How to Ride AI s 76,000% Surge to Massive Profits

Transcription

1 How to Ride AI s 76,000% Surge to Massive Profits

2 How to Ride AI s 76,000% Surge to Massive Profits By Paul Mampilly Editor, Profits Unlimited INVESTORS are always searching for the next big breakout stock the next Apple, Amazon or Google. Often, it s like looking for a needle in a haystack, or searching for the great white whale. In Profits Unlimited, the trick is to anticipate the next big mega trend and then find the publicly traded company most likely to profit from that trend. But we already know what will spark the next industrial revolution and change our world in ways we can scarcely imagine. It s a technology called artificial intelligence (AI), or the creation of what I like to call smart machines. These are machines that can mimic cognitive functions that we as people use, such as learning and problem solving. You re probably familiar with some version of this technology perhaps without even realizing it. It s how Apple s Siri and Amazon s Alexa respond to your questions and requests. It s how Uber dispatches its drivers, and the way Facebook arranges its newsfeed. These are just a handful of popular examples but there are many more. In fact, AI is becoming so commonplace now that we aren t even aware of its integration anymore. Of course, there are many benefits that go along with making machines smarter: They re better able to sort through billions of data points to solve society s most challenging problems and make our lives easier. They re able to find deficiencies in any business and immediately improve them. And they re able to perform ANY task without a human needing to constantly tell it what to do. Better still, these employees never need to take breaks. They don t get sick and never go on vacation. With each new breakthrough, AI is also edging toward becoming the ultimate business consultant Showing businesses how to increase earnings through a quick scan of financial reports Showing hospitals how to better diagnose patients through a quick scan of medical records And even showing educators how to tailor their lesson plans to individual students to increase retention and graduation rates. Already, AI models are helping people find their soulmate on sites like Match.com and eharmony. And travel sites such as TripAdvisor, Priceline and Airbnb use AI models to help travelers plan their vacations. 1

3 The Point Is AI Is Already Everywhere It s in our medical facilities, our cars, our homes and our appliances. Many of these smart machines, including those running buy-sell algorithms on Wall Street, work autonomously with virtually no human guidance. Artificial intelligence is actually becoming so advanced that it can identify public outbreaks of diseases before they occur. For example, the Artificial Intelligence and Medical Epidemiology (AIME) platform, which is a technology that applies AI intelligence and mathematical algorithms to predict disease outbreaks, was able to predict when Dengue Fever would hit with 86.4% accuracy. Having this knowledge ahead of time helped to keep the disease contained and more people safe. Elsewhere, AI can scan a person s blood or DNA and detect early signs of cancer, Alzheimer s disease or diabetes in individual patients. These preventative measures could reduce U.S. health care costs by an estimated $300 billion, while the global savings could exceed a massive $10 trillion. And health care is just one of many industry realizing the benefits of AI. This technology can also make agriculture more efficient, like programming drones to monitor the health of crops, automatically turning on the sprinklers when the soil gets dry or harvesting goods in mass quantities. In manufacturing, AI can improve product design, anticipate parts requirements, increase the speed of operations, automate assembly lines, reduce errors and reduce material delivery time by 30%. And that s just for starters. Salesforce, the customer relations management company, has predicted that AI will create 800,000 jobs in the customer service space and boost revenues by $1.1 trillion as soon as With the development of fully autonomous vehicles, AI will add $2.5 trillion in transportation services to the global economy. It will also make our highways 90% safer and potentially save as many as 37,000 lives in auto accidents each year. AI and related technologies will also have a $260 billion impact in the financial services and retail banking spaces. And the aviation industry could see $15 billion in added value, annually. Utilities companies can use AI to automate routine maintenance, improve yields on electricity by 20%, reduce energy waste by 10% and save every American household $30 per month. For retail operations, it can help store owners predict demand, automate basic operations such as stocking and warehousing, reduce stocking time by 30%, increase sales by another 30%, optimize pricing, personalize sales, tailor websites in real time and reduce returns by 2 million units per year. Eventually, EVERY business in EVERY industry will benefit. Which is why leading think tanks like McKinsey Global Institute are estimating that any business that implements AI over the next few years could see its earnings rise by 20% to 30%. That would result in a $15.7 trillion boost to the global economy by making EVERYTHING from our highways to our governments, to our businesses to our hospitals anything you can think of run more efficiently. Plain and simple, AI has the potential to impact every aspect of human life. Which explains why money is pouring into the artificial intelligence space. The world s largest businesses are finally realizing this technology is such a game changer. Amazon is making strides in the fields of robotics and speech recognition after learning that AI could generate an extra $60 billion in revenue per year for the company, from just $1.4 billion the year before. 2

