the needle on inflation. The YOY rate climbed to 1.8%. Also, US Producer Prices jumped, up 0.4% in October, a six-month high. It’s going to take a lot more than this to start ringing the inflation bell.
Weekly Jobless Claims soared by 14,000 to 225,000. It’s the first big jump in many months. Is the employment top in? Is this the end of the beginning or the beginning of the end?
Charles Schwab (SCHW) trading accounts soared 31%, in the wake of the commission cut to zero. What happens when you lower the price? You sell more of them. It’s a classic law of supply and demand.
Uber founder dumped stocks, as Travis Kalanick unloads $700 million worth of shares. He’s not selling because he can’t think of new ways to spend the money. It’s not exactly a “BUY” recommendation, is it? Avoid (UBER) like the plague.
Apple hit a new all-time high at $264, on three broker upgrades, with the high end reaching $290. The market capitalization tops $1.2 trillion, making it the world’s largest publicly-traded company. It looks like I’m going to have to increase my own target from a conservative $200. I made this prediction when the newsletter started a decade ago and the share traded under $20. People said I was nuts, except Steve Jobs.
The Tesla Model 3 returns to “reliable” list, from Consumer Reports. They had been taken off due to pieces falling off new cars and failing transmissions exactly at the 44,000-mile mark. It was all covered by warranty, of course. Looks like Elon is figuring out how to put these things together and stay that way. It follows an onslaught of good news about the company that has wiped out the shorts. Who is last on the quality list now? Cadillac. Buy (TSLA) on dips.
US short interest falls 1.6%, to 16.8 billion shares, as hedge funds scramble to limit losses. It’s got to be at least half the current net buying.
Disney launched its streaming service, Disney Plus, at $6.99 a month. The site crashed from overwhelming demand. It’s a problem I wish I had. Netflix (NFLX) won’t go under but their growth will be clearly impaired. Let the streaming wars begin! Buy (DIS) on dips.
US Productivity plunged sharply, down 0.3% in Q3. It’s completely a result of the trade war-induced freeze on capital spending by US businesses this year. It means we’re eating out seed corn to grow.
This was a week for the Mad Hedge Trader Alert Service to stay level. With only one position left, a bargain long in (TLT), not much else was going to happen. My long position in Boeing (BA) expired on Friday at its maximum profit point.
By the way, running out of positions at a market top is a good thing.
My Global Trading Dispatch performance held steady at +349.38% for the past ten years, pennies short of an all-time high. My 2019 year-to-date leveled out at +48.68%. So far in November, we are down a miniscule -0.31%. My ten-year average annualized profit held steady at +35.17%.
With my Mad Hedge Market Timing Index sitting around the sky-high 86 level, it is firmly in “SELL” territory and at a three-year high. The markets have been up in a straight line for 2 ½ months.
The coming week is pretty non-eventful of the data front after last week’s fireworks. Maybe the stock market will be non-eventful as well.
On Monday, November 18 at 11:00 AM, the US NAHB Housing Market Index for November is out.
On Tuesday, November 19 at 9:30 AM, US Housing Starts for October are released.
On Wednesday, November 20 at 2:00 PM, the Fed’s FOMC Minutes for their October meeting are published.
On Thursday, November 7, at 8:30 AM, Weekly Jobless Claims come out. At 11:00 AM the October Existing Home Sales are announced.
On Friday, November 8 at 11:00 AM, the University of Michigan Consumer Sentiment is out.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I am going to see the latest Harry Potter play on Saturday, Harry Potter and the Cursed Child. It’s a reward for two kids who got straight A’s on their report cards. They seem to be strangely good at math. Maybe the apple doesn’t fall far from the tree.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 21, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FORK IN THE ROAD),
(SPY), (TLT), (WMT), (GM), (FXI), (NFLX)
I usually don’t pay attention to technical analysis. It is the last refuge of the inexperienced and the uneducated.
However, I don’t ignore it either.
And that sets of a quandary for investors today. For on the one hand, the economic data couldn’t be worse, pointing to a certain trade war-induced recession sometime in 2020.
On the other hand, look at the chart for the S&P 500 (SPY) below and you can see that stocks have been in a clear uptrend for 2 ½ months. Another few weeks, and we might see a breakout to new all-time highs. Or, we might get a false breakout driven by algorithms only and then collapse to new 2019 lows.
Welcome to my world.
While my recent track record may say otherwise, I actually don’t know what markets are going to do every day of every week. And when I don’t know what to do, I do nothing. That’s especially easy to do now with my Mad Hedge Market Timing Index at a dead on neutral position of 50.
Of course, the elevated level of share prices could be the result of ultra-low interest rates and a complete lack of viable alternatives. At 11.9% dividend yield, US stock are among the highest yielding financial instruments in the world. At this year’s 15% capital gain and they are especially compelling, particularly to the many foreigners earning negative interest rates.
