Investing well means seeing opportunities in chaos. It is also vital to find the businesses that directly benefit by providing solutions.

A New York Times story on Tuesday revealed that Accenture (ACN), the giant consulting company employs 5,800 content moderators for Facebook (FB). The contract is worth $500 million annually.

Investors should consider buying Accenture, and Facebook, too.

There is no doubt Facebook has a platform content moderation problem. During the runup to the 2016 presidential election the Menlo Park, Calif.-based company was widely criticized for allowing political disinformation campaigns to spread on its network. Later Times reporting revealed Russian operatives used fake Facebook member accounts to spread divisive messaging.

Facebook has also been at the center of several similar campaigns about Covid-19, vaccinations and a plethora of so-called cures. Critics have pushed for better corporate governance. Legislators are seeking federal regulation. It’s a mess.

According to the Times, Accenture has taken on all of these issues and more. The Ireland-based consulting firm now employees Facebook moderators in the Philippines, India, Portugal, Malaysia, Poland, Ireland, Mountain View, Calif., and Austin, Texas. This year Accenture has billed Facebook for a total of 5,805 moderators at $50 per hour or more. The annual contract is worth $500 million.

Big contracts are common at Accenture.

As the quintessential management consulting firm, Accenture has business relationships at 91 companies in the Fortune 100, and 75% of Fortune Global 500 businesses. The firm employs 537,000 people worldwide, many embedded with enterprise and government clients in over 120 countries.

Scale is important. Many of the problems Accenture employees are being asked solve in new settings have been resolved elsewhere. The solution is part of its vast knowledge base. More clients lead to an even bigger vault of solutions. It is a virtuous cycle.

I began recommending Accenture in 2014. The firm was the logical winner as enterprises began building out digital transformation projects. And moving digital workflows to the cloud was in its early innings.

Julie Sweet, chief executive officer, said last December Accenture had 90,000 cloud professionals on staff. The company is the leading global partner of Amazon Web Services, Microsoft Azure and Google Cloud. The business is No. 1 in North America and Europe. It is No. 3 in emerging markets, and recently reached 17,000 consultants in China

Second quarter sales jumped to $12.1 billion, up 8%. That was about $140 million above the previous guidance for the quarter, according to a corporate press release. Sweet says companies are stepping up plans to digitize their business infrastructure even as all signs point to a return to a more normal economy.

New bookings for Q2 rose to a record $16 billion, up 13% from a year ago.

It is a story that rarely gets told. Investors are still missing the bigger picture: Enterprises are spending a fortune on digital consulting. Executives understand it is the future of all commerce: Adapt or die.

The executives at Facebook get it. They know they have a content moderation problem that grew out of its massive digital footprint. Calling in Accenture allows the social media company to scale up or down in regions globally depending on need, or where it has no language expertise. Having an at-arm’s-length relationship with content moderation is an added benefit in this era of unusually high scrutiny.

I have been an unapologetic Facebook bull for years. The business is a cash cow because advertisers want to reach its members. And despite efforts by influencers and politicos to dissuade use, membership is growing. There are 3.1 billion monthly active users across its Facebook, WhatsApp and Instagram properties.

Accenture is a great business, too. Sales and profitability are on the rise as enterprises seek digital expertise.

Both Facebook and Accenture have performed well in 2021, rising 38.8% and 28.9% respectively. Longer-term investors should consider buying each stock into near term weakness. 

I know an easy way to outperform the Nasdaq. It involves almost no research and maybe even less risk. I’m surprised more investors haven’t figured this out.

The Nasdaq Composite index closed at 15,129 on Friday, a record high. The tech-heavy benchmark is now ahead 17.4% in 2021 thanks to ongoing strength for software and semiconductor stocks.

Yet investors are better off buying Nasdaq OMX Group (NDAQ), the company that runs the index.

It turns out that running businesses that manage indexes is surprisingly profitable. They are predictable. They also reward shareholders like it’s nobody’s business, to butcher an idiom.

The numbers part is easy. While the composite index is up 17.4% in 2021. Nasdaq OMX is ahead 45.7% during the same time frame. Over the past 10 years shares have risen an average of 24.6% compounded annually, according to Morningstar. This means a $10,000 investment made in the summer of 2011 is worth $90,194.56 today.

Formed in 1971 by the national association of securities dealers, the Nasdaq quickly became one of the premier exchanges in the world, known for its rapid electronic transactions. Speedy processing played a big role in 1992 when Nasdaq linked up with the London Stock Exchange for intercontinental trading. It was also central to the merger in 2007 with OMX, a large exchange operator in the Nordic countries.

Today Nasdaq OMX is the world’s second largest exchange by market capitalization. Only the New York stock exchange, owned by Intercontinental Holdings (NYSE) is larger.

The strength of Nasdaq OMX is profitability. Its four core businesses face little competition.

Market Services, accounting for 40% of revenue, collects a small fee for every security transaction completed on the Nasdaq OMX exchanges. Information Services, about 30% of sales, sells real-time securities pricing data and analytics to banks, brokers, institutional clients and other marketplace operators. Corporate Services earns fees from companies listing on the Nasdaq. And Market Technology sells financial regulatory services and anti-financial crime tools.

During the second quarter conference call, Adena Friedman, chief executive officer said sales reached $841 million, up 21% year-over-year. She noted sales increased across all four market segments. Information Services grew exceptional fast, rising 23% to $263 million.

That growth is related to index funds.

Nasdaq OMX earns fat license fees for helping financial services companies develop index exchange traded products. ETPs such as the Invesco QQQ Trust (QQQ) and the PHLX Semiconductor (SMH) are wildly popular, generating additional revenues through transactions. And many more are in the pipeline. Friedman notes that 15 new ETPs were announced during Q2.

Nasdaq OMX is in the business of developing, maintaining and selling information on some of the most popular indexes in the world. It earns a fee every step along the way, including another payment when the ETP or a derivative option is bought or sold on one of its exchanges.

That’s a far better business than being a passive investor in an index fund.

Shares are up 45.7% this year. This far exceeds the 17.4% return for the Nasdaq Composite index.

Nasdaq OMX investors are also doing way better than shareholders of competitors. The stocks of S&P Global (SPGI), the keeper of the Standard and Poors 500 index, CME Group (CME), the company behind the Chicago Board of Exchange, and the Intercontinental Exchange and have posted gains of 33.3%, 9.8%, and 2.7% respectively.

Another index provider that has shot out the lights is MSCI (MSCI). It’s up 41.7% this year, which is light years better than some of its best-known indexes such as iShares MSCI Emerging Markets (EEM), which is flat this year. More on MSCI soon.

Longer-term investors looking for a way to participate in the growth of the capital markets should nix passive investing in index funds to buy shares in the company that runs the Nasdaq. It’s buyable now on the slender breakout from a month-long consolidation.

Another fleet of self-driving cars company is coming to the streets of San Francisco. This time it might actually be noteworthy.

Waymo, the self-driving car subsidiary of Alphabet (GOOGL), is coming back to public streets in Northern California. It’s an important ride for Waymo. The company seems to be losing its way in the race for automation.

This Bay Area thing needs to work.

Waymo has been on the self-driving trek for a decade. Research began in 2009 when Sergey Brin, Google’s co-founder, splintered off a handful of gifted engineers to work out the math for vehicle automation. Brin promised in 2012 to have an operational vehicle within 5 years. He was right, sort of.

In 2015 Steve Mahan became the first rider in a fully self-driving car on public roads. He was grinning ear to ear as the test car zipped along the streets of Austin, using sensors to navigate through intersections and around pedestrians. Technology put Mahan alone in a moving car for the first time in 12 years.

Except the ride was a controlled test. It turns out that this whole self-driving thing is a lot harder than engineers first thought, even the super brainy ones at Google.

John Krafcik, Waymo’s chief executive since 2015 stepped down in April. The departure was viewed as a sign problems were mounting at Waymo.

The business has been operating a fleet of 300 tricked-out, self-driving Pacifica minivans. The rides are fully autonomous. There are no safety drivers. Unfortunately, the entire fleet is still operating in a tightly mapped, geo-fenced grid in section of Chandler, Mesa and Tempe, Arizona. And the software is still clearly a work in progress.

Saswat Panigrahi, the director of product at Waymo admits to working out the bugs for protocols for emergency vehicles, like pulling over or relinquishing control.

The San Francisco project seems like a reboot.

Customers apply through the Waymo One smartphone app to become a trusted tester. Once approved testers will be able to enter their destination in a smartphone app, summon the vehicle and ride for free in Waymo’s autonomous Jaguar I-Pace SUVs. The catch is testers can’t talk about the experience and a driver will come along for the ride.

The latter makes perfect sense. Waymo has no significant data to operate the vehicle autonomously. This is an opportunity to get that data while testing new software in the real world.

The prize is big.

Most passenger vehicles are parked 95% of the time, according a research paper from Donald Shoup, a professor of urban planning at UCLA. Increasing use, even marginally is a big business opportunity.

If cars and light trucks were functionally autonomous, there would be no need for individual ownership. Passengers could hail a vehicle with their smart device, set the destination and pay for the service without any human intervention. Killing ownership would also kill the cost of maintenance, fuel and insurance.

McKinsey and Co., a global business management company, expects the shift to autonomous robo-taxis could be a $2 trillion opportunity. This is a business segment that does not currently exist.

A year ago, Morgan Stanley analysts said that Waymo might be worth as much as $108 billion as a standalone company, given its lead on self-driving technology. There is reason today to question that analysis. The vehicles are not really self-driving under normal circumstances.

Waymo is still an extremely small part of Alphabet. Even total failure would not be devastating for the parent company. It would merely be a black eye.

Investors should watch this San Francisco project with keen interest. Waymo needs to make real progress with its software. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Tesla (TSLA) is on the verge of a game-changing breakthrough in machine learning yet the only thing people are talking about is its plan for a stupid humanoid robot.

Executives at the electric vehicle company on Thursday held an artificial intelligence day. The two-pronged goal of the event was to show off its AI progress, and to recruit of new engineers.

Plans went awry when Tesla-bot, a 5’8” nonfunctional humanoid robot appeared on stage.

This is why investors should consider buying buy Tesla shares anyway.

Let’s be clear. The AI day presentation was mind-blowing. Tesla engineers are aiming so high it is hard to put the scale of innovation in perspective. Lex Fridman, an acclaimed AI researcher working at MIT and often a Tesla critic characterized the event succinctly:

“Tesla AI day presented the most amazing real-world AI and engineering effort I have ever seen in my life.”

In the past, Fridman criticized Elon Musk, Tesla’s chief executive officer for downplaying the difficulty of the full self-driving problem. In Fridman’s view, the obstacles to FSD are so daunting he didn’t believe any firm could successfully navigate the landscape within the next 5-10 years.

The Tesla AI day changed his mind. That is saying something.

Musk and his team completely reimagined computer vision by thinking exponentially bigger. Then they built models to collect and label the data, and a new processor to make sense of it all.

The idea of AI conjures up rooms full of computers deciphering data and making choices on the fly. In reality, Tesla still employs 1,000 engineers who manually label pedestrians and orange road cones. The latest software iteration is getting much better at auto-labeling. Musk said on Thursday that the neural network model is being completely retrained about every 2 weeks.

Processing is certain to improve when Tesla’s Dojo computer is outfitted with the latest in-house chips designed specifically to optimize neural networks. Engineers claim these breakthrough mega chips offer 4x the performance of the current processors yet they consume 1/5 the footprint.

Fridman believes the virtuous cycle of data collection, labeling, model retraining, and redeployment will give Tesla a real fighting chance to finally solve FSD. This is potentially a $1 trillion opportunity.

Unfortunately, this monumental development is getting lost in the analysis of the Tesla bot.

Investors should focus.

Tesla is building a fully integrated AI powerhouse. Longer-term investors should consider buying any near-term weakness in its shares. 

(Tech stock analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Cathie Wood of Ark Investments might be the most famous asset manager not named Warren yet critics are lining up to bet against her fund. She is likely to get the last laugh.

Wood was making the rounds Thursday on financial news networks. She is getting out in front of reports that the Big Short investor has made a major bet against her flagship fund.

Longer-term investors should accumulate Ark Innovation ETF (ARKK).

Michael Burry gained fame during the 2006-2009 housing bubble by correctly predicting the collapse of subprime mortgages, money lent to higher risk applicants. His research showed that subprime mortgage investments would fizzle when the borrowers were ultimately forced to replace their teaser rate loans with contracts that reflected their creditworthiness. Burry then persuaded Goldman Sachs to sell him credit default swaps to bet against the subprime bonds.

Burry was right. He earned $700 million for the partners in his Scion Capital hedge fund and $100 million personally. Then Hollywood memorialized his exploits in the film The Big Short.

According to a 13F filing at the Securities and Exchange Commission, now Burry is using options to bet against Ark Innovation ETF and Tesla (TSLA), Ark’s largest holding.

Except that Ark and Tesla are not the subprime crisis. The value of their securities has nothing to do with debt financing or default. The process is far more opaque.

Tesla is cashflow positive. Its production for 2021 is sold out. More importantly, the company has shown no trouble raising capital at current share prices and above. Institutional investors have bought into the valuation. If Burry is expecting some sort of bomb to eventually explode and bring clarity he’s likely to be disappointed.

There is also a social investing problem.

Legions of smaller investors have gamified opposition to hedge fund managers like Burry. They look for bearish bets then they collectively run stock prices higher to cause maximum pain. This process can continue for many months, as with the meme stocks Gamestop (GME) and AMC Entertainment (AMC).

Hedge fund managers have lost billions during 2021 betting against meme stocks.

The Ark Innovation fund returned 150% during 2020, although shares are down 8.6% year-to-date. Attracting bearish investors like Burry is not a bad thing. It is likely the fuel needed to get the fund moving higher again.

Longer-term investors should buy shares into the current weakness.

(Footnote: When I was managing editor of MSN Money in the late 1990s, I hired young Mike Burry as a weekly columnist focused on value stocks. He had just graduated from med school at Vanderbilt University and was headed to Stanford for further studies, but stock analysis and investing were his passions. The Big Short is a great film but skips over important and tragic events surrounding Burry’s efforts to short mortgage-backed bonds. Ask me about it next time we meet.)

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Nvidia (NVDA) reported blow-out earnings Wednesday after the close. Revenues are surging as its high-end chips for graphics and data centers remain in high demand.

The San Jose, Calif.-based company reported revenues surged 68% during the second quarter, versus a year ago. And for good measure executives raised Q3 guidance to $6.8 billion, $300 million above prior estimates.

Shares are likely to trade much higher the remainder of 2021.

It should not be a surprise business is booming. Nvidia is one of the best-run semiconductor companies in the world. Long ago, Jensen Huang, chief executive officer began moving the company all-in on artificial intelligence. It was the kind of big bet that could have sunk the business. At the time AI was more about theory than practical applications. The wager paid off.

Today Nvidia has become an AI business.

It runs an AI software platform called CUDA. Its chips for computer graphics use the software to render best-in-class graphics for gaming computers, workstations, supercomputers, data centers, and even game consoles like the Nintendo Switch.

However, the real engine of growth is future applications.

AI researchers have only begun to scratch the surface of what is possible with hardware and software capable of processing tens of millions of simulations on a timely basis.

That’s the Nvidia value proposition. It is why shares trade at 24x sales and 44x forward earnings.

The valuation is hard for many investors to get their head around yet it is the product of Huang constantly putting Nvidia in the right place at the right time. Now the company is growing extremely fast as AI goes mainstream.

Gaming sales surged to $3.1 billion in Q2, up 87% year-over-year. Compute and Network sales, which includes data centers, bounced 46% higher over the same time frame to $2.6 billion.

At a current share price of $190.40, Nvidia still seems inexpensive. Longer-term investors should buy shares into weakness.

(Tech stock analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

The iconic magnetic strip on the back of credit cards is going away and it is a bigger deal than most investors understand. This is how to play it.

Executives at Mastercard (MA) announced last week that beginning in 2024 newly issued credit cards in most markets will no longer require a magnetic stip. The cards will depend fully on chip technology.

Investors should accumulate NXP Semiconductors (NXPI).

The so-called magstripe on the back of most credit cards harkens back to older technology. Swiping a card for purchases seemed like an evolution when the technology was developed in the 1960s by International Business Machines (IBM). Banks were battling rampant fraud as thousands of phony cards began showing up at shopping malls and gas stations.

Modern cards have both a magstripe and EMV chip technology on board.

A study by EMVCo, an industry group founded by Europay, Mastercard and Visa, found that 86.1% of global payments are now made using chip technology.

