If you think America has a blue collar jobs problem you haven’t seen anything yet. That’s if Alphabet (GOOG) has anything to say about it.

It turns out that the future is coming a lot faster than anyone expected.

Waymo, the top-secret Alphabet autonomous driving subsidiary, has beaten all comers to the punch. The desert state of Arizona has granted a permit for it to commence with their autonomous fleet as a commercial entity in 2018.

This permit means that Waymo’s futuristic robo-taxi can charge passengers for profit. The vehicles started testing in 2017 and were monitored with a human safety engineer inside. This is a big deal from a regulatory point of view.

It took nine years of diligent preparation to arrive at this momentous announcement.

First mover advantage is pivotal in dictating an agenda and setting the rules of the road in the world of innovation.

The desperation of being first to market was epitomized by an email that former top engineer, Chris Urmson, sent Alphabet founders, Larry Page and Sergey Brin, “We have a choice between being the headline or the footnote in history’s book on the next revolution in transportation. Let’s make the right choice.”

In 2018, Waymo has chosen to be the headline after a flurry of lawsuits.  The private ride sharing service Uber felt the only way to claw its way back from the abyss was to poach Waymo’s top dogs and steal their trade secrets. It didn’t work.

The war isn’t over, but it will be hard press for other companies to dampen Waymo’s momentum.

Waymo, a subsidiary of Alphabet (GOOG), is the preeminent force in the quest for mass market driver-less vehicles.

Before Waymo was coined, Google's self-driving-car research was an internal program referred to as Project Chauffeur. The project was created in 2009, hidden from the public eye to keep its technology safeguarded from intruders.

Alphabet invested at least $1.1 billion between 2009 and 2015 to grab the undisputed lead position of this newly created industry.

Most observers estimate that commercialization of level 4 self-driving vehicles will occur sometime around 2020. However, Waymo is not most companies.

The time sensitivity is palpable as Waymo has a chance to flood American streets with its technology before GM (GM) or Uber can get off the starting blocks.

Waymo out-muscled its opponents, reaching a Level 3 standard in 2012. Level 4 is the grade that automakers wish to proceed with. Although not fully Level 5 automated, Level 4 technology can operate under controlled factors without a driver.

The Fiat Chrysler minivans tricked out with Waymo technology have been racking up test miles in Phoenix, Arizona to the tune of around 5 million on Level 4 technology.

Arizona has been a fertile breeding ground for driver-less car development since 2015, when Governor Doug Ducey signed an executive order giving authority to state agencies to “undertake any necessary steps to support the testing and operation of self-driving vehicles on public roads within Arizona.”

The success or failure in Arizona will go a long way to test the quality and sustainability of this new phenomenon. It helps a lot that Phoenix streets are laid out in a simple grid that the current level of artificial intelligence find easy to recognize and understand.

The Waymo lawsuit has subdued competitor Uber for the moment in this zero-sum game. In fact, Waymo’s progress represents an existential threat to Uber.

Waymo is essentially Uber with no driver. Drivers cost money. Waymo hopes to remove the highest input in ride sharing transport - the driver itself.

In just the last quarter, Uber shelled out around $8 billion to drivers equating to around 72% of quarterly gross revenue. No wonder Uber is running in the red and and losing sleep over every Waymo headline they read.

Waymo plans to expand its coverage to other locations. During the last earnings call, Google CFO Ruth Porat noted “We do continue to explore a range of options beyond the program we’re piloting in Phoenix, including, ride sharing and personal use vehicles, logistics, deliveries, and working with cities to help them address public transportation objectives.”

The first commercial operation will begin shortly in Arizona and is crucial to harmonize consumer sentiment with reliable driver-less vehicles. The accumulated data will be vital to prove Waymo’s safety record. If all goes smoothly, Waymo’s autonomous vehicles and technology will spread like wildfire to other locations.

NuTonomy is the only other autonomous vehicle maker that hopes to monetize its efforts in 2018. General Motors (GM) is on course to come on line in 2019, contingent on the permit they applied for. The Uber vs Waymo litigation guarantees that Uber will be squarely in the rear-view mirror.

The potential success will fundamentally change the way people live their lives.