In the meantime, I wait for the markets to tell me what to do. I’m basically looking for a higher high to sell into, or a lower low to buy.
The IMF Downgraded Global Growth, from 3.2% to 3% and trade gets the blame. At 2.5% growth, many major economies will be in recessions. Risks are to the downside. More than 90% of the Global Economy is Slowing. It's the worst forecast since 2008.
Bank earnings were mixed, with JP Morgan taking the lead with record revenues and credit card revenues the big winners. Goldman Sachs (GS) looks awful due to failing mergers and acquisitions. Wells Fargo is worse. Trading revenues are the drag.
Retail Sales dove off a surprising 0.3% in September when a 0.3% jump was expected. The individual shopper has been the sole support of the economy this year and when they bail the stock market will hate it.
A Brexit deal is finally on the table, but will Parliament vote for it? I doubt it. If they do, it will be a huge “RISK ON” development. This just could be like Trump announcing another China trade deal. If Brexit lives, Scotland will almost certainly vote to leave the United Kingdom and join Europe.
US Housing Starts fell in September from a 12-year high, down 9.4% to 1.256 million units. The mid-Atlantic gets the blame. Land and labor shortages are a problem.
The GM Strike (GM) is settled and the union probably will vote for it. The strike has definitely been a drag on the US economy. Part of the deal involved closing three old high cost US plants. It’s tough to vote against economic reality.
China’s Economy (FXI) slowed to a 6% growth rate as the trade war drags on business there. That’s a 30-year low. Export demand for US products is plunging. Almost every economic indicator is in decline. Not only is China one of America’s largest customers, it is also Europe’s. The data definitely put the kibosh on the week’s rally.
Netflix soared on an earnings beat, soaring 9%. It looks like it is too early to write off the inventor of movie streaming. I guess a 20-year head start still counts for something. But I am staying away anyway.
I hate to be boring, but my Mad Hedge Trader Alert Service has scored yet another new all-time high. In fact, I have hit new highs almost every day for the last three months. Worse yet, my thesaurus is running out of metaphors for “new high.”
My Global Trading Dispatch reached new pinnacle of +349.64% for the past ten years and my 2019 year-to-date accelerated to +49.50%. The notoriously volatile month of October stands at a blockbuster +12.08%. My ten-year average annualized profit clawed its way up to +35.56%. If I make any more than this, no one will believe it, a frequent problem during my hedge fund days.
Some 28 out of the last 29 trade alerts have made money, a success rate of a stunning 96.55%! Under promise and over deliver, that is the business I have been in all my life. It works. This is rapidly turning into the best year of the decade for me. It is all the result of me writing three newsletters a day, and doing research for 12.
With my Mad Hedge Market Timing Index sitting around the neutral 50 level, there was very little to do this week but take profits on existing positions. Nothing like watching the money roll in. It’s like having a rich uncle write you a check once a month.
All I am left with after the October 18 option expiration is 80% cash and short positions in Wal-Mart (WMT) and the S&P 500 (SPY).
The coming week is pretty non-eventful of the data front. Maybe the stock market will be non-eventful as well.
On Monday, October 21 at 2:00 PM, the US monthly Budget Statement for September comes out, most likely showing a horrific $200 billion deficit.
On Tuesday, October 22 at 10:00 AM, Existing Home Sales are out for September.
On Wednesday, October 23 at 10:30 AM, EIA Energy Stocks are published.
On Thursday, October 24 at 8:30 AM, US Durable Goods are out. Weekly jobless claims are out at the same time.
On Friday, October 25 at 10:00 AM, the University of Michigan Consumer Sentiment is announced. The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I'll be driving up to Lake Tahoe to start organizing my October 25-26 conference, briefly stopping at Vacaville for breakfast at Mel’s Drive In and a top up charge for my Tesla Model X to make the climb over Donner Pass. First on the list is to unload there my five cases of vintage wine so it can adjust to the altitude.
Oh, and I haven’t had time for a haircut since I left for Australia four months ago. My kids are starting to call me a hippie.
The Mad Hedge Lake Tahoe Conference begins that night. Tickets are available by clicking here.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
October 16, 2019
Fiat Lux
Featured Trade:
(IS 3D PRINTING A WASTE OF SPACE?)
(SSYS), (ETSY), (MSFT), (BA), (NFLX), (GE), (LMT)
If you need a new investment theme – here’s one.
3D printing.
Yes, the same 3D printing that was once considered a raging but hopeless fad.
A lot has changed since then.
Early adopters were largely cut down at the knees as they tried to traverse the rocky terrain from a niche market to going full out mainstream.