To push that pace along the credit card industry lobbied for something called the EMV liability shift, an incentive for American retailers and banks to start supporting EMV technology. Following the shift merchants who did accept EMV tech became liable for fraud.

NXP Semiconductors is the world’s largest producer of EMV chips used in credit and debit cards. The Dutch company is the co-inventor of near field communications. NFC is the chip technology used to make contactless payments secure. The intellectual property is used by every smartphone maker in the world.

The total addressable market for NFC has grown from only $9.5 billion in 2017 to a projected $25.5 billion this year. Statista notes that the 2024 projected market is $47.3 billion.

NXP is going to win most of that maker with innovative products and relationships with Amazon.com (AMZN), Alphabet (GOOGL), Apple (AAPL), Ford (F), General Motors (GM) and all of the large credit card companies.

Getting rid of the magstripe might not seem like a big deal. It is. It’s how the next part of the contactless payment revolution begins.

Investors should consider buy NXP into weakness. 

(Tech stock analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

The future of the internet is not really in the cloud. It is in vast networks of undersea cables snaking around the bottom of the Atlantic and Pacific oceans. And one big tech company benefits most.

Facebook (FB) is working with Google on a cable system linking Japan and Southeast Asian countries. Another project with China Mobile will connect 26 countries to Africa. And an Amazon.com joint venture runs from California to the Philippines.

Facebook executives want to control the plumbing.

It makes sense. Undersea cables transport 95% of all of the voice and data traffic crossing international boundaries. We think of the internet as airborne, shifting about in WiFi packets that we can’t see or touch. It is not that. Undersea cables reached 750,000 miles in 2020. They are the backbone of the modern internet.

Some $10 trillion in financial transactions are sent over this system every day, according to a report at Defense News. And the Guardian noted in 2013 that GCHQ, the British spy agency had secretly tapped 200 cables to listen in on 600 million telephone conversations daily.

While the news media is worrying about advertising, Facebook is building an undersea cable empire.

This is not a bad thing for investors. It is the opposite.

Facebook wants to control internet infrastructure so it can expand rapidly all over the globe without relying on other companies. The social media company currently has 3.1 billion active accounts across its Facebook, WhatsApp and Instagram properties. For many of these members, Facebook is the internet. The goal is unfettered access to all 8 billion people on the planet.

Owning the infrastructure is a big competitive advantage.

The project with Amazon.com could start commercial operation as early at 2022.

Facebook is a company the media loves to hate. Investors should see the business for what it is: A dominant tech platform with strong competitive advantages that mints free cash flow.

At $366.56 shares look as though they are getting ready to move to substantial new highs.  

(Tech stock analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Apple (AAPL) is set to launch a slew of new products in September and the news should send shares into the stratosphere.

The Cupertino, Calif.-based iPhone maker is returning to its regular September product launch cycle, according to Mark Gurman at Bloomberg. New iPhones, watches, AirPods and iPads are all coming.

Investors should buy shares ahead of the launch. Let me explain.

Traditionally Apple’s stock price rallies into the launch of new iPhones. The handsets are the biggest contributor to sales and profits. They are also halo products. They suck people into the giant Apple ecosystem. New iPhones lead to iPad, Macbook, and watch sales for Mom and Dad. Older iPhones are handed down to children who buy AirPods and iPad minis.

The more Apple devices a family owns the harder it is to escape.

The products work too well together. The ecosystem is sticky with integrated iMessage and Facetime. Apple Music family plans are irresistible, too.

The opportunity for investors is the trade going into the new iPhone reveal. In the past, it has been safe to buy the two weeks prior to the early September launch.

The exception was 2020 when the traditional back-to-school event was pushed to October 13 due to the Covid-19 pandemic. Even then, shares zoomed from a low of $102.44 on September 21 to a high of $124.38 on the launch date. That’s a nifty 20% return.

Shares are currently stuck in a consolidation between $142 and $149.

If history is any indication, iPhone launches typically come on the Tuesday following Labor Day, according to the editors at Cnet. That would put the 2021 event on September 8, with new smartphones ready for shipping on September 17.

Gurman says to expect updated Airpods, an iPad mini with a larger display and thinner bezels, and a new Apple Watch with a flatter display in addition to four new iPhone 13 variants.

Investors should not wait for the event. Consider buying the shares now and selling into the news. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

The financial services sector is under attack. New financial tech software platforms running artificial intelligence are coming to disrupt the way loans originate.

Executives at Upstart Holdings (UPST) announced on Wednesday that second quarter revenues increased 1,018% from a year ago. Bank partners originated 286,864 new loans during the quarter.

And the business is only getting started. Investors should still buy Upstart.

Let’s be clear about Upstart what it does. The company was built from the ground up to disrupt Fair Isaac and Co. (FICO). For decades banks have used FICO scores to access creditworthiness. Fair Isaac, the clear market leader, collected a nice fee for providing the data. It has been a tidy business with few competitors.

Upstart inputs data points like employment history, education, credit experience, bank transactions, and cost of living into a proprietary algorithm to assess creditworthiness. The company claims higher approval rates, lower defaults, and lower loan payments for consumers.

Banks love Upstart, too.

Partners wrote $2.8 billion in new loans during Q2, up 1,605% year-over-year. Conversion rates grew from 9% a year ago to 24% in the most recent quarter.

The take for Upstart was $194 million in sales. Total fee revenue was $187 million, up 1,308% year-over-year. And David Girouard, chief executive officer says there is more to come. The San Mateo, Calif.-based company is expecting Q3 revenue to reach between $205 million and $215 million, with profits in the range of $18 million to $22 million.

The potential of this business is huge.

Keep in mind that right now Upstart is focused only on personal loans. Girouard said in March that the acquisition of Prodigy Software would help the firm move into auto loans.

This growth story can certainly support much higher share prices.

Upstart shares surged to $171.20 Wednesday following the results. A simple rally to the top of the current trading range would carry the stock to $235, a move of 64% from current levels.

Disruptive companies are explosive. This story is in the early stages.

Investors looking for a more conservative way to invest in cryptocurrencies should consider taking a stake in an exchange.

Executives at Coinbase (COIN) announced on Tuesday that second-quarter revenues surged to $2.23 billion. Profits were $1.6 billion, up a mere 4,900% versus a year ago. Cash on hand is now $4.4 billion.

It was a blowout quarter. Longer-term investors should consider buying dips.

That assessment should be not controversial. Coinbase is minting cash flow. It is an extremely profitable business with plenty of tailwinds. If it was in another sector shares would fetch a much higher valuation. The volatility of cryptocurrencies, and potential regulation is weighing on Coinbase shares.

Longer-term investors should ignore both.

Coinbase isn’t really about crypto price volatility. It is about transactions. Sure, there is some correlation with price and trading volume. However, prices are likely to smooth out as bitcoin is mainstreamed. Ironically, regulation could speed up the process.

Institutional accounts want to buy bitcoin.

Professionals recognize bitcoin is decentralized, scarce and blockchain, its digital ledger system, can’t be hacked. This is the direct opposite of fiat currencies like the U.S. dollar. The Federal Reserve can digitally print greenbacks out of thin air. The supply of figurative ink is unlimited.

A letter to shareholders showed institutional trade volume at Coinbase during Q2 rose to $317 billion, up 47% compared to Q1. Trade volume at the institutional level a year ago was only $17 billion. Total trade volume across both retail and professional platforms was $462 billion, up 38% sequentially.

And that business is insanely profitable. Coinbase is a digital exchange. It gets a cut out of every transaction with margins in excess of 50%. Overhead is minimal and likely to stay that way.

It is the perfect business to profit from the growth of professional crypto trading.

At $269 the shares look like a steal.

(Tech stock analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for free trial.)

Apple  (AAPL) - Get Free Report) managers successfully changed the debate about privacy. Now they want to add spyware to iPhones and iPads, then send suspicious data to law enforcement agencies.

Expanded Protection for Children was announced on Thursday. The software will roll out in iOS 15, the next mobile operating system. Longtime privacy advocates called it a backdoor to Apple’s data storage and messaging systems.

The policy change is a gift to Alphabet ( (GOOGL) - Get Free Report) and Facebook ( (FB) - Get Free Report).

Tim Cook began Oct. 2018 weaponizing user privacy. In a now famous speech in Brussels, the Apple chief executive went after Silicon Valley companies he said were monetizing user data with advertising-based business models. Although he didn’t specifically mention Alphabet, the parent of Google, or Facebook his targets and intentions were clear: Consumers were either the customer or they were the product.

Through the course of an afternoon the debate over actual privacy changed from user data stored on devices and in the cloud to advertising.

It was a debate Apple could easily win, as long as the Cupertino, Calif.-based firm stuck with tough end-to-end encryption and didn’t give up user data.

The latest proposed changes to iOS are designed specifically to break end-to-end encryption and give up user data.

The Electronic Frontier Foundation, a privacy advocate and staunch supporter of past Apple encryption policies called the changes a backdoor.

EFF notes the proposed scanning tools amount to two sets of spyware. The first scans all photos on the devices as they are uploaded to iCloud photos. Looking for markers associated with child sexual abuse material. The CSAM database is maintained by the National Center for Missing and Exploited Children. The other scan covers all iMessage images sent by accounts owned by minors.

These client-side scanning functionalities are software backdoors, according to the EFF. They break key promises of encryption and open the door wide to abuses by government policymakers.

Undoubtedly, some of these lawmakers will be authoritarian.

The response to Apple’s proposed changes has been swift and overwhelmingly critical.

An open letter at Appleprivacy.com quickly gained thousands of signatures and the backing of hundreds of security and privacy experts, cryptographers, researchers, professors and legal experts.

Investors should see the opportunity for Alphabet and Facebook. The uproar changes the debate about privacy from advertising back to actual user data stored on devices and in the cloud.

For three years Tim Cook has been talking about the turpitude of internet advertising. Mark Zuckerberg, founder of Facebook became the equivalent of a James Bond film villain, an evil genius bent on destroying the world for personal financial gain.

Following a 2018 interview with Zuckerberg about user data accessed by developers Kara Swisher told Today that Mark “knows what he did and he’s going to have to answer for it for several years.”

Now Apple is creating a backdoor to scan actual user data on iPhones. It is tough to argue privacy advocacy when your software is purposely scanning every photo snapped at birthday parties, soccer matches and bat mitzvahs.

Apple today is looking less like the undisputed privacy champion.

In contrast the digital ads that interrupt online media are annoying. That is the intent. Advertising remains a huge growth business because if given the choice between paid content through subscriptions or a so-called free ride with ads, consumers overwhelmingly choose to watch ads.

Statista, an online research firm notes that digital ad spending accounted for 51% of total spend in 2020. Growth is projected at 15.1% this year. Global digital ad spending reached $378 billion in 2020 and is expected to grow to $646 billion by 2024.

Alphabet and Facebook are set to benefit disproportionately. Google Search, YouTube, Gmail, Facebook, WhatsApp and Messenger are the most popular destinations on the internet. They are also walled gardens controlled completely by Alphabet and Facebook.

Apple has a powerful walled garden, too. Unfortunately, one of the cornerstones of that ecosystem is being demolished in real time.

Changing the debate about privacy benefits Alphabet and Facebook.

Longer-term investors should consider buy both stocks into pullbacks. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Every day the culture war over vaccines becomes more intense. Investors should ignore all of it. A new digital platform with big winners is taking shape in real-time.

Managers at Moderna ( (MRNA) - Get Free Report) met with analysts Thursday and revealed that the vaccine developer intends to acquire a gene-editing company to broaden its portfolio.

Investors should consider buying Editas ( (EDIT) - Get Free Report) now.

The technology Moderna researchers used to create the Covid-19 vaccine is not new. Messenger RNA, or mRNA, has been around since 1961 when it was discovered by researchers at California Institute of Technology. It took the enormity of the global pandemic to push the science into the mainstream.

Traditional vaccines use a tiny bit of the actual virus, either living or weakened, to trigger an immune response. Getting the virus to a usable state can take years. The development of a vaccine for measles took 10 years.

mRNA vaccines work differently. They send messages to our cells directly to teach our immune system how to attack the virus. The only prerequisite is a digital file with the genetic sequence of the virus.

Investors should not look past this development. It’s a really big deal.

With the immune system is doing most of the heavy lifting, mRNA vaccines can go from finding the sequence in the lab to clinical trials within months, not years. Removing the hassle of working with the physical virus means cleaner progressions and more cost-effective development with no discernable trade-offs.

Plus, there is good evidence mRNA technology is effective in the fight against many other diseases.

Editas execs announced in June that clinical trials were beginning for the treatment of retinal degenerative disease. Earlier in the month Intellia ( (NTLA) - Get Free Report) and its partner Regeneron ( (REGN) - Get Free Report) showed gene-editing was effective in the treatment of a rare liver disease. In both cases mRNA tech as the delivery platform.

This is a new digital drug development platform in the making.

Editas may not be the best takeover candidate for Moderna. The investment opportunity is Editas’ big intellectual property portfolio around gene-editing. Even with the run-up in share prices since May investors are underestimating the value of those patents.

At a share price of $55.59 the stock still seems cheap. 

(Tech stock analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

There is a big push to electrify American-made cars and trucks, yet the best way for investors to play the trend may be a tiny Houston, Tx.-based battery maker.

President Biden was in the Rose Garden on Thursday promoting a goal to have 50% of all cars sold in America emission free by 2030. The President says the future is electric. That is a lot of batteries.

Microvast Holdings (MVST) makes batteries, lots of them.

Most investors have never heard of Microvast. That’s fine. The company is small. It is also a special purpose acquisition company.

The SPAC came public in February via a blank check merger with Tuscan Holdings Corp. That deal valued the business at $3 billion. Shares ran up to $25.20 in early February only to later collapse to $7.83.

The stock is compelling now because the narrative is improving dramatically.

Electric vehicles are coming. Everyone knows that. And narratives drive stock prices.

President Biden got leaders from Ford ( (F) - Get Free Report), General Motors ( (GM) - Get Free Report) and Stellantis ( (STLA) - Get Free Report) to attend his White House shindig yesterday. The President says he will do everything in his power to get more EVs on the road.

Presidents have considerable power to shape investment trends.

Most of the batteries Microvast currently makes end up in commercial vehicles like buses, mining trucks and taxis. The company is vertically integrated with proprietary technology across all of the key battery components. It also has full high volume production facilities in China, and longstanding commercial and research relationships with businesses like Porsche Motorsport, Dana ( (DAN) - Get Free Report), and Oshkosh ( (OSK) - Get Free Report) according to an investor presentation. It is a real business.

Shares are also getting a lot of buzz again among retail investors.

Quiver Quantitative, an analytics firm, found a 193% increase in mentions at WallStreetBets, a popular online stock trading forum.

Shares popped Thursday to $10.47, a 20.6% gain.

Expect more gains in the weeks ahead as EV investing returns to favor both among professionals and retail investors. Microvast could rally back to $25.

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Roku ( (ROKU) - Get Free Report) is not growing fast enough for the next evolution of digital media streaming. That’s a big problem for shareholders.

The Los Gatos, Calif.-based company reported Wednesday that members watched 1 billion fewer hours of digital content on its platform during the second quarter. To make matters worse Roku is now losing money on its popular media players.

Investors should use strength to sell Roku shares.

That is not going to be a popular opinion. Roku has been a great investment for a long time. Unfortunately for shareholders the streaming media business is evolving and Roku’s stranglehold as a gateway for cord-cutters is coming to an end.

At one end of the spectrum Alphabet ( (GOOGL) - Get Free Report) and Amazon.com ( (AMZN) - Get Free Report) have decided to price their hardware offerings ultra-aggressively. The new $50 Google TV dongle has been a huge hit with tech reviewers and users alike. The Amazon Fire TV is fully integrated with the Alexa voice activated ecosystem. It is also the most popular streaming device platform in the country.

The other big competitor is Samsung. Smart TV Plus is a completely free streaming service built into every Samsung smart TV. It’s like Roku, except without a dongle, wires and a learning curve. During the second quarter Protocol reported that Samsung quietly launched the service on the web, too.

In a letter to shareholders Roku managers blame the end of lockdowns for the decline in streaming hours. They argue the choice to absorb rising component costs, resulting in negative 5.9% margins for new media players, was an effort to insulate consumers.

Don’t believe it. If demand was stronger they would have raised prices.

According to a story at Variety, analysts at Morgan Stanley expected active accounts at Roku to reach 56.2 million during Q2. The reported number was only 55.1 million.