4 BMW, Tesla and Toyota are investing heavily in machine learning to launch a new era of driverless cars. In fact, Toyota has already invested $1 billion into this new technology. Salesforce has launched a project called Einstein aimed at becoming the leader in customer relationship management (CRM), as well as a $50 million fund to encourage AI startups. Meanwhile, IBM has committed to investing $3 billion to make its Watson cognitive computing service the premier leader in AI, while Baidu, the Google of China, has invested $1.5 billion. One recent report shows that companies have openings for more than 10,000 AI-related jobs and have budgeted over $650 million in salaries. That s why large tech firms are racing to buy up AI startups at a frantic pace. In fact, the number of startups devoted to AI has increased 14 times since the year 2000, while the number of jobs requiring AI skillsets has risen 4.5 times in the last five years alone. As you can see in the following chart, funding for AI equity deals is red-hot and growing exponentially. $16 Annual AI Funding ($ in billions) $14 $12 $10 $8 $6 $4 $2 $ Just five years ago, AI was barely a blip on the radar. It had just $1.7 billion in funding. By 2017, that number surged to $15 billion, a 782% increase. And by 2020, annual spending will exceed $46 billion, another three-fold increase. When you add it up, you ll notice that this technology is growing at a pace of more than 100% every year. It grew 176% last year. This year, it s on track to grow 168%. By 2020, it will continue growing at a rate of 158%. When you more than double the size of an entire industry every year, the trajectory is unmistakably stratospheric and could make anyone who invests in it today insanely rich. At this growth rate, a modest $1,000 investment in AI technology could be worth $4.1 million by Or a $2,500 starting sum could be worth $10,352,500. That s a 414,000% increase! And the astonishing thing is that the AI revolution is still in its infancy. As it continues to advance, it will transform every aspect of work, home and society, creating previously unimaginable fortunes along the way. There s just one hitch one obstacle to AI realizing its full potential. 3

5 Computers have gotten more powerful but are still limited in their memory capabilities. In fact, there hasn t been an innovation in memory chips in over 30 years. Flash technology was the last great memory storage innovation and that was developed back in the 1980s. Even though there s been a ton of innovation in the AI sphere, memory has been largely ignored. It s the barrier to artificial intelligence right now. But that s about to change. For machines to think intelligently and remember the new things they learn, they need more powerful memory. That means more memory storage is the last gateway toward optimal AI. When you combine computer power with unlimited data, it creates a digital playground for artificial intelligence. And the key that will unlock that golden gateway is only months away. It s a technology that is up to 1,000% faster than anything else on the market right now. It s called 3D XPoint technology and it will be the next big thing in memory storage. The Big Bang of the AI Revolution To give you a true sense of how significant 3D XPoint technology is, you first have to understand what makes it unique. To start, 3D XPoint has a different architecture from other flash products and uses different storage physics. It s said to run on phase-change memory technology, which is a form of computer RAM that stores data by altering the state of the matter from which the device is made. This allows you to access inexpensive, highspeed storage on an unprecedented scale. Here s how it works... Data is gathered and then stored on three-dimensional memory cells that help to improve storage density. Each cell stores a single piece of data, making a cell represent either a 1 or a 0 through a bulk property change in the cell material. This modifies the cell s resistance level. 4