Up to 10 million employed drivers are set to be on the chopping block in America. That includes about 3.5 million professional truck drivers who earn between $30,000-$45,000 per year, along with 2 million Uber/Lyft drivers participating in the gig economy at $7.25 an hour.

The mass adoption of autonomous vehicles will eliminate a huge hunk of the American workforce, while redrawing additional income streams to Alphabet (GOOG).

Insurance companies would take a direct hit with the future pipeline of drivers irrevocably thwarted from learning how to drive. If the preliminary data comes up roses, parents will not allow their 16-year-old kid to learn how to drive. Also, the tragic 40,000 annual fatalities caused by motor vehicle crashes will drop off a cliff.

The pick up in productivity would be astounding as workers will no longer need to drive themselves anymore, cutting costs, and allowing additional time to work while in transit.

The unintended consequences will change the world while making the leaders of the space richer. A deeper underlying effect is that it will strengthen (GOOG)’s credentials going forward to apply A.I. in other spheres.

The peer group is comprised of NuTonomy's technology, second only to Waymo in terms of ability and has been undergoing rigorous trials in Singapore since 2016.

Rounding out the top 3 in this trio is (GM) who is patiently waiting for permission to begin operating its fully autonomous fleet in a commercial ride-hailing service in 2019.
 

Studying the history of the 1849 California Gold Rush, there is not a single miner who is known today.

But the merchants who sold them shovels, food, and blue jeans have banks, hotels, and universities everywhere with names like Huntington, Stanford, Crocker, and Hopkins.

The modern-day Levi and shovel slingers come in the form of the internet infrastructure equipment manufacturer Cisco Systems (CSCO).

Not only does 85% of Internet traffic navigate across Cisco's Systems' powerful routers, Cisco is also run online, from product orders to intra staff circulation of information.

A myriad of tech companies will largely use Cisco's network infrastructure to keep their operations at the cutting edge.

Cisco (CSCO) is an American technology conglomerate headquartered in the heart of Silicon Valley, that builds, manufactures, and peddles networking hardware and telecommunications equipment.

Cisco (CSCO) has finally come in from the cold after a long, hard 2-year slog that finally saw them return to revenue growth.

Quarter after quarter, Cisco (CSCO) was prisoned in the penalty box for sticking with their fading legacy business of network hardware solutions.

Even accumulating a massive $67 billion in profits from abroad, the company failed to impress investor sentiment as revenue sequentially dipped.

How did Cisco (CSCO) get their mojo back?

Cisco finally adopted the SaaS (Service as a subscription) model that has been put to great use by all the high flyers. The one-time fee has been replaced by annual recurring charge generating a perpetual income stream.

The shift means 33% of income is now recurring subscription revenue, comprising 52% of the company's software sales. Cisco (CSCO) made US$5.5 billion from recurring software and subscription in the recent quarter.

Re-calibrating the business model has caused the deferred revenue segment to explode from a pedestrian 6%, just 10 quarters ago, to an impressive 33% now.

The progress has evoked broad based, positive investor sentiment and Cisco is just in the first phase of this secular trend.

Cisco hopes to transition as much business as it can to cloud-based subscriptions to enhance the customer experience.

One of the solutions offered is Cisco UCS Services for data centers. The data center aids business and has a spectacular future ahead of it. Services are aligned with business needs by unique network-based optimization. Cisco Data Center Services cuts operating costs while offering customers a high standard of service.

The plan for their subscription model is to offer pricing that is less than the one-time fee model, but offer premium add-ons to the base model. This incremental quality improvement will justify the recurring model also increase revenue per customer.

The advanced subscriptions will offer the newest cloud-based solutions that Cisco develops and gives impetus towards the SaaS model which has been a boon for the entire tech sector.

Data center was up double digits in the recent quarter, driven by server products as well as the HyperFlex offerings that drew in 2,400 new customers. Security tools have seen a rise in momentum, up 6% QOQ.

Total revenue was up 3% to $11.9 billion, and guidance growth for the next quarter was set at 3% to 5% on the back of the SaaS model, while maintaining vibrant operating margins of 31.7%, and a guided gross margin rate expected in the range of 63% to 64%. These are fantastic numbers.