The situation is not going to improve any time soon.

The era when cord cutters needed a Roku is begin streaming is over. Google and Amazon devices bring all of the functionality, lower costs and integration with large ecosystems that include home automation. Samsung simply added a software layer to its best-selling TVs.

Roku reported Wednesday that revues grew to $645 million in Q2, a gain of 81% year-over-year. It is not enough. Competition is coming and Roku can’t win. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Robinhood (HOOD) has been derided by traditionalists, regulators and even some users yet its shares have been a big hit with investors. Buckle up, there is more to come.

Fidelity reported on Tuesday that Robinhood became the top traded stock on its platform. The ticker is also among the most mentioned on WallStreetBets, the popular Reddit stock trading stream.

Like GameStop (GME), Robinhood is becoming a meme.

That means much higher prices are coming.

So-called meme stocks make no sense to older investors. Based on financial ratios and metrics, their soaring share prices can’t be justified by the outlook for the underlying business. That is all true, and irrelevant.

Meme stocks are about gaming the system, full stop.

Gamestop is a struggling, brick and mortar video game retailer. Its business model is a casualty of the online gaming era. Despite this, shares rallied from $12.15 in December 2020 to a high of $483 one month later. All the way up hedge fund managers bet against the stock with short sales. Media pundits shook their heads in disbelief.

The professionals misunderstood what was happening. They couldn’t believe anyone would be foolish enough to pay $480 per share for a company that lost $1.6 billion the previous 12 quarters.

The Gamestop rally was about organizing an epic short squeeze to force professional doubters to buy back short positions for huge losses.

Bloomberg reported in January that Citron Research and Melvin Capital, two of the most prolific GameStop short sellers lost billions on the wrong side of the meme stock.

Robinhood is the next perfect meme stock, and it is primed for a huge rally.

The business is hated by financial services traditionalists. They feel the smartphone-centric platform gamifies investing by making transactions too easy, and diminishing the value of traditional stock research. Other doubters point to the record $70 million fine imposed by regulators for harming customers. That settlement was the result of users filing lawsuits during the Gamestop rally.

When the IPO debuted last week at $38 shares immediately began to attract short sale interest, according to a report from the New York Post.

Gains on Tuesday pushed the share price to $46.80, up 24.2%.

The Fidelity order flow news should be a red flag for professional short-sellers. The keen interest on the WallStreetBets message boards means the game is on. Small investors are organizing a short squeeze.

I’m not suggesting Robinhood will replicate the 40x returns Gamestop shareholders enjoyed in January 2021 yet stranger things have happened.

Don’t be surprised if shares continue to shoot higher. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

When the Google Pixel smartphone launches this fall it will have a new Tensor processor designed in-house. That is a bigger deal than most investors might think.

Rick Osterloh, Google senior v.p. for hardware spent last week doing interviews with media outlets. He was telling the story of new processors that change what is possible on a mobile device.

It is a big deal for companies like Cadence Design (CDNS).

Alphabet (GOOGL), the parent of Google would not be the first big tech company to take processor design in-house. Apple (AAPL) charted the course in 2007 when its industry-leading A-series chips gave iPhones best-in-class performance. Samsung followed in 2011 with the development of Exynos line of processors.

Since then Apple remade its laptop lineup with M-Series chips. And Tesla (TSLA) engineers designed new silicon for its artificial intelligence crunching self-driving software.

AI is a big part of the new Google chip designs, too.

Gizmodo reported Monday that Osterloh says the System on a Chip design is the very first of its kind for a mobile device because it runs data center level AI processing locally. In addition to better privacy, running powerful AI applications on the device means a faster, cleaner user experience.

Google’s Pixel smartphone is renowned for its excellent computational software yet Osterloh showed off even better motion and video photography. He also demoed real-time dictation with punctuation. And the wow factor was captioned, live-streaming language translation with native software called Interpreter Mode.

In the past, Google has been able to push the envelope with cutting-edge software. Bespoke, highly integrated hardware will force peers to catch up.

Cadence Design Systems makes the computational software engineers use to design complex SoCs. As more companies move away from off-the-shelf silicon, the San Jose, Calif.-based company is in the right place at the right time to provide solutions.

Shares are on the verge of an important breakout through the $150 level. Investors should consider news positions on pullbacks. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Institutions are rushing back into bitcoin. The new demand should push the crypto currency back to $65,000 in the days ahead.

Beginning on Monday the German government will allow institutional funds that currently control $2.1 trillion to begin investing in bitcoin. This shift represents more mainstreaming of crypto.

Prices are set to surge even more.

The bearish argument against crypto is digital coins do not represent a store of value and therefore there is no demand from so-called real investors. Institutional investors are as real as it gets. However, the rule change in Germany is likely the result of intense lobbying by professionals clamoring for the opportunity to add bitcoin to the most conservative funds.

Demand for bitcoin is significant.

The reason is simple: Global central banks are creating new currency at an unprecedented rate. The Federal Reserve is currently buying $120 billion worth of treasury and mortgage-backed securities every month. The dollars used to fund these purchases is being digitally created out of thin air. There is no sign this strategy to flood the system with liquidity will change anytime soon.

Bitcoin is capped at 22 million units. It is decentralized and cryptographically secure. Nobody has control. And its public digital ledger cannot be altered for any reason.

Scarcity and protection against fiat currency devaluation is the argument for bitcoin.

It is why professionals want in.

The German strategy shift will allow 20% investment by Speziafonds, fixed asset investments that are only accessible by pension companies and insurance funds, according to a report Saturday at Bloomberg.

Bitcoin traded up to $42,500 this weekend. In the past significant price surges have always followed periods in which prices rose for 9 consecutive session. There is resistance at $44,740 then free sailing all the way to the old high at $65,000.

Bullish investors should accumulate MicroStrategy (MSTR), the best leveraged bitcoin play. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively and lucrative guide to investing in the digital transformation of business and society. Click here for a trial.)

The price of bitcoin is surging again yet the real move higher may only be getting started. Demand is probably coming from  Asia. 

Bobby Lee, the entrepreneur who ran China’s first bitcoin exchange, believes the government is headed toward a cryptocurrency ban. Given the corporate crackdown this week, it makes sense nationals would seek the relative safety of an anonymous digital coin.

Investors should consider MicroStrategy ( (MSTR) - Get Free Report).

To be clear, the Chinese government is determined to reshape the new digital economy. Last week its State Council mandated that for-profit private tutoring firms become non-profits. Many of these firms are public companies with shareholders. Removing the potential for earnings destroyed billions in wealth overnight.

And the state has had various run-ins with online finance, ecommerce, ride-hailing, property and bitcoin operations. A Reuters report Wednesday speculated that online gambling may be the next big target.

Lee felt the wrath of the state first hand in his stint at BTC China. The 7-year old bitcoin exchange was shut down in 2017 following a ban on crypto trading. Lee told Bloomberg Monday that banning crypto altogether is the logical next step.

It is probably no coincidence bitcoin surged as the Chinese corporate crackdown accelerated.

MicroStrategy is the mullet of tech businesses.

Up front it is a profitable buttoned-down enterprise software company. In back the firm is all about leveraged bitcoin investment. The Tysons, VA.-based company now holds 105,000 bitcoins.

Michael Saylor, chief executive officer, decided in 2020 that owning bitcoin would create more shareholder value than holding cash. Then Saylor started selling debt to buy even more bitcoin.

The software business generated $83.8 million in free cashflow during the past 12 months. That’s ample to run the business and service debt.

Investors looking for a leveraged bitcoin play should consider MicroStrategy shares. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Alphabet ( (GOOGL) - Get Free Report), the parent company of Google, is killing it operationally. And investors absolutely should have been able to see this coming.

The Mountain View, Calif.-based company reported Tuesday that ad revenue grew 69% versus a year ago. Its YouTube business logged sales of $7 billion. That is nearly as big as Netflix ( (NFLX) - Get Free Report).

Every part of the business is growing fast. More importantly, it was all predictable.

Ruth Porat joined Google in 2015 as chief financial officer. Bloomberg reported that her $70 million deal with the company gave her free rein to impose financial discipline and reorganize the various business segments. It has been a runaway success.

Institutional Investor named her internet CFO of Year in 2018 for her plan to force Google’s projects to behave as independent businesses.

Today the so-called alpha “bets” are flourishing. YouTube is the star.

According to the press release the video-sharing website totaled $7 billion in sales, up 83% from a year ago. Keep in mind that numbers last year were inflated by the pandemic when millions of people were shuttered at home. And YouTube Shorts, a TikTok competitor, has already scaled to 15 billion views daily, up from only 6.5 billion views in March.

The growth is possible because YouTube has an extremely large franchise, with more than 2.3 billion monthly active users. Porat challenged managers to better monetize the platform. The result is better data analytics, better ad rates, more ads and bigger profits.

Alphabet shares zoomed 3% higher Tuesday to $2,719 in after hours trade. The stock is still a buy into any weakness. Porat is only getting started.  

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Mark Zuckerberg wants Facebook ( (FB) - Get Free Report) to be the master of its own universe. So, he’s going all in on hardware and something he calls the metaverse.

The social media giant announced Monday that an internal team is being created to drive new virtual and augmented reality projects that will live inside a metaverse, a purely digital world.

Don’t laugh. It’s a really good idea and another reason to buy Facebook shares.

I am an unrepentant Facebook bull. I have been telling all who would listen to ignore the domestic antitrust legislation, the fines in Europe and even the slings and arrows directed at Zuckerberg by the media and Tim Cook, Apple’s ( (AAPL) - Get Free Report) chief executive. I’m bullish on Facebook because the social giant is where people meet online.

Facebook has 3 billion members globally. And that number is growing every quarter.

A metaverse is an opportunity for the Menlo Park, Calif.-based company to gain complete control of an operating system that promises to succeed smartphones and the mobile internet. It will be a virtual place when people can gather to play games, work and socialize, according to a post from Andrew Bosworth, a Facebook vice president of AR and VR.

And Facebook, with its global scale, is the logical winner.

To get there Facebook is investing heavily in connective tissue, the hardware and software needed to make the virtual experience seamless. This is next generation virtual reality headsets, handheld controllers and a new software operating system that removes the limitations of physics.

Critics are going to say Facebook can’t succeed because the company lacks the public trust like Apple, Alphabet ( (GOOGL) - Get Free Report), Amazon.com ( (AMZN) - Get Free Report) or Microsoft ( (MSFT) - Get Free Report).

This is simply not true. Facebook has 3 billion members. It won social.

The metaverse is going to be huge.

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Intel (INTC) reported second quarter earnings Thursday after the market close. They were terrible yet longer-term investors should still buy shares into any weakness.

The story at Intel for the last decade has been one of missed opportunities. Previous managers missed mobile computing and production failures let key customers move on to other ventures.

However, a new opportunity is on the horizon and Intel is destined to win.

The semiconductor industry is changing. Some of this is the result of previous failings at Intel. The company famously wasted $10 billion trying to win mobile computing market share. After admitting defeat Intel pivoted to 5G modems, then lost that race to Qualcomm (QCOM).

Yet the global semiconductor business is not only about being first or even best.

Pat Gelsinger, Intel’s new chief executive officer is positioning the icon American company as a safe haven in a global supply chain now dominated by Taiwan, China and South Korea. Given the geopolitics of the South China sea and escalating hostilities safe is starting to look quite attractive.

The New York Times reported in June that the Senate passed the $250 billion U.S. Innovation and Competition Act. The legislation is directly aimed at bringing more semiconductor production stateside. Lawmakers are fearful China has too much control over supply.

This money might as well be labeled the Intel rehabilitation fund.

Gelsinger has already committed $20 billion to build new facilities in the United States but taxpayers are likely to foot a good part of that bill through subsidies and incentives. And that is only the beginning. Politicos are about to revitalize profits at Intel.

Longer-term investors should use weakness in shares to accumulate positions. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Grassroots eCommerce is the next big digital investment opportunity. There is a clear leader in the space. Investors should get on board now.

Execs at YouTube announced Wednesday that tests have begun for shopping directly from livestream media. Managers are embedding an eCommerce platform for YouTube content creators and influencers.

Investors should buy Shopify ( (SHOP) - Get Free Report). Let me explain.

Something important is happening in retail. Sales managers at Amazon.com ( (AMZN) - Get Free Report) realized long ago that they could scale online shopping faster and more efficiently by shifting the burden of inventory to third-party sellers.

Amazon Marketplace is a fee-based platform operated by Amazon.com. It provides warehouse and logistics operations to independent sellers on the site. The customer-facing part of the business looks like Amazon.com. Behind the scenes, third-party sellers are taking most of the risks.

It’s a great business and Walmart ( (WMT) - Get Free Report), Facebook ( (FB) - Get Free Report), TikTok, and Alphabet ( (GOOGL) - Get Free Report), the parent company of YouTube want in.

The problem is these large companies have no experience building consumer-friendly eCommerce software. Moreover, there is no reason for them to be in that business. So they are outsourcing.

Enter Shopify.

The Ottawa, Canada-based company cut its teeth building eCommerce shops for most of the third-party sellers on Amazon Marketplace. Managers also secured deals to do the same for Walmart, Facebook, TikTok, and Alphabet.

Shopify is building what looks like a monopoly on the future of third-party sellers and so-called influencer merchandising. YouTube is a natural fit.

Jim Cramer of theStreet.com says Shopify puts small businesses on par with the big guys.

It’s better than that: Shopify wins on both ends. Its software is the preferred gateway to the biggest social media platforms for millions of Mom and Pop shops. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Netflix ( (NFLX) - Get Free Report) whiffed on second quarter financial results Tuesday after the close. However, the streaming giant is officially expanding into gaming. Shares are headed higher.

The Los Gatos, Calif.-based company missed the $3.16 per share earnings forecast by 17 cents. Paid subscriber growth bested lowered forecasts yet managers were not especially upbeat about paid member adds in Q3.

Don’t worry. Netflix is changing its business again. Investors should buy.

Netflix is an iconic business because of its nimbleness. Only 15 years ago the company was primarily a mail order DVD rental business. Customers received fragile plastic discs in the mail that they then inserted into relatively expensive black metal boxes hooked up with wires to the back of their televisions. In the era of Blockbuster Video that business model was considered revolutionary.

Blockbuster, DVDs and players have all been relegated to the scrap bin of history. It’s mostly because Reed Hastings, Netflix’s founder and chief executive went all-in on digital streaming media.

Going into gaming is potentially even more significant. It positions the company to better monetize its customers’ free time. Gaming is sticky. Done right, it keeps players connected in ways watching content passively can’t match.

Hastings joked in 2019 that Fortnite, the wildly popular online multiplayer game, was a bigger threat to Netflix than HBO and Game of Thrones.

Netflix has been a great stock through the years. Morningstar lists the 15-year compound growth rate at 40.22%. A $10,000 investment made back then is worth $1,592,752 today.

This is an inflection point. Longer-term investors should buy any weakness.   

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Intel ( (INTC) - Get Free Report) execs want to make chips for competitors even if it means buying the operations once owned by Advanced Micro Devices ( (AMD) - Get Free Report), its archrival.

The Wall Street Journal reported July 15 that Intel is in talks to buy GlobalFoundries, a semiconductor fabrication business now owned by the Abu Dhabi government. The news sent the shares of chip companies reeling.

Even if the deal happens it is unlikely to change the industry.

That’s because most of the chips being made by GF are not the cutting-edge processors in now demand by the likes of Apple ( (AAPL) - Get Free Report), Nvidia ( (NVDA) - Get Free Report), Qualcomm ( (QCOM) - Get Free Report), and even AMD.

GF used to be wholly owned by AMD. The two companies still have a manufacturing relationship that accounts for $1.6 billion in annual sales. However, GF has been moving away from leaving leading-edge chip production because its foundries lack the scale to compete with Taiwan Semiconductor ( (TSM) - Get Free Report) and Samsung.

Nonetheless, the Journal reports the deal could be in the $30 billion range and it would give Intel a leg up in producing the kinds of older chips that are currently in short supply. These chips use older nodes can be made at a significant profit margin.

Investors were wrong to sell semiconductor equipment companies like Applied Materials ( (AMAT) - Get Free Report), KLA Corp. ( (KLAC) - Get Free Report) and ASML Holdings ( (ASML) - Get Free Report) on the GF news. Even if the deal happens it will not impact sales of leading-edge products.

Moreover, as Jim Cramer suggested Tuesday morning, many of these stocks are not nearly as cyclical as investors believe.

He’s right. The digital era means more semiconductors in every part of the economy. Use the current weakness to build positions.