6 The cell can occupy either a high- or low-resistance state. Changing the resistance level of the cell changes whether the cell is read as a 1 or a 0. Because the cells are persistent, they hold their values indefinitely, even when they experience power loss. 3D XPoint has the ability to write data at a bit level, an advantage over NAND flash memory used today. See, all the bits in a NAND flash block must be erased before data can be written. But that s not the case with 3D XPoint, allowing it to have higher performance and lower power consumption than NAND flash. Put simply, with the 3D XPoint architecture, data no longer has to be stored in 4 kilobyte blocks using a slow file I/O stack. The new technology enables small amounts of data to be written and read, making the read/write process faster and more efficient than NAND flash. While 3D XPoint still isn t as fast as DRAM (Dynamic Random-Access Memory), it has the advantage of being nonvolatile memory, which means that devices using it are able to retain their data or program codes even when they don t have access to power. So, from a performance and price standpoint, 3D XPoint technology is a perfect middle ground between the faster (but costly) DRAM storage and slower (but cheaper) NAND flash. As you can see, 3D XPoint represents a major innovation in memory technology. So it stands to reason that it would take one of the largest chipmakers in the world to spearhead this quantum leap forward. That facilitator is Micron Technology (Nasdaq: MU). A Prime Time for Micron Based in Boise, Idaho, Micron Technology is a global corporation that manufactures many forms of memory chips. While all of Micron s current chips fall within the DRAM and NAND flash storage market, the company announced back in 2015 that it would partner with tech giant Intel to begin developing 3D XPoint chips. Intel began shipping its 3D XPoint technology last year under the brand name Optane. And while they re currently some of the best chips that you can find on the market, they don t yet function as a replacement for DRAM chips as a main form of computer memory. However, I believe that s about to change. Micron and Intel have been developing a second generation of 3D XPoint chips called QuantX that are due to hit the market in And should they live up to the promise of being 1,000 times faster and more durable than any NAND or DRAM chip on the market today, I believe that they ll become the most-used chip of leading tech companies. Remember, memory storage is the barrier for emerging industries such as AI technology. That s because in order for machines to be able to think intelligently and remember new things they learn, they need to have incredibly powerful memory banks. So really, 3D XPoint is the gateway to this new world, with Micron and Intel at the forefront of developing this new technology. That puts Micron in a premier position to profit in the years ahead. Right now, nearly a third of the company s sales come from the computer market, which include its computing, networking, graphics and cloud server products. However, Micron also makes memory chips for smartphones, tablets and other mobile-device markets, which generate more than 20% of the company s sales. I believe that this segment of Micron s revenue could grow spectacularly in the years ahead as 3D XPoint chips begin to infiltrate smartphones and tablets. This becomes important when you consider Micron s global exposure to emerging markets. 5