The second part of the revitalization plan is the $66 billion of repatriated cash. $31 billion will go directly into share buybacks "over the next 18 to 24 months."

Cisco continues to prop up the dividend and remains committed to returning cash, thus exciting institutional investors. Cisco announced a $0.04 boost to the quarterly dividend to $0.33 per share, up 14% YOY.

Acquisitions are also a critical part of the overall strategy, as it always has been. Cloud-based Broadsoft was one of the latest companies scooped up by Cisco.

The company provides the building blocks for service providers to build cloud-based communications services such as voice, video, and web. BroadSoft was founded in 1998 and is headquartered in Maryland.

These little purchases may seem insignificant, but synergistic acquisitions added 80 basis points to the bottom line, and overall inorganic impact bumps up another 0.5 point to about 130 basis points.

Cisco (CSCO) will still be net cash positive of $10 billion to $12 billion and will scour the field for more acquisitions that will levitate growth and improve the product.

When you consider that Cisco's growth is occurring amid a backdrop of a robust domestic and global economy, and amid a trend for all companies to adopt a comprehensive digital blueprint then Cisco is perfectly placed to sell its services to cloud converts.

The digital bias is in the nascent phase, and once brick and mortar grapple with digitization and scalability or extinction, the trend will swiftly compound.

The modernization of the business model explains the surge in Cisco's share price from 2016. The shares have rocketed by an amazing 158% since then. Before that, they were stigmatized as a dying, archaic business that languished for years.

If investors cannot identify new growth drivers on the short-term horizon, they bail out. The two-pronged approach of their subscription model and reallocation capital plan will solidify the accelerating growth rhetoric. In other words, they now have a new "story" to sell.

Their peer group consists of Hewlett Packard (HPE), China's Huawei, Juniper Networks (JNPR), and Finland's Nokia (NOK). Microsoft (MSFT) and Cisco have demonstrated that tech dinosaurs can reinvent, reload, and revitalize a business model on the brink.

Such is the beauty of the digital economy where tinkering with a business model is just a few clicks away.

To learn more about Cisco Systems please click here.

The wild west of the data wars is spawning into an all-out, gun slinging shoot out with a winner takes all mentality.

This slug fest is reminiscent of the unregulated 19^th century American oil barons whose clout and complete control of the supply of oil fueled the industrial revolution that drove America's economy to the top of the global food chain.

Yes, data has become the oil of the 21^st century. It is the oxygen of the next leg of the Internet revolution.

And there is one man moving early to stake out the premium real estate of our futures: Softbank's Masayoshi Son. His $100 million Softbank Vision Fund is not only creating waves in Silicon Valley, but tidal waves.

Many countries, like Iran, Saudi Arabia, and Russia, still rely on petroleum for the lion's share of government revenues. Even though oil is still integral to the growth of the global economy, there is a new sheriff in town: big data.

Cut it up anyway you want, data is simply information, the "zeros" and "ones" that make up the digital world. The information that commands mouthwatering premiums these days can be unraveled by computers.

Computer deciphered data can show behavioral and consumer trends in stark daylight, helping companies ferret out business strategies are proving immensely powerful.

There is an exponential hockey stick effect going on here. As the quantity of data accumulates, the more valuable it becomes.

The types of data being collected are personal data, transactional data, web data, and sensor data used for IoT (Internet of Things) products.

Who is the major player vacuuming up this data?

Masayoshi Son, the CEO of Softbank (SFTBY), an ethnic Korean who grew up in a small village in Japan. He transferred to the San Francisco Peninsula Serramonte High School as an ambitious youth and graduated in 3 weeks.

Son ventured on to UC Berkeley majoring in economics and computer science. He is one of the most dynamic people in the World and has amassed personal wealth of around $25 billion.

A few of his brilliant pre-emptive strikes were seed investing in Yahoo, creating Yahoo Japan, and $20 million for a stake in Alibaba (BABA) in 1999. These investments increased more than 100-fold in value.

Son is on a mission to own or control assets that are the linchpin to global growth nourished by Artificial Intelligence in selective industries such as transportation, food, work, medicine, and finance.