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Tesla ( (TSLA) - Get Free Report) makes the world’s most advanced automated driving software and it is finally available for wider release. Despite what you might read, this is going to be a big driver for shares.

It didn’t take long for the naysayers in the media to pan Tesla’s Full Self Driving software. The principle criticism is FSD does not meet the technical standard for automated driving. Critics miss the point completely.

Their pessimism is creating a buying opportunity in Tesla shares.

To be clear, FSD does not elevate vehicles to robots. You can’t use your iPhone to summon a driverless Model 3 to pick you up at the gym. And you can’t watch movies in the back seat while the vehicle plays chauffer. That’s not the point.

However, a Tesla equipped with FSD can navigate streets, using cameras and software to watch for bicyclists, traffic lights, road obstructions and other motorists doing silly things. It can speed up, merge into traffic and make complicated turns. For the average driver this is going to be mind-blowing. No other car on the road is remotely as advanced.

Now FSD is rolling out to thousands of Tesla owners who prepaid for the service. Others will be able to subscribe for $199 per month. And as the software moves from YouTube tutorials to neighborhoods all over the country the buzz will build to a roar.

The naysayers will continue to quibble about technical definitions, or Tesla owners being used as test pilots for beta software. Ignore their messages. Focus on the narrative that will surely drive share prices.

Tesla makes the most advanced vehicle software in the world. Now the entire world will know. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively, lucrative guide to investing in the digital transformation of business and society. Click here for a free trial.)

Nvidia ( (NVDA) - Get Free Report) shares have been on a roll lately. Investors are even more pumped than usual about prospects at the San Jose, Calif.-based graphics chip company. This is why traders should get ready to sell.

On Wednesday, Nvidia common stock will split 4-for-1. Managers announced the distribution in late May and shares bounced 28% higher over the next eight weeks.

There is every reason to believe Nvidia stock is headed for a correction.

Operationally Nvidia is firing on all cylinders. First quarter revenue soared to $5.66 billion, up 84% year-over-year. Earnings per share jumped to $3.03, a rise of 106%. Nvidia’s best-in-class silicon is finding its way into more artificial intelligence setups at hyperscale data centers, supercomputers and even automobiles. I have been recommending the stock for the past 20 years.

Yet traders should be concerned about the mechanics of stock splits, especially for high profile technology firms such as Nvidia. Shares tend to run up on news of the split, then sell off following the allocation.

There is precedent.

Apple ( (AAPL) - Get Free Report) announced a 4-for-1 stock split in late July 2020 to shareholders of record August 31. Shares ran up from $95 to $134 ahead of the distribution, a gain of 41%. In the 2 weeks post-split shares traded back to $104, a loss of 22%.

The same fate befell Tesla ( (TSLA) - Get Free Report) shareholders. Managers at the electric maker announced in August 2020 a 5-for-1 split. Shares rose 81% ahead of the split, only to crater 34% later.

There is some good news though. Both Apple and Tesla shares went on to perform well through the end of 2020, rising 27% and 42% respectively.

And Jim Cramer said Monday that the current stock market correction will end when the biggest tech stocks finally roll over. Nvidia is the biggest semiconductor company in the United States by market capitalization.

Traders should get ready to sell Nvidia this week even if it is for just a few weeks. 

 (Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Political leadership in China seems determined to take control of Taiwan, its self-governed island neighbor 100 miles away. Here is what it means for investors.

Institutional money managers are worried about the fallout for semiconductors, according to Jim Cramer. The financial news commentator says a China/Taiwan war could knock out the chip sector.

It’s an opportunity for Intel ( (INTC) - Get Free Report). Let me explain.

Many companies like Apple ( (AAPL) - Get Free Report), Nvidia ( (NVDA) - Get Free Report) and Qualcomm ( (QCOM) - Get Free Report) design advanced semiconductors. However only a handful of firms fabricate the silicon. Taiwan is home to the world’s largest manufacturing facilities. A report from the Semiconductor Industry Association, an industry trade group, notes that Taiwan produces 20% of the world’s chips, and 90% of the most advanced processors.

Chips made in Taiwan power our vehicles, smartphones and next-generation data centers. Lost production, or worse having the country fall under the control of the people’s Republic of China, would devastate the global economy. It could happen overnight.

There is a safe haven, though. It’s Intel, the world’s largest semiconductor firm by production.

Admittedly, the Santa Clara, Calif.-based company has fallen far behind Taiwan Semiconductor ( (TSM) - Get Free Report), its Southeast Asian rival. TSM contract manufactures for all of the world’s best chip designers, including Apple. Now Intel wants into that business. Reuters notes that managers laid out a plan in March to begin made for hire services.

More importantly, Intel is the likely landing spot for anxious professional investors who need exposure to semiconductors and are worried about Taiwan.

That threat is growing with each day, especially given Chinese President Xi’s new tone regarding investment and the so-called One China objective.

Cramer listed worries about Xi in his themes to watch for the second half of the year.

It’s time for investors to begin planning ahead. Intel is the best way to start

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Imagine automobiles so omniscient they recognized, welcomed and understood drivers’ likely destination on approach. Now imagine how much that service would be worth.

Elon Musk revealed Thursday the Model S Plaid, the flagship vehicle from Tesla (TSLA). Besides being the fastest, it is the most technologically advanced production vehicle ever made.

Plaid is an artificial intelligence wake-up call for carmakers.

It’s also a big opportunity for Nvidia (NVDA) and Aptiv (APTV).

It should not come as a surprise Tesla engineers are pushing the envelope of what is possible for vehicles. A decade ago Musk tasked product managers with the goal of making an electric vehicle that would force the industry to adopt electric vehicles. At the time the concept seemed preposterous. Today every major automaker is transitioning to EVs.

Volkswagen (VWAGY) will spend more than $100 billion to get there. Ford (F) and General Motors (GM) have allocated about $30 billion to retool plants and jettison their current fleets. Volvo managers want to go fully electric by 2030.

EVs are definitely the future of automobiles, yet getting legacy fleets to match Tesla’s AI pizazz is another matter altogether. Tesla vehicles have software in their DNA. Code is tightly integrated into everything, even mundane functions like heating and air-conditioning.

Musk spent 5 minutes at the Plaid reveal on YouTube talking about a new heat pump that uses machine learning to rapidly cool the battery system after the vehicle is launched repeatedly from 0-60 mph in less than 2 seconds. And how the three zone interior HVAC system is completely ventless. Airflow is directed by a computer algorithm.

More algorithms control entry and navigation.

Based on the biometrics from a driver’s smartphone, the car recognizes who is approaching and unlocks. The vehicle understands where the driver is headed based on personal calendar integration or analysis of previous trips. Tesla managers even removed the driving stalk for forward and reverse because the software makes manual input superfluous. There are no buttons to push or levers to pull. Drivers get in and drive away.

This kind of automation is not exactly full self-driving capability, although Musk says the company is getting close there, too. What it is though is a powerful competitive advantage over every other vehicle on the road. Legacy carmakers may have exciting new EVs but by comparison their tech still seems old.

Old is not good. Enter the help.

Nvidia is best known for making state-of-the-art video graphic hardware. The fast-growing San Jose, Calif.-based company is also the only true AI rival to Tesla. The Nvidia Drive Orin system is essentially a bolt-on system to bring full self-driving to emergent EV platforms yet it is also versatile enough to power personalized entry, voice recognition and next generation infotainment systems.

Last January managers at Nio (NIO), a cutting edge Chinese EV maker, showed off a slew of highly personalized software features all running on top of Nvidia hardware. Its Nio ET7 sports sedan is the closest Tesla technology competitor with a full an in-car AI system and a 0-60 mph time of 3.9 seconds.

Aptiv PLC (APTV) might be unfamiliar. The Irish firm was spun out in 2017 from Delphi Automotive, one of the first auto part suppliers. The company designs Advanced Driver Assistance Systems, the software that takes over braking and steering when a vehicle’s onboard computer senses peril. Aptiv also makes next generation power and signal solutions. That’s a fancy name for the software architecture car companies, including Tesla, use for electric routing.

Vehicle makers will launch 45 new high-voltage platforms by 2022 according to a June Aptiv investor presentation. Bookings for these systems are expected to climb to $1 billion annually by 2022, a 40% compound growth rate from current levels.

Investors need to be aware the automotive sector is in a state of flux. Legacy car companies are spending furiously to catch-up with Tesla, the sector tech leader.

The introduction of Plaid last week created even a larger sense of urgency.

The best strategy for investors is to buy shares of the companies that will help legacy automakers compete. That is Nvidia and Aptiv. 

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Thousands of unfinished pickup trucks are piling up at a Kentucky speedway, a testament to a global chip shortage. Investors should not worry. It’s yesterday’s news.

Managers at Ford ( (F) - Get Free Report) were all smiles last Thursday at the official reveal for the Lightning, an electric version of their famous F-150 pickup truck. The grins were warranted. This is the new Ford.

It’s no surprise that on Friday the stock price shot almost 7% higher. There is more ahead.

The auto sector is in a strange place. A major transition is underway as all of the leading manufacturers shift from internal combustion engines to electric power plants. It’s a big deal. Electric vehicles require less maintenance than their ICE counterparts, a big part of the business model for the new car and truck dealerships scattered across the country.

Business managers at Ford and the rest of the automotive world need to figure out a way to make the transition to EVs without starving their affiliated dealers and repair shops.

The solution seems to be transition EVs.

When it arrives in 2022 the new Lightning will sit side by side with the gas and diesel powered F-150s that have been the best selling vehicles in America since 1981. Yet Lightning, starting at less than $40,000, will clearly be the best of breed in terms of towing capacity, torque and flat out acceleration. Even with its massive 6,500 pound bodyweight Lightning is still capable of bolting to 60 mph in a sportscar-like middle 4 second range.

The vehicle will have all of the advanced features of supercars, too. Product managers said the truck will come equipped with level-2 autonomous driving, bringing handsfree highway lane changes and over the air software updates for future new features like even better acceleration and longer range.

The oddity of the transition to EVs is that despite their digital foundation, next generation plug-ins are less reliant on the chips responsible for the current tumult in the global automotive sector. Those processors are mostly older configurations that convert analog signals to digital.

The F-150s sitting at the Kentucky speedway are good-to-go other than a chips that control their speedometers and legacy antilock braking systems.

Jim Farley, chief executive, said in a press release in February the chip shortage could cost the company up to 20% of first quarter production, or $1 billion to $2.5 billion in profits. And Bloomberg report noted that auto sector analysts expect the shortage may last until the third quarter, resulting in 700,000 few vehicles sold and lost industry profits of $61 billion.

Clearly there is a disconnect between what is happening on the ground and share prices. There is good reason.

Lightning represents where Ford is headed. EVs, even transitory ones that are a year away and look similar to existing ICE vehicles, represent important digital transformation at the Dearborn, Mich.-based company. It means analysts will shift to new valuation metrics that will make the old industrial giant assessed more like a tech company – ie on revenue and progress toward the EV goals, and not just earnings. ach inevitable bump is likely to be richly rewarded with higher share prices.

There is recent precedent.

Two years ago Disney ( (DIS) - Get Free Report) managers began the transition from theme parks, summer movies and sports broadcasting to subscription video on demand. Their timing was perfect. One year into the new business model the global pandemic forced the shuttering of their traditional businesses. Meanwhile work-from-home initiatives had millions lining up for the fledgling Disney+ SVOD.

Despite 9 quarters of weaker sales and sagging profitability, Disney shares soared higher on SVOD growth.

The same metric shift is happening with Ford shares in real time.

Farley noted on Friday morning that new orders for the Lightning topped 20,000 in only one day. Ford stock closed the session at $13.33, a near 7% gain, and the highest price in a decade. That is what hot tech stocks achieve, not old cyclicals. It’s a new day daddy-o.

Lightning is a clever vehicle by design.

It looks enough like the beloved F-150 to not spook traditionalists yet its EV foundation is sufficient to put Ford into the discussion about future technology. The Verge, a popular tech media outlet for millennials gushed about Lightning, calling it an electric truck for the masses. You know it’s gone mainstream when you see “Tonight Show” host Jimmy Fallon fawning over it in his comedy.

Investors should be aware that everything has changed. The share price is now a reflection of new technology development metrics like EV plant conversions, partnerships for charging networks, batteries and autonomous driving.

Ford is transforming from a boring rustbelt car company to a digital tech titan.

Investors, start your engines.

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

In addition to launching products, modern chief executives must navigate the politics of corporate responsibility while attracting professional investors.

Sundar Pichai, the chieftain at Alphabet (GOOGL), stepped Tuesday onto a makeshift stage at the Google campus. As the host of the I/O developer conference he could have talked about code. Instead, Pichai talked sustainability in the most Google way possible.

Longer-term investors should consider buying the stock.

Google doesn’t seem like a green business. The company’s bread and butter is a network of 21 resource-hungry data centers located all over the globe, and linked by thousands of miles of fiber optic cable. These vast monoliths, filled with countless computer servers and switches power billions of daily web searches, digital ads and cloud services.

A new facility is Arizona consumes 1 million gallons of water every day simply to keep all of the machines cool, according to a report last April from Time. Power consumption is a whole other story.

A report published Feb. 2020 in Science revealed that data centers use fully 1% of all of the world’s electric power. That’s a lot. The good news is modern data centers are becoming far more efficient as internet-savvy companies find ingenious ways to shrink consumption.

Alphabet has gone one step further.

The Mountain View, Calif.-based company became in 2007 the first major corporation to reach carbon neutrality. That’s a fancy way for saying the search giant offset all of its use of carbon-based power with renewable energy or credits. Pichai said Tuesday that by 2017 the largest and newest data centers at Google got 90% of their power from renewable sources. And he committed that by 2030 all facilities will run 24/7 on clean renewable power.

It’s a big ask. Those centers are scattered all over the globe by design. Some locations do not get much sunlight. That puts the kibosh on solar. Other are near pockets of dense population, making wind farms impossible.

Pichai noted that a new data center in Denmark got five new solar farms to augment existing wind-powered energy from the Danish grid.

So Google is doing what it does best. Company engineers are building software systems to rejigger computer processing to run more efficiently, and on schedules that make it easier to work around some of the limitations of clean energy.

It’s called the Carbon-Intelligent Computing Platform. And it is an industry first.

The idea is to use artificial intelligence to shift processing within the entire Google network to places where renewable energy is most plentiful at the time.

This same Google knowhow is making its new campus more sustainable. The roof will be constructed from Dragonscale solar skin, with 90,000 silver solar panels capable of generating nearly 7 megawatts. The building will also feature the largest geothermal pile system in North America. It will heat the structure during the winter months while cooling it in the summer.

This will be an important experiment for Alphabet. The great competitive advantage large tech companies hold is the ability to test really big ideas internally. Using software to shift power-hungry computer processing across the network geographically is a saleable service. Testing the process across thousands of Google workloads should engineers iron out the wrinkles.

Yet that is not the reason longer-term investors should consider buying Alphabet shares. The rationale is sustainability.

So-called ESG investing is a $30 trillion market segment that is expected to reach $53 trillion by 2025. Investors are clearly seeking corporations that are conscious of the environment, socially active causes and exercise responsible corporate governance. Alphabet is the leader in segment, making it a must own for institutional money managers.

Shares trade at only 19.2x forward earnings and 1.5x sales. These are extremely reasonable metrics given the scale of Pichai’s ambitions and the company’s place within the ESG ecosystem.   

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Apple ( (AAPL) - Get Free Report) and the company behind Fortnite and in court. The legal battle could change the way all future digital software is distributed.

Managers at Epic Games say they want to undo the 30% fee Apple collects for distributing software. If they’re successful third-party developers could launch independent platforms on top of Apple software.

It’s never going to happen. Buy Apple shares.

To be clear, Fortnite is a proven commodity. The online community now has 350 million active players. Registered users in April spent a collective 3 billion hours inside the Fortnite universe, battling zombies, and each other. The company makes money by selling advertising and hawking virtual trinkets like avatar outfits and extra lives. Epic also builds virtual communities.

Twenty seven million people showed up last June to watch a virtual Travis Scott performance. The 10-minute concert was a kaleidoscope of rap music and color, unmoored from the laws of the physical world. Fortnite cleverly positions Epic at the intersection of pop culture, tech and commerce.

The business end is big.

As part of the ongoing legal battle Epic lawyers disclosed this week that the platform had sales of $5.4 billion in 2018, $3.7 billion a year later, and $5.1 billion during 2020.