7 Micron currently makes its products in fabrication plants and assembly facilities in China, Japan, Malaysia, Singapore, Taiwan and the U.S. It generates about 50% of its revenue in China with another 25% coming from Taiwan, Japan and other Asia/Pacific region countries. The thing to keep in mind is that much of Asia is an untapped market. For example, 1.6 billion people in China and India alone don t currently own a smartphone a statistic we here in the U.S. can hardly comprehend. So it stands to reason that as the tech markets grow in these emerging countries, the demand for chips will grow too. This demand should directly impact Micron as the No. 1 chipmaker for 3D XPoint chips meaning more money for both the company and its shareholders. That s why we want to get into Micron today, before this demand starts to ramp up. Increased Demand Boosts Financial Performance When I look at Micron s financials, I can tell the company is in excellent standing. In fact, it just recently released results from the fourth quarter of its 2018 fiscal year and blew expectations out of the water. Micron brought in $8.44 billion this past quarter, which is up 38% compared to the same time last year. Operating cash flow was also up to $5.6 billion compared to $3.6 billion in In addition, Micron reported strong conditions across its markets, particularly for enterprise, mobile, client and SSD storage. The company recorded higher sales in all operating segments and significant sales volume increases for its DRAM and NAND products. This tells me that demand for Micron s faster, more powerful chips are at an all-time high and that the industry is ripe for the company s latest QuantX innovation. At the same time, Micron has increased its pace of production, making it more efficient with changes to its development and fabrication processes. That has enabled Micron to sell at higher prices for some products and gather market share from slower competitors. I believe the changes Micron made to improve its manufacturing processes and to alter its first generation of 3D XPoint products have met the market at just the right time. The company s memory chips are selling into growing markets such as cloud computing, data centers and automotive applications, and should be a catalyst for further AI growth in the future. Plenty of Room Left to Grow One of the things I look over whenever I make a new stock recommendation is the history of a company s management team, because past actions are good indication of future activity. Looking into Micron s past, it s clear to me that the company s management team has always had an eye toward future growth. You see, Micron became one of the world s largest memory producers when it purchased Texas Instruments memory operations in But it didn t stop there. The company later acquired Toshiba s commodity DRAM operations in 2002 and then Lexar Media in 2006 to expand its NAND flash memory portfolio. Micron continued to broaden its products in 2009 when it acquired Displaytech Inc. and introduced a new single-chip micro display panel. Then it bought software company Numonix from Intel, STMicroelectronics and Francisco Partners, a private equity firm focused exclusively on investments in technology and technologyenabled businesses. A long string of other acquisitions was soon followed, such as: 6

8 VirtenSys in 2012 Elpida Memory and Rexchip Electronics in 2013 Tidal Systems, Convey Computer and Pico Computing in 2015 And Taiwanese DRAM maker Nanya Technology Corp. in As a result of Micron s aggressive cornering of the chip market, its revenue has been growing by leaps and bounds. As you can see in the chart below, Micron s revenue rose from $20.3 billion in 2017 to $30.2 billion in 2018, and it is expected to hit $32.7 billion in That s an increase of 28.5% over the course of the next year! $35 Micron s Annual Revenue ($ in billions) $30 $25 $20 $ In addition, the company s free cash flow is projected to grow by $3.4 billion in 2017 to $10 billion in If Micron is able to pull this off, that will mean a 192% increase in cash on hand. I always look to see if a company is cash flow positive before issuing a recommendation, because it s an important indicator of its business s health. After all, the more cash a company like Micron has on hand, the more products it can develop and acquisitions it can make for future growth. Clearly, Micron is all about expanding and looking toward the future, and that makes me optimistic as an investor. Not only do I believe that Micron is going to continue to meet new financial expectations, but I also expect that the widespread rollout of 3D XPoint will make Micron one of the most formidable chipmakers on the planet. We want to get into this opportunity now while the company is still cheap. Because once the rest of Wall Street catches on to the opportunity I just presented you, Micron s stock is going to start rocketing higher. The Chance of a Lifetime The second generation of 3D XPoint technology is close to hitting the market, and when it does, Micron will become a dominate player in a rapidly growing industry. 7

9 These new chips under the QuantX brand will be better, faster and more durable than anything that you can get on the market today, and that means they ll be the go-to chip that all software, robotics and automation companies use for their new tech. As I mentioned earlier, Micron s QuantX series will be launching in 2019, so the time to get in on this gravy train is NOW. Action to take: Buy shares of Micron Technology (Nasdaq: MU). Even though Micron s stock has climbed about 28% year-to-date, all my research indicates that this company is poised for a huge upswing as it becomes the major provider for 3D XPoint technology. That s why now is the absolute best time to add this stock to your portfolio before things accelerate exponentially. But you ll need to act quickly. I ll be tracking Micron Technology s progress closely, and I ll update you on its trajectory through regular correspondence in Profits Unlimited. Regards, Paul Mampilly Editor, Profits Unlimited 8

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