The anchor that ties all these firms together is the massive hordes of data they harvest, which are central to directing how future automated robots and machines perform.

His goal envisions the construction of responsive robots that will emerge as the cash cow in 2045. The construction, utilization, and high performance of these machines will be the key to his vision.

Instead of splurging for premium human data, investors will be competing for the best performing robots and the data derived from them. Accurate human data will provide the springboard to the machine data these robots will generate.

After the first generation of robots endow us with their first batch of data, all human data will be irrelevant. Human information is the test case that robots are founded on.

Once the first cohort of robot data comes to market, the 2^nd generations of robots will be derived off the 1^st generation of robots. Humans will become irrelevant.

Once you marry the treasure trove of data with A.I., the results will enter the realm of today's science fiction. Imagine being the first CEO to bring functional robots to mass market and how valuable that first batch of robot data would represent.

In short, Son is positioning himself to organically engineer the highest-grade robots catalyzing the next gap up in global competition.

This year, Son is on a global treasure hunt to meld together the most precise "big data" he requires to build his robot squadron that will take over the world.

The fight these days is acquiring the oxygen to power these non-human contraptions. Without pure oxygen, i.e. massive amounts of data, engineers will create faulty robots that under-perform.

Looking at the amalgam of companies in which Son has invested, it is difficult to find any rhyme or reason. That is until you find the commonalty of big data.

Son invested $200 million in "Plenty" in July 2017, a company developing indoor farms. If indoor farm data is not diverse enough, then how about the $300 million he showered on San Francisco dog-walking app called "Wag".

The biggest holding in the Softbank Vision Fund is Uber. Uber is ubiquitously known as a ride sharing company that shuttles passengers from spot A to spot B.

Sweetening the deal was a substantial discount the Vison Fund received on a private placement of Uber shares. Uber is now worth about $70 billion and may someday become a FANG in its own right.

Supplementing this transaction is the custom online map app Mapbox, founded as a competitor to Google Maps. Some of Mapbox's partners include Snapchat, Lonely Planet, and The Weather Channel.

Vision Fund's second largest position is ARM Holdings, which is an English semiconductor chip company that has carved out a large segment of the Android and laptop market.

They produce simple CPU's (central processing units) and much more advanced GPU's (graphics processing units) that are placed in smartphones, TV's, tablets, and computers.

Son has shelled out $8.2 billion through the Softbank Vision Fund and the remaining 75% stake is owned by parent company Softbank Group. ARM is one of the shining beacons of European tech and Softbank has pegged its future to its success.

Unsurprisingly, Nvidia (NVDA) is the 3^rd largest weighting and the $5 billion Softbank investment into Nvidia (NVDA) represents a 4.9% stake in the company. The Nvidia commitment is logical considering ARM licenses their chip designs to Nvidia.

As autonomous vehicles will be one of the first benefactors from the cross pollination between big data and automation, these investments completely justify Son's long-term vision.

Son has also snapped up other ride sharing entities such as Didi Chuxing in China, Ola in India, Grab in Southeast Asia, and "99" in Brazil.

Some 31% of the global population is without Internet connectivity. Thus, Son bought OneWeb, which pioneers low cost, high quality satellites striving to grant Internet access for the people still without access. This maneuver will surely see his net data load increase.

In many of the Mad Hedge Technology Letters, we often offer readers the creme de la creme of public stock symbols, but this time it is different.

First, the major holdings in the Softbank vision fund, aside from Nvidia, are privately held companies that do not trade on any stock market.

However, it is very important to watch what he buys, as it gives insights into the best performing and fastest growing sub-sectors of technology.

Or you could just buy Softbank itself, whose shares have doubled over the past two years.

Son won't just flip these companies for a 30% or 50% profit. Tenfold, or hundred-fold gains are the order of the day.

In reality, Son's ultimate goal is to leach out the future aggregate data spewing out from his underlying portfolio and cross-pollinate it with A.I. and automation to revolutionize the world.

This year is a period of jockeying with other venture capitalists to positions themselves accordingly for the next 30, 40 and 50 years.

Welcome to the future.

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more