Tim Sweeny, chief executive laid out a grand vision for Fortnite where developers and artists could build virtual businesses inside the platform. The roadblock, in his view, was the 30% fee paid to Apple.

There is an obvious problem with this legal strategy: Apple is providing a real service as gatekeeper to its operating system. While Sweeny may gripe about the 30% fee, keeping payment systems and user data secure is ultimately about trust. It’s a big part of the reason people by Apple products. The company is entitled to charge a fee for providing that service.

There is also the problem of consistency. Epic pays the same 30% fee to game console makers Microsoft ( (MSFT) - Get Free Report) and Sony (undefined) even though gameplay on Xbox and Playstation account for a much larger portion of Fortnite sales. Apple lawyers were quick to point Tuesday that out iPhones and iPads made up only 5.5% of 2020 revenues.

It’s nice that Sweeny wants to create a kumbaya platform where creatives and Epic can collaborate to build new online businesses. It doesn’t mean Epic gets to shun Apple rent.

Some investors assume game producers have the power to change and set the rules. They don’t. Ultimately, the real power rests with the platform gatekeepers, like Apple.

The Cupertino, Calif.-based company has a powerful ecosystem with a billion registered devices. It’s hard to overstate the scale of this business. Customers are fiercely loyal and will often buy Apple products regardless of the limitations.

The Macbook was redesigned in 2015. The new format did away with all of the input/out ports that made the laptop so popular with photographers and digital artists. The term dongle life was born because getting media on and off the device often required an adapter that was sold separately. The laptops still sold well. Customers bought dongles.

The Fortnite lawsuit is much like those early Macbooks.

When Epic Games purposefully violated Apple developer policies in August 2020, Fortnite was removed from the mobile App Store. Apple as a business didn’t miss a beat. Sales of iPhones and iPads have not been impacted one iota. Customer adapted.

Apple reported financial results a week ago. Second quarter sales reached a record $89.4 billion, up 54% year-over-year. iPhone sales rose 66% to 47.9 billion in the quarter. Managers said iPad sales grew 79%.

Apple shares have been under pressure since its earnings report. Some of this is fear the business can’t possibly get any better. Another part of the weakness about lawsuits like Epic’s will encourage regulators to chip away at Apple’s dominant position with iPhones and iPads.

It’s a silly fear. The company is providing a legitimate service to its customers they would not trade regardless of inconvenviences. Longer-term investors should use the weakness to buy Apple shares.  

(Veteran columnist Jon D. Markman publishes Strategic Advantage, a daily guide to investing in life-changing tech stocks. For a free trial, text TECH to 206-279-1385.)

It’s time to stop doubting Microsoft ( (MSFT) - Get Free Report). It’s business plan is a winner and the stock is headed much higher over the intermediate term.

The Redmond, Wash.-based software giant reported Tuesday that third quarter revenues were the strongest since 2018, negating the narrative that tech spending is slowing.

Investors should use weakness to add longer-term positions.

According to a corporate press release, third-quarter revenues surged to $41.7 billion, a 19% increase year-over-year. Sales from its Azure cloud business ramped up 50% over the same time frame. The company reported $17 billion in profits, up a staggering 31% versus a year ago..

It turns out that the rush to connect the enterprise world to hyperscale computing networks is not topping out. Digital transformation is alive and well. Investors shouldn’t be surprised. This is a monster trend that accelerated during COVID-19, yet it is far from complete.

Microsoft is in peak form because years ago, managers made the choice to begin moving customers and its own infrastructure to the cloud. That meant all the heavy lifting, the processing and storing of data was running in robust data centers all over the world. When most of the world shuttered due to COVID-19, managers were ready. Making the sale to C-suite chief technology officers was easy.

Satya Nadella, chief executive officer, said in April that two full years of digital transformation occurred in only two months during the pandemic. Work from home initiatives forced enterprises to accelerate migration to cloud-based infrastructure. Getting employees online and securing their data was right in Microsoft’s wheelhouse.

The oddity is investment analysts immediately assumed business could not possible get any better. The results Tuesday illustrate the folly in that argument. Redmond is continuing to smash it out of the park and the best is yet to come.

The Commercial Cloud division generated $17.7 billion in sales during the quarter, up 33% from the same period last year. That’s certainly an impressive development yet the really good news is buried deep within the numbers. This is a purely subscription business with recurring revenues. As enterprises build more of their workflows into the cloud sales are likely to grow even faster.

Nadella promised Tuesday that Microsoft will make that process easier by innovating across every layer of its tech stack. During the quarter the company logged $5.1 billion of capital expenditures.

Statista, an online analytics aggregator, finds that analysts project the total addressable market for digital transformation strategies to reach $1.9 trillion by 2022, up from $1.2 trillion in 2019.

Going forward beyond the pandemic the company is in a great position. Scale is an important competitive advantage in the brave new digital world. Enterprises want expertise and innovation, but they also want to be certain their technology partners have the wherewithal to get the big projects done. Taking a shot with smaller companies is not on the table at this point. The risk is too great.

This undoubtedly plays into the strengths of Amazon.com ( (AMZN) - Get Free Report), Alphabet ( (GOOGL) - Get Free Report) and Microsoft. And it’s an advantage that is not going to change any time soon.

To be sure, Microsoft shares have performed well in 2021, rising 18%. The company now has a market capitalization in excess of $1.9 trillion yet the potential of its business is still not being reflected in the share price.

Shares did trend lower in after-hours trade, falling 2.4% to $255.60. The story is some traders were concerned about the rate of growth at Azure, the pure enterprise cloud computing business. They’re missing the point, almost completely. Azure bundled with Office and other Microsoft products is extremely compelling to enterprise customers. This process also inoculates Azure from competition.

Based on cash flow alone Microsoft shares should trade to $390 in 18 months, a 50% gain from Tuesday’s close. Buy the stock into all weakness.

(Veteran tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Space used to be a black hole where investment dollars went to die. Today investors see only opportunity as the economics of the sector reset. This is the best way to gain exposure.

Ark Investment Management on Tuesday launched Space and Exploration fund ( (ARKX) - Get Free Report). The actively managed exchange traded fund will invest in innovative businesses that are benefitting from the aerospace disruption.

This ETF should be a winner.

Ark is led by Cathie Wood. To suggest she has had a hot hand is an understatement. Last year her flagship fund, Ark Innovation ( (ARKK) - Get Free Report) returned 150% due in large part to its massive position in Tesla ( (TSLA) - Get Free Report). Woods correctly predicted that investors were underestimating Elon Musk, the chief executive officer, and the grow potential for electric vehicles. She invested heavily. And even as the fund swelled in 2020 to $22 billion in assets under management, she refused to sell.

Last year alone Tesla shares gained 695%, by far the best-performing large capitalization stock.

In a strange twist of fate the Space and Exploration ETF debuted moments after SpaceX, a rocket company also run by Musk, test-launched its Starship SN11 rocket. The 394 feet tall, stainless steel spacecraft is a duplicate of another rocket tested earlier in March. Unfortunately, SN11 met with the same fate as SN10, SN09 and SN08 -- a rapid unscheduled disassembly.

Rocket scientists are clever, even with words.

However, investors should not mistake explosions for failure. Nor should they overlook the opportunity. SpaceX is innovating faster than any aerospace company in history. Testing that used to take years occurs over only a few short months. Ultimately Musk hopes to colonize Mars and the huge Starships will play an integral role. Every test flight brings valuable data, putting the Hawthorne, Calif.-based company one step closer to interstellar manned flights.

The test flights also expedite the buildout of Starlink, a low Earth orbit satellite constellation that will blanket the entire planet with 11,943 tiny internet transmitting devices, according to a Federal Communications Commission document. So far SpaceX has been able to deploy 1,384 satellites using its Falcon series of reusable rockets. CNBC reported in October 2019 that Starship could deploy 400 during a single mission.

Those economies of scale, and reusability are driving a new space economy.

SpaceX has cut the cost of deploying satellites by a factor of 20, according to a report in The Conversation. The economic implications of this kind of disruption are enormous. It changes everything.

Starlink is a good example of this. In the past satellite internet connectivity suffered from latency. Because the cost of getting the equipment into space was so high, satellites were located in geospatial orbits, 22,200 miles away. Starlink’s LEO satellites are only 340 miles from the Earth’s surface. While they cover less ground, there are many, many more of them.

The Ark Space and Exploration ETF is the best way to participate in the growth of new space economy, and all that it entails.

Managers at Ark released a breakdown Tuesday of the top positions. The largest holding at 8.6% of assets is Trimble ( (TRMB) - Get Free Report), a software company that uses satellites to help the agriculture sector with water management. Kratos Defense and Security Solutions ( (KTOS) - Get Free Report) commands 5.6% of the fund. The San Diego, Calif.-based company specializes in weapon systems and military satellites for unmanned drones. And sandwiched in between at 6.1% is an investment in the Ark 3D Printing ETF ( (PRNT) - Get Free Report), a sister fund.

The investment choices are unconventional. That is sort of the point, though.

The entire aerospace sector is being disrupted. Some legacy players are going to face lost market share and dwindling profit margins as smaller companies find new ways to benefit from lower deployment costs. These more nimble businesses will also develop inventive ways to use the data, like Trimble.

The Ark Space and Exploration debuted Tuesday at $20. Longer-term investors should use any weakness to add new positions. 

(Veteran tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

The automotive world is making an important digital transformation. Cars and trucks are getting safer and smarter thanks to silicon and software that makes sense of the real world.

Executives at Ambarella Corp. ( (AMBA) - Get Free Report) reported Tuesday that the company shipped 300,000 computer vision enabled microprocessors to car companies last quarter alone.

This digital future of automobiles is here. Investors should buy component suppliers now.

There is a disconnect. Too many investors assume that self-driving cars will mark the coming out party for makers of smart technology. To get to truly autonomous vehicles, known as AVs for short, there are many regulatory hurdles, not to mention the cost of the expensive technology needed collect and make sense of data. This rationalization misses the point.

The technology is here now. It’s being implemented at scale in current advanced driver assistance systems. These ADASs could be braking systems that automatically slow the vehicle if the driver follows too closely, steering protocols that force the vehicle to swerve to avoid accidents, or even advanced cruise control. All of these technologies use some combination of cameras, radar and software to make current cars much safer.

If investors wait for the arrival of AVs they will have missed the best part of the opportunity.

Ambarella is an interesting business. Only five years ago its survival depended on providing video compression silicon to GoPro ( (GPRO) - Get Free Report), a maker of action video recording gear. Fermi Wang, chief executive officer realized there was no future being tied to what is essentially an expensive toy for adults. He guided the company in a new direction.

As solid state storage prices careened lower and the cloud gained popularity, security video became a vibrant new market. Wang saw an opportunity to embed artificial intelligence, specifically computer vision into the chips Ambarella designed. Its CV system on a chip designs have been a big hit with companies that supply integrated circuit boards to surveillance camera makers and vehicle manufacturers.

In a press release Wang noted that demand for Ambarella AI silicon has attracted 175 unique customers in fiscal 2021. More than 40 firms have entered production.

Meanwhile the other part of the business is ramping nicely, too. AVs are coming.

Motional, a Boston, Mass.-based maker of driverless car technology, announced Tuesday that its AVs will use Ambarella’s CVflow family of processors. Motional managers boast the company is one only a handful of businesses that have ever been approved to operate fleets of driverless vehicles on public roads.

In February the company began offering rides in Las Vegas. Multiple driverless Motional vans have navigated intersections, made unprotected turns and interacted with pedestrians, according to a company blog post.

It’s noteworthy that Motional is a close business partner with Aptiv ( (APTV) - Get Free Report), an Ireland-based auto parts and services business.

Aptiv is definitely working toward full AVs. It has a dedicated business unit and major partnership with Hyundai devoted to taking human drivers out of vehicles. That’s the longer-term business plan. In the interim Aptiv managers are focused on ADAS. It is the lion’s share of the business, and it is booming.

The Irish company is a pioneer in adaptive cruise control. It was also the first automotive parts company to build radar systems for original equipment manufacturers. Now managers are integrating ADAS with forward looking technologies like connectivity and digital architectures to make those safety systems modular.

This is why the Ambarella announcement about automotive chip shipments is so important. It reveals that the transition to smarter vehicles has already begun. The process is happening one step at a time and it will involve many companies.

Today’s computer vision from Ambarella helps companies like Aptiv build better ADAS systems. In the future that silicon may be the basis for full autonomy.

Ambarella shares trade at 206x forward earnings and 18.6x sales. Aptiv stock is priced at 31x forward earnings and 3.1x sales. Despite the disparity in valuations both issues are attractive into weakness.

The digital transformation of the auto industry is going to drive a lot of wealth creation.

 (Veteran tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Crytocurrency is hitting the mainstream, and that is good news for big financial services companies.

Execs at Mastercard ( (MA) - Get Free Report) revealed this month that the transaction giant will begin accepting select cryptocurrencies in the latter part of 2021. Bitcoin is coming to plastic.

Investors should buy Mastercard -- but not for the reason you might imagine.

It should not be a great surprise that Mastercard managers are making the hop to crypto. Inside of the Purchase, New York-based company executives have been experimenting for years with digital currencies and blockchain, the clearing mechanism that underlies bitcon. The surprise is how quickly those plans are now being implemented.

Bitcoin is in the midst of being adopted by giant financial institutions. The oddity is all of this is happening everywhere at the same time.

The Wall Street Journal reported a week ago that BNY Mellon (BK), the oldest bank in the United States, will begin holding bitcoin on behalf of its clients. This is a really big deal. BNY Mellon is a major partner to some of the largest asset managers in the world. Its primary business is navigating the regulatory and legal frameworks of transferring financial assets. Bringing bitcoin into its platform will give clients confidence to invest in the cryptocurrency.

BNY Mellon follows Fidelity Investments into the world of crypto. The Journal notes that Fidelity won regulatory approval in 2019 to hold and transfer digital coins.

More recently large technology corporations have started accumulating bitcoin. Microstrategy ( (MSTR) - Get Free Report), Square ( (SQ) - Get Free Report), PayPal ( (PYPL) - Get Free Report) and Tesla ( (TSLA) - Get Free Report) have filed with the Securities and Exchange Commission to make crypto a part of their balance sheets.

The attraction is diversification away from the risks of traditional paper currencies like the U.S. dollar. Across the globe central bankers have been creating money supply at a fervent pace to stave off the negative economic effects of the COVID-19 crisis. In theory all of that money sloshing around in the system should lead to currency devaluation

By design, bitcoin has very limited supply. Only 21 million coins will ever be created. That scarcity should lift prices over time.

Mastercard now has the opportunity to accumulate a lot of those coins through the normal operation of its normal business.

What most investors still get wrong about credit card processors is their primary business is the transaction. They don’t have credit risk. That aspect of credit card use is born by the banks that issue the plastic. Mastercard processes transactions and collects a percentage as a fee. That’s it.

Mastercard managers are positioning the company to collect a fee on every transaction paid with bitcon using one of its branded cards. Simply collecting those bitcon fees could become a substantial asset over time.

Company executives are playing up the advantages for cardholders.

In a corporate blogpost Raj Dhamodharan, executive vice president of digital asset and blockchain products, wrote that the transition to accepting digital coins is all about choice. Consumers and merchants will have more payment options, plus the peace of mind knowing that everything is safe and secure.

That’s one way to look at bringing bitcoin inside of the Mastercard ecosystem. Another perspective is an unprecedented opportunity for the company to collect a massive bitcoin stake without diverting shareholder capital.

The dynamism of Mastercard’s transaction business cannot be overstated.

At an investor presentation in October managers revealed that the company logged $2.1 billion in operating profits on only $3.8 billion in sales. That’s a 54.9% gross margin. Net profits were $1.6 billion during a pandemic. Let that sink in.

For several years Mastercard has been successfully waging a public relations war against cash. All over the globe managers are lobbying governments to issue debit cards for transfer payments, and urging transit authorities and merchants to accept contactless payments. In a cashless world Mastercard gets a cut of every transaction, regardless how small.

Bitcoin is the final frontier.

Mastercard shares trade at 32x forward earnings and 21.2x sales. While these metrics may seem expensive keep in mind that the business is immensely profitable and many new opportunities, including cryptocurrency lie ahead.

Based on operating margins alone I believe the stock can reach $470 within 12 months. At a current price of $345.70 that is a 36% gain. 

 (Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

An Israeli company developed technology to 3D print meat, and investors are scrambling to gobble up a piece. This is the best way for investors to get a seat at the table.

Managers at Redefine Meat said Tuesday that they raised $29 million from a consortium of global investors to use digital technology to create steaks that look, smell and taste like the real thing.

