- $1.5 trillion in private equity is looking for a home
- Ever received a robocall? This new legislation should address it
- “Quantum teleportation” is real. And it changes everything
Yesterday was an exciting day in the technology markets – in particular, the automotive technology markets.
Tesla rocketed to an all-time high of $470 a share.
Tesla’s success is something that I predicted a couple of years ago. That prediction evoked the most criticism that I have received over the last five years. It is a very polarizing company. But the shorts got their rear ends handed to them, and the longs are doing quite well these days.
Tesla now has achieved the highest-ever market capitalization for a U.S. automotive manufacturer in history. How’s that for success?
In my Tesla research, I laid out the reasons. It is one of the most advanced artificial intelligence companies on the planet. And it has the best battery technology for electric vehicles.
That gives it a competitive advantage. It shouldn’t be valued like a Ford or General Motors. And we can see now that the market understands that.
I’ll keep you updated as Tesla’s incredible future unfolds.
Now on to our insights…
This private equity signal bodes well for tech stocks…
Heading into 2020, private equity (PE) firms are sitting on record levels of cash… $1.5 trillion of unspent capital. That has investment implications for technology companies.
PE firms use capital to acquire both public and private companies. When it’s a public company, they take it private. They improve its financial metrics and then often take the company public again. This typically happens in a time span of two to five years. It can be a pretty quick turnaround from acquisition to exit.
And PE firms usually pay a premium of at least 30% over the market price to acquire public companies. Sometimes that premium can be as high as 100%. That means investors stand to make outsized gains basically overnight when a PE firm comes in with an acquisition offer.
Unspent capital is a bad thing in the world of private equity. That means money is just sitting there earning very small yields in investments like U.S. Treasurys.
Of course, that’s not why investors give money to PE firms. People invest in PE firms because they want outsized returns from private deals. And we can bet that these investors pressure the PE firms to make deals as their capital pool grows. Otherwise, they are forced to return the capital.
So that begs the question – what deals are they going to make with this $1.5 trillion pool?
And the answer is that one of the largest sectors private equity will be focused on is high tech and biotechnology.
There is no better place in the equity markets to generate higher returns. We can expect to see PE firms acquire several high-profile, high-growth tech companies this year.
And we’ll continue to see private equity pouring into earlier stage venture capital-backed tech companies as well. This will fuel even more innovation.
Which publicly traded companies will PE firms focus on?
They are going to target tech companies generating free cash flow. This is textbook private equity. They will use that cash flow to pay off the debt associated with the acquisition.
You see, private equity firms never put up 100% of the capital for any acquisition. Usually, they use their cash for 20% of the deal and use leverage (debt) for the rest of the acquisition. This increases the PE firms’ investment returns and allows them to invest in a larger number of deals.
Now, it’s difficult to know ahead of time which specific tech companies PE firms will buy at a premium.
But as tech investors, we need to be strategically positioned in high-growth tech companies generating free cash flow this year. Doing so will give us a shot at not only capital gains but also faster returns when these companies are acquired.
Longtime subscribers to my research have benefited several times from these kinds of acquisitions.
If you’re a subscriber to one of my paid research services, rest assured that I will be targeting these types of companies.
The end of robocalls…
President Trump just signed the TRACED Act into law. This is a bipartisan piece of legislation focused on addressing robocalls.
Robocalls are something most of us are familiar with. They are automated phone calls from spoofed phone numbers, generated by pretty simple technology. Robocalls have been around for years.
The goal of these calls is to scam the recipient into transferring money to a nefarious party. The callers often claim to represent the IRS or a law firm, making false claims against the target with severe punishment threats. They employ tactics that can frighten reasonable, unsuspecting victims.
I get several of these calls every day. I bet many readers do as well. They are so common, most people don’t even answer their phone if they don’t recognize the number calling. In fact, the frequency of these calls is staggering…
There were 48 billion robocalls made in 2018. And 54 billion robocalls were made through November of last year.
Well, with the TRACED Act, the wireless carriers will implement an authentication system. The system uses digital fingerprints to determine if a call is legitimate or is coming from a suspicious source.
When it deems a call as suspicious, the phone will display a message warning the receiver that it’s likely a robocall. It will say something like “Spam Likely.”
So we should be on the lookout for these warning messages when we receive phone calls this year. The wireless carriers should have this system implemented in the coming months.
And if we accidentally answer a robocall, the best practice is to hang up immediately. We should never engage with the person at the other end of the line.
Quantum teleportation is now a reality…
Physicists at the University of Bristol just demonstrated the quantum teleportation of information between two separate computer chips. This is a fascinating subject that promises to revolutionize computing forever.
If we think about normal computing, each transistor has two states: 0 and 1. The manipulation of these two states is what makes computers work. Well, quantum particles are similar, except they have many states.
The physicists at Bristol were doing research around a concept called quantum entanglement. This is where two quantum particles become connected to each other in a non-physical way.
The quantum particles essentially become interdependent. Then, when the quantum state of one particle changes, so does the other. Except the particles don’t need to be close to each other for this to happen.
Several years back, scientists were able to demonstrate quantum entanglement by separating two interdependent particles by 100 kilometers. And sure enough, when one particle changed states, so did the other. There was no physical connection whatsoever between the two particles.
Just three years ago, all records were shattered by demonstrating quantum entanglement between one particle on Earth and another in space. Pretty extraordinary.
So the physicists at Bristol were building on this discovery. They took two computer chips that were linked by quantum entanglement, and they were able to teleport information from one chip to the other without any physical infrastructure.
There were no cables, no wireless network… nothing.
They teleported the information from one chip to the other. Of course, in this case, the chips have no need to be miles apart. We can think of them operating on the same board or within a rack of computers.
There are many implications here, some practical and some philosophical. Let’s focus on what this means for the future of computing.
Our current computing systems must be linked together with physical connections… basically super-thin wires. That creates latency – delay – since information must physically move from computer to computer.
Well, if we can now teleport information without physical links, multiple computing systems can perform even faster without the need to be physically interconnected.
We could even have several data centers scattered across a country or region “teleporting” information back and forth, working together in real time.
These developments may have a radical impact on computing architectures. I’m going to be keeping a close eye on silicon photonics and quantum entanglement in 2020, looking for important investment opportunities.
Editor, The Bleeding Edge
P.S. Do you have a question about quantum teleportation? Send me an email, and I’ll address it in an upcoming mailbag edition of The Bleeding Edge.
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