Production complications and the lack of specialists in the industry meant that problems were rampant and nurturing an industry from scratch is harder than you think.
Believe me, I’ve been there and done that.
It is time to stand up and take notice of 3D printing, this time it is here to stay.
Certain tech companies love this technology like e-commerce company Etsy (ETSY) who focuses on personalized handcrafts.
The cost of production doesn’t change whether you’re producing one item or a million because of the economies of scale.
The previous 3D printing bonanza was a frenzy and this corner of tech became known for the use of buzzwords representing the potential to reinvent the world.
With lofty expectations, there was a natural disappointment when outsiders understood growing pains were part of the critical evolution instead of a direct route to profits.
The initial goal was to democratize production which sounds eerily similar to bitcoins mantra of democratizing money.
The way to do this was to make it simple to produce whatever one wishes.
That would assume that the general public could pick up professional production 3D printing skills on arrival.
That was wishful thinking.
The truth was that applying 3D printers was tedious.
Issues cropped up like faulty first-generation hardware or software -problems that overwhelmed newbies.
Then if everything was going smoothly on that front, there was the larger issue of realizing it’s just a lot harder to design specific things than initially thought without a deep working knowledge of computer-aided software (CAD) design.
Most people know how to throw a football, but that doesn’t mean that most people can be Super Bowl quarterback Tom Brady.
The high-quality 3D printing designs were reserved for authentic professionals that could put together complicated designs.
The move to compiling a comprehensive library will help spur on the 3D printing revolution while upping the foundational skill base.
Then there is the fact that 3D printing technology is heaps better now than it once was, and the printing technology has come down in price making it more affordable for the masses.
These trends will propel broad-based adoption and as the printing process standardizes, more products can rely on this technology from scratch.
The holy grail of 3D printing would be 3D printing on demand, but imagine this on-demand 3D printing would function to personalize a physical product on the spot.
Think of a hungry customer walking into a restaurant and not even looking at a menu because one sentence would be enough to trigger specific models in the database that could conjure up the design for the meal.
This would involve integrating artificial intelligence into 3D printing and the production process would quicken to minutes, even seconds.
At some point, crafting the perfect meal or designing a personalized Tuscan villa could take minutes.
The 3D printing industry is reaching an inflection point where the advancement of the technology, expertise, and an updated production process are percolating together at the perfect time.
The company at the forefront of this phenomenon is Stratasys (SSYS).
Stratasys produces in-office prototypes and direct digital manufacturing systems for automotive, aerospace, industrial, recreational, electronic, medical and consumer products.
And when I talk about real pros who have the intellectual property to whip out a complex CAD-based 3D design, I am specifically talking about Stratasys who have been in this business since the industry was in its infancy.
And if you add in the integration of cloud software, 3D printing would dovetail nicely with it.
All the elements are in perfect in place to fuel this industry into the mainstream.
Take for example airplanes made by Boeing (BA) and Airbus - 3D printer-designed parts comprise only 0.1% of the actual plane now.
It is estimated that 3D printed design parts could potentially consist up to 25% of the overall plane.
These massive airline manufacturers like Boeing (BA) have profit margins of around 15% to 20%, and carving out more 3D printer-designed parts to integrate into the main design will boost profit margins close to 60%.
The development of the 3D printing process into aerospace technology is happening fast with Boeing inking a multi-year collaboration agreement with Swiss technology and engineering group Oerlikon to develop standard processes and materials for metal 3D printing.
Any combat pilot knows who Oerlikon is because they are famed for building ultra-highspeed machines to shoot down, you guessed it, airplanes and missiles.
They will collaborate to use the data resulting from their agreement to support the creation of a standard titanium 3D printing processes.
GE’s Aviation’s GEnx-2B aircraft engine for the Boeing 747-8 is applying a 3D printed bracket approved by the Federal Aviation Administration (FAA) for the engine, replacing a traditionally manufactured power door opening system (PDOS) bracket.
With the positive revelations that the (FAA) is supporting the adoption of 3D printing-based designs, GE has already started mass production of the 3D printed brackets at its Auburn, Alabama facility.
Defense companies are also dipping their toe into the water with aerospace company Lockheed Martin (LMT), the world’s largest defense contractor, winning a $5.8 million contract with the Office of Naval Research to help further develop 3D printing for the aerospace industry.
They will partner up to investigate the use of artificial intelligence in training robots to independently oversee the 3D printing of complex aerospace components.
3D printed designs have the potential to crash the cost of making big-ticket items from cars to nuclear plants while substantially shortening the manufacturing process.
As it stands, Stratasys is the industry leader in this field and if you believe in this long term then this stock would be for you.
It’s nonetheless still a speculative punt but a compelling pocket of the tech industry.