Investors should savor the sizzle, then consider buying Beyond Meat ( (BYND) - Get Free Report).

Innovative companies figured out long ago that they could use state-of-the-art 3D printers for making prototypes and low production parts. The companies literally print the objects the same way office workers use Hewlett Packard ( (HP) - Get Free ReportQ) inkjets to transform digital bits of information on a computer screen into a physical document. The process involves computation, some physical stock like paper, and ink.

Ink is the tricky bit for 3D printing food.

Engineers at Redefine are using plant based materials similar to nutrients eaten by cows to “ink” printed steaks. This ink contains proteins from grains and legumes to mimic the muscle texture, and fats and other acids to duplicate the juicy flavor, blood structure and color of actual meat.

While all of this might sound far-fetched and maybe gross, Redefine product managers have tested the fillets extensively and won rave reviews in Israel.

The Times of Israel reported Tuesday that Best Meister decided to distribute Redefine products after the Israeli food dealer’s blind audits showed 90% of testers could not tell the difference from the real thing. Investors followed.

VC firm Happiness Capital of Hong Kong, Hanaco Ventures based in New York, the Losa Group from Guatemala, Prime Ventures of the Netherlands, Singapore-based venture capital firm K3 Ventures, and Jeremy Coller, the famous private investor have all committed to Redefine.

The goal is to get in front a larger trend toward plant-based meat substitutes that might grow into an $85 billion market by 2030, according to an October report in the New York Times.

For now, investors should focus on Beyond Meat. The El Segundo, Calif.-based company was a hot initial public offering in May 2019. Shares debuted at $25 and quickly shot up to $65.75, a 135% opening day gain. Within a year the stock reached $240 for a market capitalization of $14.8 billion.

That valuation is far out of the normal for food businesses. Beyond Meat traded then as it does now like a technology company. Investors bought into the big idea that Beyond is blazing a new trail in diet. The idea is to slowly move the needle in the $11.7 trillion global food industry.

From the beginning in the company invested heavily in scale and human resources. Managers used the proceeds of the IPO to build out supply chains, and Sanjay Shah, an Amazon.com (AMZN) logistics veteran joined Beyond in September 2019 as chief operating officer. Within a year he had distribution deals were in place with Walmart (WMT), Target (TGT) and the major grocery store chains in Canada and Europe.

Beyond executives also began courting the quick service restaurant industry. Firms like Carl’s Jr., Del Taco ( (TACO) - Get Free Report) and Dunkin’ Donuts will showcase Beyond products. And in January the company announced an agreement with Pepsico ( (PEP) - Get Free Report) to jointly develop plant-based proteins for snacks and beverages.

Today company managers say Beyond Meat products are available in 112,000 grocery stores, restaurants, hotels and universities.

Makes sense. A cow is largely just a machine that turns grass into meat through gastronomic chemistry. Beyond just bypasses the middleman.

Following the third quarter financial results last November Ethan Brown, chief executive officer, refused to withdraw previous aggressive expansion plans. He also noted that sales growth accelerated 63% year-over-year despite the pandemic. Sales velocity, a food business metric that measures sales across distribution points, was 3.5x higher than the industry average.

This is significant because sales velocity normally declines as businesses add distribution points.

Beyond Meat is the category killer in plant-based proteins, the fastest growing part of the food services ecosystem.

This space will only grow as innovative firms like Redefined Meat make headlines with printed steaks and other meat-like products.

Beyond shares trade at 27.3x sales and 933x forward earnings, although profit is irrelevant at this stage of the growth cycle. Based on sales growth alone the stock should trade back into the middle $200s, a gain 44% from the current price of $173.04.

Growth investors can buy Beyond shares into any weakness.

 (Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

As crazy as it seems, Apple ( (AAPL) - Get Free Report) is actually going to make an electric car. This is how investors should play this development.

According to a report Wednesday at Bloomberg, the iPhone maker will partner with Hyundai and its Kia Motors subsidiary to make as many as 100,000 electric vehicles annually beginning in 2024.

Speculators should buy battery research businesses like QuantumScape Corp. ( (QS) - Get Free Report).

Plans to build the Apple car have been on and off again for years. Managers at the Cupertino, Calif.-based company have been toying since 2014 with the idea of an autonomous EV. Project Titan was supposed to be Apple’s self-driving EV for the luxury car market, the iPhone of that segment so to speak. The concept was on brand and ambitious. It was also naïve.

Apple product managers had no experience with automotive supply chains or autonomous vehicle software. An arrangement with Hyundai would plug some of the product development holes.

Ming-Chi Kuo, a top analyst with an impeccable track record predicting big Apple corporate developments, says the company will build its new vehicle using the Hyundai E-GMP electric car platform. In addition to middling acceleration and range, the promise of E-GMP is rapid charging. Hyundai product managers claim the platform can charge to 80% in only 18 minutes.

Fast charging is a legitimate innovation. While Tesla ( (TSLA) - Get Free Report) EVs are best in class in terms of performance and range on a full charge, waiting for electric cars to recharge has been a sticking point since the first Tesla roadster rolled off the assembly line in 2008.

QuantumScape is building battery technology to make true fast charging a reality.

The San Jose, Calif.-based company is developing a solid state lithium metal battery that could be used in everything from EVs to smart watches. The advantages over current lithium ion technology is stability, safety, greater power storage and lower production costs. That’s the theory.

In reality QuantumScape has never been able to make solid state batteries bigger than the average Apple Watch cell. What the company does have is great science, the backing of a Bill Gates fund and Volkswagen, the world’s largest automobile manufacturer.

Investors were won over by the science.

QuantumScape was founded in 2010 when Jagdeep Singh, a computer science engineer and Fritz Prinz, a Stanford University professor began working on solid state battery technology. A year later the pair had a research unit in place and the backing of Volkswagen. Originally the German carmaker agreed to invest $100 million to establish joint production. In June 2020 the company invested another $200 million to accelerate development.

Bill Gates became a QuantumScape investor through his Breaking Energy Ventures fund. In a 2020 Gates Notes blogpost, the Microsoft ( (MSFT) - Get Free Report) founder noted that solid state batteries will change the trajectory of EVs and greenhouse gas emissions. He surmised that the technology developed by Singh and Prinz was miles ahead of the competition.

As a public company QuamtumScape has been all over the map. Shares began trading at $10 in August 2020 when the company merged with Kensington Capital Acquisition, a special purpose acquisition company. The combined business was infused with $1 billion in financing from the Qatar Investment Authority and Volkswagen. By January, the stock zoomed to $132.70.

Today the stock trades in the $45 area. That is likely to improve due in large part to Apple getting into the EV business.

To be clear, there is no indication that Hyundai will use technology from QuantumScape. That said the fast charge storyline will change the EV investment narrative away from performance and range. Given its science, partners and investors QuantumScape is likely to be a big part of that conversation. Investors will vote with their wallets.

Shares are attractive here for speculators.

(Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Bitcoin is on a tear again, rising above $46,000. Investors are scrambling to buy stocks with even tangential connections. The best bet is this recent public company.

The latest bitcoin price surge came hours after Tesla ( (TSLA) - Get Free Report) revealed a $1.5 billion acquisition, according to a SEC filing. The electric car company will also begin accepting bitcoin as payment.

Investors should consider buying VPC Impact Acquisition Corp. (VIH), a new special purpose acquisition corporation from the parent of the New York Stock Exchange.

By now most investors are familiar with the reasons to be skeptical of cryptocurrency. Only three years ago digital coins of all sorts hit the mainstream. Hype swelled to mania. Within a matter of months hundreds of coins sprang up, many actively promoted by celebrities as get rich quick schemes. They were not. All but a handful went to zero.

Bitcoin had a rough ride, too. The value plummeted all the way from $19,650 to only $3,185 in December 2019. It was a dark time for investors and fervent crypto bulls.

What investors may not know about bitcoin is there is an extremely limited supply. By design, only 212,000,000 coins will ever be created. That scarcity will keep a natural upward pressure on prices. The other aspect to keep in mind is that the entire world is creating money supply to get out of the COVID-19 crisis. In theory, all of those greenbacks, euros and pound sterling notes sloshing around should lead to paper currency devaluation.

It’s the very cataclysm for which bitcoin was invented.

Bitcoin was born in the shadow of the 2008 financial crisis. It was a response to the worldwide failure of governments and central bankers to protect the value of money. By design, the cryptocurrency was decentralized. The powers-that-be have no governing authority.

Now large financial institutions are buying bitcoin and there is simply not enough to go around.

Bloomberg reported in December that executives at Massachusetts Mutual, the giant life insurance company, put $100 million worth of bitcoin into its general fund. While this is an extremely small amount of the insurer’s available assets, it sets a precedent. Mass Mutual is a regulated business. Buying bitcoin, even in small amounts, is a dramatic diversion from business as normal.

The attraction to bitcoin for financial firms is protection against low returns on bonds and treasury bills; fear of currency devaluation; and the shocking reality that the cryptocurrency turns out to have extremely low correlation to other financial assets.

In short, bitcoin is a legitimate decentralized hedge against financial assets.

Some corporations caught on early. Managers at MicroStrategy ( (MSTR) - Get Free Report) revealed in December that the firm held 70,470 bitcoin. Square ( (SQ) - Get Free Report) and PayPal ( (PYPL) - Get Free Report) have also made sizeable investments.

Tesla’s SEC filing notes that the EV company invested $1.5 billion in bitcoin during January. Managers clearly state the goal of the acquisition is to diversify financial assets and maximize the return on cash that is not required to maintain liquidity.

Bakkt operates a digital wallet for cryptocurrencies and digital rewards points. The Atlanta, Ga.-based company will soon make its public debut when it merges with VPC Impact Acquisition Holdings.

Apart from its funny name, Bakkt is the creator of the first federally regulated cryptocurrency futures exchange. This occurred in September when managers were developing a framework for institutions to trade bitcoin on the Intercontinental Stock Exchange ( (ICE) - Get Free Report), the holding company that owns the New York Stock Exchange, among other financial assets.

It’s also noteworthy that Bakkt is a spinout from ICE, and a pet project its founder Jeffrey Sprecher, a prolific wealth creator.

Sprecher is positioning Bakkt as a 24-7 digital marketplace where account holders can transform all of their digital currencies, including merchant rewards from vendors like Starbucks (SBUX), into real world things. That bit is important. Bakkt is an exchange.

Longer-term investors should look past Bakkt as a digital wallet and focus on the company as a facilitator for financial institutions to safely trade and accumulate bitcoin. This is likely to be a huge business. 

(Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.

I write a lot about television and advertising because something really big is happening. Tremendous fortunes are being earned as the monetization of media transitions from linear to connected.

Magnite ( (MGNI) - Get Free Report) managers announced Friday the $1.17 billion buyout of SpotX, a video and connected TV firm. Despite the extraordinary price, Magnite shares surged 26% to a record high.

Connected TV is the future of ad-based television, a $260 billion market in 2020.

Powerful players are lining up on both sides of this transition. Apple ( (AAPL) - Get Free Report) is waging a public relations battle around privacy. Tim Cook, chief executive officer, seems to take pot shots weekly at Facebook ( (FB) - Get Free Report) and Alphabet ( (GOOGL) - Get Free Report), two firms he argues are practicing surveillance capitalism.

The pitch is big technology firms that sell advertising around the use of their platforms are really selling the privacy of their patrons to ad buyers, the real customers. This is a fundamental mischaracterization of advertising. It also supposes consumers would gladly pay for a no-ad version of those services if given the choice. They wouldn’t.

Disney ( (DIS) - Get Free Report) operates Hulu, a tiered subscription video on demand service. Members choose the free, ad-supported service by a ratio of almost 3-to-1. When Comcast ( (CMCSA) - Get Free Report) managers started Peacock, its VOD service ads quickly became the central focus. And paid subscription interest in Apple TV Plus, Apple’s SVOD were so poor during launch the iPhone maker ended up giving the service away for free to buyers of its consumer electronics products.

Ad-supported business models work because the overwhelming majority of consumers simply refuse to pay for multiple paid media sources.

That’s why Magnite executives, an advertising technology company, are so willing to pay up for SpotX. Connected TV, the digital equivalent of tradition linear TV, is not going away even if powerful companies wish it so.

I first wrote about Magnite in March 2019. Back then it was called the Rubicon Project, a smaller adtech business with a market capitalization of only $356 million. I recommended buying shares in the troubled business on a pullback to the $5 range. Like so many adtech businesses, managers had bungled web based advertising with annoying popups and video ads that started as soon as the page opened.

Connected TV is a fresh start.

Adtech allows marketers to know the demographics of who is watching, for how long and if they ultimately clickthrough to buy the product. Linear TV is scattershot at best, like billboards posted along the side of the road.

Even cable TV companies are scrambling to move online. New WiFi enabled set top boxes and unlimited internet is a trojan horse. Pushing content online means the chance to sell targeted ads and maybe slow the revenue bleed from cord cutters shifting to Netflix ( (NFLX) - Get Free Report) and other VOD services.

During 2020 eMarketer estimates that 6.6 million consumers dropped their cable TV subscriptions.

Meanwhile content providers are moving online, too. Last November ViacomCBS ( (VIA) - Get Free Report) managers began moving 425 linear broadcast channels and 40 media centers to Amazon Web Services. The transition will make it easier to create new virtual VOD channels on the fly, then monetize them with targeted ads.

The common denominator is adtech and CTV.

Combining Magnite and SpotX creates a formidable business. According to the corporate press release, the new firm will have inventory agreements with a cadre of content providers and device makers including Discovery Communications ( (DISCA) - Get Free Report), Disney and Hulu, ViacomCBS, Fox (FOX) Corporation, Activision Blizzard ( (ATVI) - Get Free Report), fuboTv ( (FUBO) - Get Free Report), Roku ( (ROKU) - Get Free Report), Samsung, Sling TV, and Vizio.

In an SEC filing in November Magnite managers noted he number of advertisers using its CTV targeting during the third quarter increased 250% year-over-year. CTV revenues grew to $11.1 million, up 51% from a year ago.

The company is riding a megatrend of ad dollars shifting away from linear TV to ad-supported VOD. Despite vocal opponents all of TV is moving in that direction.

Shares are up 1,018% since my 2019 recommendation. Corporate finance has pushed the market capitalization to $6.3 billion, yet this trend is far from complete. Growth investors should consider buying pullbacks.

Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

It should now be clear that the migration to cloud computing is still in its infancy. Investors should look for opportunistic entry levels for all of the major firms.

After the close Tuesday Amazon.com ( (AMZN) - Get Free Report) reported spectacular financial results, buoyed by huge growth in its Amazon Web Services cloud compute division. Cloud is at the heart of digital transformation. That trend is booming.

You might never know. Despite the heady growth of AWS since 2006, the business has not received much notoriety among the investor class. For many the business of selling excess server capacity, processing power and data storage is amorphous. It’s far easier to tell the story of surging ecommerce revenues.

Amazon.com managers noted Tuesday that fourth quarter sales were in excess of $100 billion for the first time ever. The Seattle, Wash.-based company has become the dominant player in North America online sales, taking a whopping 47% share.

Beneath the surface though, cloud has become the future of the business.

One of the headlines from the Amazon Q4 financial results was that Andy Jassy, the founder and current leader at AWS, will replace Jeff Bezos as chief executive officer during Q3 of 2021.

Jeff Bezos, 57, is stepping down from the company he founded. The ex-Wall Street analyst famously started Amazon.com from the garage of his Seattle home. Each day Bezos would load piles of books ordered online into his family SUV and personally deliver them to the local post office. In those formative years all of the excess cash the business generated was being funneled into the countless web servers and software systems that kept the online store open 24/7. The excess capacity of that division later became AWS. Its leader was Andy Jassy.

The path to Amazon’s leadership was determined a year ago.

Jassy, 53, and Jeff Wilke, 52, then the leader of Amazon’s consumer business, were the only company executives who reported directly to Bezos. Both men joined Amazon in the late 1990s and were instrumental in building the company into a behemoth. They were also both widely considered to be on track to take over when Bezos was ready to surrender the day-to-day operations. Then, in August 2021 Wilke unexpectedly chose to retire.

The ascension of Jassy is a clear indication AWS will play a bigger role in a business that is currently hitting on all cylinders. The firm reported Q4 revenues reached a record $125.6 billion, up 44%. Earnings per share came in at $14.09, far in excess of the FactSet consensus estimate of only $7.34.

During the quarter AWS business momentum accelerated across financial services, media, technology, travel, ecommerce, electric utilities and automotive. Notable deals included JP Morgan Chase ( (JPM) - Get Free Report); Viacom CBS; Twitter ( (TWTR) - Get Free Report); Star Alliance, the world’s largest airline alliance; Mercadolibre ( (MELI) - Get Free Report); Siemens AG; and BMW Group.

All of these firms are in the process of migrating analog businesses to digital. In the case of ViacomCBS this transition entails moving 425 linear broadcast channels and 40 media centers to the cloud. The digital transformation of these outlets will make it easier for ViacomCBS licensing partners to access content. And because all of the data will be digital, content can be efficiently streamed to any device with an internet connection, bypassing cable providers altogether.

When a business lives in the cloud it is freed from the shackles of middling businesses. ViacomCBS managers are anxious to use AWS to spin up new channels faster, then analyze and monetize all of the data created in real-time.

The global market for cloud computing services is predicted to reach $236 billion in 2020, according to Gartner, an IT research company. Analysts predict the total addressable market will reach a whopping $355 billion by 2022.

The cloud is the gateway to most digital transformations and enterprises are moving full steam ahead, creating new business models along the way.

Amazon shares trade at 74.3 forward earnings and 4.9x sales. The market capitalization has swollen to $1.7 trillion.

Based on the potential size of the cloud infrastructure marketplace and the strength of Andy Jassy as a manager, the market cap shares should trade to $4,732 within 24 months, a gain of 40% from the current price of $3,380.

Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Managers at Ford ( (F) - Get Free Report) admitted the obvious Monday: Their software engineers are never going to catch up with Silicon Valley. This presents a big opportunity for investors.

Ford and Google signed a 6-year agreement to bring the networked era to future Mustangs, F-150s and Lincolns. The deal also refuels Ford’s business model. Software really is eating the world.

Investors should buy the shares of Alphabet ( (GOOGL) - Get Free Report), Google’s parent company.

Partnering full stop with large software companies was not a foregone conclusion. For many years the leading automotive companies plowed fortunes into software development. They made mostly underwhelming infotainment systems and clunky touch interfaces for heating and air conditioning. The user experience was brutish and paled in comparison to even ancient iPhones and Androids.

The integration phase began in earnest two years ago. Apple Carplay and Android Auto started showing up as addons for Chevys, Kias and everything in between. It was step in the right direction but integration with big tech software platforms didn’t address the larger issues. The vehicles were not truly connected to larger networks. There was no endgame to strengthen the overall business.

The deal with Alphabet is Ford managers finally admitting they never had a plan to compete with vehicles from Tesla ( (TSLA) - Get Free Report), Nio ( (NIO) - Get Free Report) and other forward looking automakers.

The key is connectivity and the data analytics that brings.

Ford managers on Monday tied the agreement with Google to a larger $11 billion restructuring program. Managers want to streamline operations as the automaker begins the transition from internal combustion engines to electrification. This entails setting aside money for new plants, equipment and retooling, as well as systems development. It’s now clear Google will tick the last box.

The Mountain View, Calif.-based software giant will bring Google Maps, Assistant and Android to Ford vehicles starting in 2023. The company will also help develop connectivity infrastructure for over-the-air software updates and predictive service maintenance. These value added features are commonplace on Teslas. Finally, Google will help Ford streamline its supply chain and manufacturing using artificial intelligence.

This is a digital transformation story.

It also showcases Google’s hidden advantages. Its Google Cloud was able to win a marquee client on the basis of its prowess in artificial intelligence, and Android, its mobile operating system.

This is not to say larger players like Amazon ( (AMZN) - Get Free Report) and Microsoft ( (MSFT) - Get Free Report) do not have unique advantages, too. AWS operates the biggest ecosystem in the cloud with established networks of third party developers and vendors. And Microsoft brings its dominant enterprise software platform to the mix. Bundling Office and Windows is a powerful incentive.

The difference with Google is its ancillary businesses, while critical to the growth of Alphabet, are often overlooked. Most investors still value the company on the basis of its advertising assets. Search, Maps, Gmail and YouTube are terrific ad-based businesses yet these brands are not the future of Alphabet. The big investment opportunity is the potential of mostly hidden businesses such as Google Cloud.

The global market for cloud computing services is predicted to reach $236 billion in 2020, according to Gartner, an IT research company. Analysts predict the total addressable market will reach a whopping $355 billion by 2022.

Google Cloud doesn’t have to dominate the market for cloud infrastructure. The fledgling company simply needs to grow share modestly in a rapidly expanding market.

Alphabet is set to report fourth quarter and 2020 full year financial results after the close today. Analyst expect that the company will provide a detailed breakdown of Google Cloud for the first time. A note last week from Credit Suisse predicted the division will show Q4 revenue of $3.64 billion

The timing of the Ford deal suggests that expectation may be exceeded.

Investors should buy Alphabet shares into any near term weakness. Based on business momentum, shares could trade to at least $2,220 in 12 months, a 15% gain from the current price of $1,931.  

(Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

By now most investors are sick of hearing about Reddit, hedge funds and GameStop ( (GME) - Get Free Report), yet this is a profound moment for the capital markets. And it is almost all good.

That’s not the popular perception. Stories are popping up all over that rampant speculation and shift to smaller traders is reminiscent of the internet stock market bubble two decades ago. We all know how that ended.

Investors should see the positives. This is the beginning of a wave of new investors.

Some would beg to differ. Melvin Capital suffered a 50% loss betting against GameStop shares. The firm saw its capital base decline from about $12 billion to only $8 billion since January, and that is after a $2.75 billion infusion. The Wall Street Journal reported that Citadel and Point 72, a pair of hedge funds run by super investors Ken Griffin and Steven A. Cohen, were behind the new investment.

Monied elites being bested by hordes of smaller investors at WallStreetBets, a Reddit subgroup, is a good storyline. In the current era of hyperbole and faux populism, everything gets simplified to us versus them. If small guys are winning it has to be a matter of good vanquishing evil.

While the mob at WallStreetBets is certainly disruptive, virtue is not an underlying trait. These investors didn’t discover hidden value in failing businesses like GameStop. They believe they have found a loophole in the game and they are skewering the elites. There is some truth to that, for now.

The only problem is we all know how this is going to end: One day financial managers at GameStop will announce a giant share offering. They will use the new shares to erase debt obligations or maybe even consider investing in new businesses. The initial reaction may even be positive. Then online traders realize the new shares are antithetical to the scarcity that has been pushing up prices.

At that moment the online mob will realize they own a failing, mall-based game disc retailer. Alone none of those descriptors are positive. Together they are devastating.

The WallSreetBets brigade will start selling, all at the same time. GameStop stock will be halted to correct the order imbalances. Shares will open substantially lower. The stock, once so dear, will become abundant. Out of the money call options will collapse.

GameStop speculators will get slaughtered. WallStreetBets will become the punchline of anecdotes about fools and their money.

There is a silver lining, though, so to speak. The glory of young people is their fearlessness. It’s the reason they make the best racecar drivers. They’re not going away now that they have a taste of the financial benefits of the capital markets.

And to be fair young investors have gotten a lot right since the last recession.

They were early into Tesla ( (TSLA) - Get Free Report) and green energy investments in general. They understood bitcoin when the graybeards like Warren Buffet and Charlie Munger of Berkshire Hathaway (undefined) laughed out loud about the investment potential of cryptocurrency.

Yes, the GameStop short squeeze is dumb. Betting on brick and mortar video game retailing could not be further away from where the world is headed. However investors writ large should take comfort that legions of newer investors are showing interest in the capital markets.

Their thirst for equities, and the new money they bring to financial assets, will eventually lift all boats. That’s a big positive.

Then there is the analogy to the internet boom and day traders of the late 1990s. Again, in fairness that movement was more about Wall Street than Main street. It was fostered by fledging online brokerage firms peddling the false premise their new online tools gave the little guy an edge over slow-footed professionals.

It was never true. And yet that speculative bubble lasted for years, not days.

The bottom line is investors should not worry about the GameStop saga. They should take comfort in the idea more money is coming into the market.

Use the current weakness to buy your favorite growth stocks such as Cadence Design Systems (CDNS), Netflix ( (NFLX) - Get Free Report), Amazon.com ( (AMZN) - Get Free Report), Spotify ( (SPOT) - Get Free Report), Intercontinental Exchange ( (ICE) - Get Free Report) and Microsoft ( (MSFT) - Get Free Report).

(Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Elon Musk says Tesla ( (TSLA) - Get Free Report) doesn’t want to build a walled garden around its cutting edge technology. That’s great news for silicon companies like Monolithic Power Systems ( (MPWR) - Get Free Report).

The Tesla chieftain said Wednesday the company has been in preliminary talks about licensing its full self-driving technology. A gold rush for advanced driver assistance systems equipment is near.

Monolithic makes the integrated circuits that power those ADAS components.

It’s not the first time Musk has pledged to help move the automotive sector forward. In a letter to shareholders way back in 2006, he talked about getting the industry to embrace electrification. His plan involved a low production sports car, a more mainstream luxury vehicle, followed by a mass market people mover. Although the Model 3, Tesla’s least expensive vehicle, is nearing sales of 500,000 units annually, it is debatable if the $50,000 sedan is mass market.

Where Musk has achieved great success is industry leadership. The fun to drive, forward looking Tesla brand has moved automakers to electrification and the quest for autonomy far faster than anyone would have predicted a decade ago. All of the major carmakers are have plans to produce electric vehicles. General Motors ( (GM) - Get Free Report), Volkswagen and Volvo plan to transition their entire fleets to EVs.

The added benefit of weaning the sector from the internal combustion engine is a reimagining of the future of transportation. Spurred on by Musk, automotive leaders are pressing full steam ahead with advanced safety systems that will autosteer, brake and use more sensors to avoid collisions.

These new systems involve a multitude of front and rear facing cameras, driver monitoring modules, radars and other assorted sensors.

Tesla vehicles integrate all of these systems with Autopilot, its best-in-class software package.

Autopilot is light years ahead of the competition due largely to the nature of Tesla vehicles. They are always on, always connected to the network. Every day several hundred thousand Tesla owners use the software in real world situations. All of the data created is whisked back to Tesla servers to be analyzed using artificial intelligence.

During a conference call with analysts Wednesday, Musk noted there is still a lot of work to do to achieve full self-driving. Tesla engineers need to train their AI systems to process surround-view camera footage simultaneously. Currently the software uses only single cameras and single frames.

At the Tesla Autonomy Day last year Musk hinted this training is underway using a new supercomputer application called Dojo. Wednesday he said Dojo might become part of a package licensed to other car companies.

Before any of this can happen Tesla has to work out the bugs. The rest of the industry also has to bulk up in terms of the camera, radar and sensor systems required to gather the data Dojo needs to function. This should create a gold rush for the firms that make the pics and axes, so to speak.

Monolithic designs the tiny integrated circuits needed to make the power systems more efficient. While this seems may seem trite, as cars and trucks become EVs with more electric parts, every efficiency is a blessing.

Modern cars already have an average of $350 worth of semiconductor content according to Monolithic managers. Car and truck buyers now expect Spotify ( (SPOT) - Get Free Report) functionality on their infotainment systems, safer LED lighting, ports to charge their iPhones, and state-of-art heating and cooling systems. All of these systems use sophisticated ICs. However, the arrival of next generation ADAS and self-driving cars is the motherlode for firms like Monolithic.

The Kirkland, Wash.-based company is currently working with every major auto parts supplier in the world. Through Delphi, Bosch, Panasonic Automotive, Magna ( (MGA) - Get Free Report) and Mitsubishi Electric, the company reaches end customers such as Ford, Nissan, BMW, Mercedes, GM, Volvo, Toyota, and Volkswagen.

Monolithic shares trade at 64x forward earnings and 21x sales. These metrics may seem extreme yet given the size of the opportunity investors are wise to pay the premium. Sales have been growing sales at a steady high teens clip for the past 7 years.

The company is set to report full year financial results Feb 4. This pullback looks like a buying opportunity.

(Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

A generation of new traders is taking on the establishment. In the process, organized online short-squeeze mobs are pushing the shares of flawed companies into the stratosphere.

At one point Monday, shares of GameStop ( (GME) - Get Free Report), a company professional investors have been betting against, more than doubled, pushing the market capitalization to $10.3 billion. Veteran market watchers began to cry foul.

Everyone needs to just chill out. Let the markets work.

Short squeezes occur when bullish traders target the companies that professional investors are betting against. This phenomena is not new in any way. As long as there have been markets, there have been short squeezes. I’m reminded of a passage in Reminiscences of Stock Operator, a book that loosely chronicles the exploits of Jesse Livermore, a famous trader in the early 1900s.

Livermore earned and lost millions trading the markets. He came to understand that the same market forces that cause learned investors to bet against companies by borrowing and selling shares in the open market can sometimes be exploited for extraordinary gains.

During the summer of 1923, Livermore began buying up the shares of Piggly Wiggly, a pioneering retail chain that had run into financial trouble. He understood bears were aggressively short and he saw an opportunity. Livermore amassed more than 75% of the available stock float. In the end short sellers had no choice but to buy back shares in the open market for huge losses.

Click here to read more about the great Piggly Wiggly corner in my annotated edition of “Reminiscences.” And click here to order the book at Amazon. It’s an absolute must for traders.

Short sellers play a game that is fundamentally stacked against them. They borrow shares from brokers to sell in the open market. The idea is to buy back those shares later at a lower price when the prospects of the business sour. Unfortunately for bears, the broker can ask for the shares to be returned at any time, no questions asked.

Traders on Reddit believe they have discovered a flaw in the system. In the thread WallSteetBets, online traders are organizing full attack plans to deplete share floats of heavily shorted companies. The strategy involves option contracts, stock buying and lots of populist hyperbole about taking the markets back from the establishment of professional investors.

The choice of GameStop as the weapon to blow up the professional class is ironic. In an era where the gaming infrastructure has moved online, the Grapevine, Texas-based chain is decidedly old school. It operates 5,510 brick and mortar stores United States, Canada, Australia, New Zealand, and Europe. Sales declined sharply in during 2020 and operating losses swelled to $464 million. Business is bad and getting worse as e-commerce overwhelms physical world distribution channels.

A Bloomberg report Tuesday noted that the average price target for GameStop by Wall Street analysts is $13.93. At the current price of $97.15 shares are trading at 7x that level.

None of this is stopping the Reddit mob from pushing prices higher. They’re taking glee and pulling every lever to push GameStop shares into the heavens. Wall Street establishment be damned. More than 175 million shares traded Monday. It was the third time in a week where volume exceeded 100 million shares.

At one point during Monday’s frenzy GameStop shares surged to $159.16, up 146% from Friday’s close. The stock did eventually settle at $76.79.

Some veteran market watchers have suggested that the system is broken. They complain that several hedge funds that bet against GameStop may be bankrupted given the huge price surge.

The price activity is disconcerting to be sure. However short squeezes are not explicitly illegal. As Matt Levine notes at Bloomberg, if the Securities and Exchange Commission did investigate WallStreetBets it would be breaking all sorts of new ground in terms of enforcement.

I approach all of this from a different angle. I’m not bothered that some online traders believe they have discovered a loophole in the system. They certainly have not. I’m also not bothered that short sellers are losing money. Bears play an important role in markets. They provide liquidity. That said, short-selling is supposed to be dangerous.

This will all pass. It always does. Online traders will learn, one way or another that they are not as smart as they believe. Short sellers will develop synthetic securities to get companies like GameStop. Everyone needs to take a deep breath. Markets self-correct.

In the interim I have no position either way. Most traders and investors should stand aside.

Final comment on this from Livermore character in in the last chapter of “Reminiscences”: Speculation in stocks will never disappear. It isn’t desirable that it should. It cannot be checked by warnings as to its dangers. You cannot prevent people from guessing wrong no matter how able or how experienced they may be. Carefully laid plans will miscarry because the unexpected and even the unexpectable will happen. Disaster may come from a convulsion of nature or from the weather, from your own greed or from some man’s vanity; from fear or from uncontrolled hope. But apart from what one might call his natural foes, a speculator in stocks has to contend with certain practices or abuses that are indefensible morally as well as commercially.”

(Veteran tech columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

Volkswagen spent $50 billion developing an electric vehicle to rival Tesla ( (TSLA) - Get Free Report). Then the German automaker discovered it had a software problem: It’s EVs didn’t work as expected.

Last week Volkswagen announced the recall of 50,000 of its ID.3 electric vehicles to fix software bugs. It’s an epic fail for a firm known for engineering excellence. It’s also a big opportunity for an American firm to clean up in response.

Investors should buy Nvidia ( (NVDA) - Get Free Report) to take advantage.

Tesla managers got software right from the beginning. Shares have risen 24,801% since the 2010 initial public offering. Along the way naysayers questioned everything from the viability of the EV market to Tesla priorities. Figuring out supply chains was way more important than fiddling with software, according to Tesla nonbelievers.

Years later the EV market has taken off and skeptics are arguing that is only a matter of time before the real car companies swoop in to take way the fledgling market. The failings of the ID.3 tell a different story. Mastering the supply chain doesn’t translate into EV superiority.

The Wall Street Journal noted on Wednesday that the first wave of ID.3s have been besieged by hundreds of software bugs. To make matters worse, the over-the-air system that is supposed to fix those glitches doesn’t work, either.

Ironically, Volkswagen’s supply chain prowess for internal combustion engine vehicles has become its EV weakness.

Power mirror and heated seats modules usually have their own microprocessors and static, task specific software applications. While these components plug-n-play easily with the computer on a 4-cylinder Golf, integrating with the centralized operating system of the ID.3 is proving more problematic. Hundreds of smaller distributed applications are causing endless glitches.

Volkswagen managers are scrambling for a quick fix. Thousands of ID.3s are being recalled. Technicians will manually upgrade the core software in February to VW.os version 1.2. A more mature version of the OS will not be ready until 2024. And even then the company plans to outsource 40% of the code development to outside suppliers and third party developers.

Unfortunately bad habits die slowly in legacy businesses, even when managers understand they must choose a different path.

Volkswagen is willing to work around software from its suppliers because it reduces costs. Managers have decided the economics of integration outweigh potential benefits of complete in-house solutions, like the Tesla OS.

And that brings me back to Nvidia.

Ten years ago, the Santa Clara, Calif-based company had a nice but unspectacular business. It made best-in-class semiconductors for PC and console gaming. Then Jensen Huang, chief executive officer, saw the light, literally.

The software Nvidia engineers developed to render light and physics for game graphics became the foundation for a new computing model based on artificial intelligence. Huang made the AI platform open source to entice academics and developers to buy-in. The strategy was a huge success, moving Nvidia hardware beyond gaming and into super computers and datacenters.

Meanwhile company researchers were building algorithmic models capable of solving complex problems, like autonomous vehicles. Huang showed off a AV computer in 2017 that was no bigger than a lunchbox but still capable of processing 320 trillion instructions per second, enough horsepower to process data from real time sensor streams, then push everything up to the cloud for further analysis. Hundreds of development partnerships followed.

Today Nvidia has 370 partnerships within the automotive sector. Company engineers are working on AV technology with Volkswagen, Audi, Toyota, Hyundai, Volvo and Mercedes.

I have never bought into the idea that legacy car companies would easily take market share from Tesla. They are hardware businesses. At its core Tesla is a software business; a classic example of the great digital transformation of business and society. Making cars, as difficult as that process can be, was always the easy part. Designing good software is hard work.

Nvidia is a hardware company that made the transition to AI software. And it is a great position to dominate big parts of the new automotive economy as its software/hardware solutions become of the brains of many of the world’s best brands.

Shares trade at 47x forward earnings and 23.5x sales. These metrics are reasonable given the size of the opportunity ahead. Nvidia has been trading sideways since September but should shake off its current funk before too long.  

(Veteran tech analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a free trial)

Virtual reality headsets have not really caught on with the public. They are not cool.

Yet if recent reports pan out, that is soon likely to change. This is how investors should get ready.

Bloomberg reported Thursday that Apple ( (AAPL) - Get Free Report) is finally getting ready to launch a VR/augmented reality headset. If the iPhone maker can’t make VR/AR cool, nobody can.

Investors should buy Lumentum ( (LITE) - Get Free Report) to take advantage of the shift.

It was 2016 when Apple managers first expressed interest in AR. Chief exec Tim Cook, told analysts the platform could be huge and he promised Apple would make investments accordingly. Since then the Cupertino, Calif.-based company filed numerous patents, bought start-ups, hired new managers and launched ARKit, its AR software developer kit.

Then in 2019 the company purchased Camerai, an Israeli maker of computer vision software used for AR. NextVR, a California VR company was acquired May 2020.

Now all of these investments are likely to bear fruit as early as 2022.

The new Apple headset will straddle both the virtual and augmented worlds, according to Bloomberg. It will have a high definition screen, powerful processors, a fan, and sensors on the front of the device to make sense of the outside world. It will also be “far more” expensive than existing VR setups.

Apple product managers have never been shy about pricing gear above the competition. The bigger test will be how Apple brings VR/AR to the mainstream. Getting Apple devotees to wear expensive computers on their faces will be no small feat.

Still, the odds favor Apple. The company began marketing AirPods in 2016. The wireless white earbuds looked like a pair of golf tees dangling from the wearer’s ears. Analysts estimate that in 2019 Apple sold 60 million units, making AirPods a $12 billion business.

If Apple product managers can move VR/AR headsets in that direction it is going to be a huge win.

Lumentum is best known for making the front-facing sensor Apple uses for iPhone Face ID. This has been a great business yet the real growth opportunity is AR. Currently, the San Joe, Calif.-based also supplies Apple with the 3D depth measuring sensors that are essential for its computer vision software and ARKit development.

Apple uses Lumentum gear because of scale. The firm is the largest supplier of 3-D sensing laser diode in the world. The company has the capacity to supply Apple its competitors, plus new applications primarily in automotive and industrial robotics.

This puts the company in a sweet spot. It’s best customer is ramping up AR, creating more demand for its sensors at the exact moment when its laser technology is sweeping through the automotive and industrial worlds.

This week Lumentum managers announced they reached a definitive agreement to acquire Coherent ( (COHR) - Get Free Report) for $5.7 billion in stock and cash. Coherent uses photonics and lasers for precision manufacturing, aerospace and defense, microelectronics, and instrumentation.

While shares of Lumentum have come under pressure since the announcement, investors may be missing the bigger picture. Both Coherent and Lumentum are great businesses alone. They will be even stronger together as the combination with bring massive scale.

Currently shares trade at only 14x forward earnings and 4.3x sales. These are perfectly reasonable valuations given the potential new markets for sensors and laser-based manufacturing.

Investors should use the current weakness to start longer-term Lumentum positions. 

(Veteran tech analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a free trial)

One of the biggest errors investors make is zero-sum gaming everything. If Disney ( (DIS) - Get Free Report) enters streaming that must be the end of Netflix ( (NFLX) - Get Free Report), for instance. Ah, not so much.

Netflix executives reported after the close Tuesday that 2020 sales reached a record $6.6 billion. Shares surged 15% today to a new high. The Los Gatos, Calif.-based media streamer is best of breed.

Yet investors get it wrong, quarter after quarter.

The reason for this is the idea that a market – whether it is smartphones or subscription video on demand -- can only support one company. Investors make this silly bet continuously despite all evidence to the contrary. I’m always shocked the argument surrounds Netflix.

It’s not easy to do the things Netflix managers have accomplished. They built a reliable platform that accounts for 13% of internet traffic, day in, day out. The billing system processes payments all over the world in numerous currencies and reliably keeps tracks of 204 million paying subscribers, up from only 100 million in 2017. And they are doing all of this while continuing to grow and produce content internationally.

Disney is a great franchise with enviable brand recognition and capable managers. The company even planned ahead by buying BAMTech, the firm that previously ran the broadcast operations for Major League Baseball. However, even Disney is no substitute for Netflix.

We know this because despite the competition from the house of mouse, Netflix managers raised subscription prices in 2020, and the firm still managed to add 8.5 million new members in the final quarter of the year. That figure was 2 million more subscribers than the consensus estimate, according to FactSet.

Higher subscription fees invariably contributed to the company being cashflow positive for the full year. Reed Hastings, chief executive officer, said in a letter to shareholders the business was $1.9 billion in the green through the end of 2020, a first. He noted the better balance sheet could lead to a decision to return cash to shareholders in the form of share repurchases.

It’s not that shareholders should complain.

Netflix has been a super stock. It’s been a decade since Hastings spearheaded a transition to streaming. At the time the company was in the mail order DVD rental business. It made no content and subscribers were dependent on the United States postal services. That was 2009. Shares have advanced 12,000% since then.

Getting the company to cashflow positive is a major accomplishment. It means the company can pay down debt. Netflix has borrowed about $15 billion since 2011.

The longstanding bearish talking point -- Netflix still loses money when its massive programming costs are taken in account -- is dead.

Ironically, cash burn is a big problem for some of the businesses traders see as would-be Netflix-killers. It’s hard to know how long competing SVOD firms such as HBO Max from AT&T ( (T) - Get Free Report), Peacock from NBC Universal, Discovery+ from Discovery Inc. ( (DISCK) - Get Free Report) and Apple TV+, an Apple ( (AAPL) - Get Free Report) business, can survive in their current configurations.

Sooner or later they are likely to succumb to a different model. That’s extremely good news for the Trade Desk ( (TTD) - Get Free Report), the programmatic digital advertising platform for all properties not owned by Facebook and Google.

I have been writing about Trade Desk a lot recently. The stock is in a correction. I believe it is extremely attractive at slightly lower levels.

All of that aside, the Netflix results are a lesson to investors about scale and competitive advantage.

Netflix is wining SVOD because of network effects. People watch a program like “The Queen’s Gambit” and tell a friend. That social aspect keeps subscribers engaged. Members can’t give up their subscriptions because doing so will leave them out of the loop. The greater the number of subscribers, the more valuable the service becomes to those users.

Longer-term investors should buy Netflix and Trade Desk into weakness..

(Veteran tech analyst Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a free trial.

Managers at General Motors ( (GM) - Get Free Report) have seen the future and vehicles and it is all electric. Investors need to begin planning strategies to take advantage now. Spoiler alert: Buy the part makers.

Mary Barra, chief executive at GM on Wednesday set a brave new agenda for the Detroit automaker. Future GM cars and trucks will sit on three new electric platforms. Their bodies and branding will be modular, too.

Magna International ( (MGA) - Get Free Report), a parts supplier, is the big winner.

The automotive sector is at an inflection point. The industry is clearly headed toward electric propulsion. In addition to the clean energy angle, Tesla ( (TSLA) - Get Free Report) has shown consumers that electric vehicles can be sleek, sexy and fun to drive. This revelation has been a winner for shareholders, too. Automakers in Germany, Korea, China and the United States have seen the future. They want a piece of the EV action.

The problem is shifting manufacturing operations to make it all happen will not come cheaply. EV production at scale means retooling factories. GM will spend $27 billion by 2025 to bring 30 new EVs to market. And the company is working furiously right now to get its supply chain up to snuff.

The auto giant is collaborating on a new rectangular battery system with LG Chem, the battery-making division of Korea’s LG Electronics. Again, the big idea is modularity.

On Wednesday product managers showed the batteries lying flat to fit platforms for sedan and cross-over models, and being piled up to give trucks and SUVs up to 450 miles of range on a single charge. That’s a 60% increase over current capacity.

The opportunity for investors is Magna International, an auto parts maker based in Canada.

Last December Magna managers announced their own joint venture with LG Electronics. The partnership will build electric motors, inverters and board on-board chargers, marrying LG’s electric technology prowess with Magna’s core manufacturing competencies.

In addition its parts business, Magna signed a separate joint venture in 2019 with BAIC, a Chinese state-owned auto maker. The partnership began building complete EVs during 2020. At peak production the venture is expected to produce 180,000 EVs annually.

The key to that partnership, and the deal signed with LG Electronics is being able to swap parts easily between vehicle types and models. This is possible because electrification means most of the basic components will be generic. The same inverter should work equally as well on a Chevy Bolt as a Jaguar I-Pace.

Manufacturing those components at scale is a real advantage when it comes to being cost competitive. And if smaller EV companies would rather simply design their own bodies and interior accoutrements while outsourcing assembly, the BAIC joint venture is a good option. Either way Magna managers have positioned the company as a key EV player.

Barra is fully committed to GM leading the pack. Its new Cadillac EVs are a sleek departure from the previous stilted design language. The electrification of the Hummer brand is ironic for all of the right reasons. A pickup version of the iconic paramilitary vehicle will launch in 2022 with lots of power, range and next generation advanced driver assistance systems for enhanced safety.

Magna is in the right place to supply GM and other EV makers. Jaguar Land Rover selected Magna is 2016 to build I-Pace, its first all-electric SUV. A year later the company won Volkswagen’s e drive business in China. And earlier this month Magna managers announced a deal with Fisker ( (FSR) - Get Free Report) to develop ADAS technology.

In November Magna reported third quarter free cash flow of $1.3 billion, up from $335 million a year ago. The growth came despite many shuttered factories and a worldwide slump in auto sales. Then managers raised guidance for Q4.

Shares trade at 11x forward earnings and only 0.7x sales. Investors are getting a major auto parts supplier with a strong foothold in EVs on the cheap. They’re also investing in a profitable, well-managed business with a tremendous amount of leverage to a normal cyclical economic recovery.

Investors should use pullbacks to buy Magna. 

(Veteran tech analyst Jon D. Markman publishes Strategic Advantage, a guide to investing in the digital transformation of business and society. Click here for a free trial.

Jon will speak about tech on a MoneyShow panel with analysts Gene Munster and Adam Johnson on Wednesday at 5:20 pm ET. Click here to register for the live stream.)

As a company Apple ( (AAPL) - Get Free Report) is renowned for focus and execution. The decision to make an electric vehicle is way out of character and that should be a giant red flag for investors.

News broke last week that Apple and Hyundai, a Korean carmaker, were in talks to collaborate on an EV to be built in the United States. Hours later Hyundai executives backtracked.

Apple is not normally associated with chaos. Then again, the Cupertino, Calif.-based company has never been a part of the automotive ecosystem.

Shareholders are likely to soon discover that was a blessing.

It’s important to keep in mind that Apple managers have been toying since 2014 with the idea of an autonomous EV. Project Titan was supposed to be Apple’s self-driving EV for the luxury car market, the iPhone of that segment. The concept was on brand and ambitious. It was also unrealistic given Apple managers had no experience with automotive supply chains or autonomous vehicle software. Two years into development Project Titan got a reset.

Apple project managers settled on building the software for an autonomous electric bus to shuttle employees between its farflung campuses. Managers even worked a deal with Volkswagen according to a May 2018 report from the New York Times.

Since 2018 the souped-up electric VW bus has been shelved, 200 engineers were laid off and the project was rebooted again with the hire of Doug Field, a former Tesla ( (TSLA) - Get Free Report) executive.

The revelation last week that Cupertino is in new a joint venture with Hyundai is just another weird twist in a story that has been all over the map for almost a decade.

There is still no reason to believe Apple will be able to make a competitive EV, let alone one that will self-navigate. Firms like Alphabet ( (GOOGL) - Get Free Report) and Tesla have significant leads with AVs.

Apple dominates consumer electronics with iconic products. Shareholders have benefitted from the tailwinds of Apple Watch and now Airpods, its lineup of high-end wireless headphones. An EV made by Hyundai sometime in 2024 is not going to be that. All signs point to more chaos and missed deadlines.

There is a better way for investors to play the Apple Car story.

Lumentum ( (LITE) - Get Free Report) is a key Apple partner. The San Jose, Calif.-based company makes the laser components used in Face ID and the sensors used for augmented reality found on the back of new iPhones and iPads. However the bigger story is a breakthrough the company recently made with the sensors used in LiDAR, the light-based radar common on AV setups.

LiDAR is a type of light detection and ranging radar. The sensor sends out a laser light to the target and the distance away is measured almost instantly by the reflection back to the sensor. LiDAR will build extremely accurate 3D maps in real-time.

Most companies working on AVs, the exception being Tesla, integrate LiDAR in the detailed maps at the heart of their autonomous software. The big problem has been LiDAR is expensive.

The new Lumentum chips send more powerful light arrays while being more energy efficient. They are also cheaper to produce. That’s a winning narrative for an investment story that is certain to get a lot of play moving forward.

This should lift Lumentum shares even as Apple shareholders get entangled in what is likely to be many quarters of negative EV headlines surrounding Cupertino’s car plans.

Currently Lumentum shares currently trade at 15x forward earnings and 4.7x sales. Earnings per share grew 425% in 2020 and are expected to grow a further 10.8% in 2021. Given the size of the potential AV market and the improved narrative, the stock could easily trade to $145 during the next 12 months, a gain of 34% from the current price of $108.10.

Consider buying any near term weakness in the shares.