I’m going to let you in on a Silicon Valley secret.
It’s a secret that the leaders of the U.S. tech sector guard very closely.
And I only know about it because I regularly talk to the senior industry executives as I make my rounds out here.
The leaders of the top tech players out here each maintain a “watch list” – in essence, a ranked short list of companies that they’d one day like to buy.
These “target companies” share a lot of qualities. They’re all well-run, offer great products, generate excellent cash flow, and are either very profitable now, or have the potential to be in the not-too-distant future.
These “short-list” companies are so good, in fact, that once they’re purchased, they immediately bolster (are “accretive” to) the suitor company’s bottom line.
If those characteristics sound familiar to you, it’s with good reason.
You see, those are essentially the qualities that I’ve repeatedly detailed for you in my list of Five Wealth-Building Rules for high-tech investing.
And today I’m going to show you some great examples of “watch-list” companies that turned into mega-deal buyouts – and demonstrate how you can set up your portfolio to grab a share of these tech-sector windfalls.
The technology I want to tell you about today is one of my best investment ideas.
And not just because it saved my life.
I’m talking about “location-based services,” the technology that allows your smartphone to show where you are … or tell you where you need to go.
It’s a technology that has double-your-money profit potential because of all it can do. It can help you find the nearest retail sale, guide you to the seafood house where you have reservations, or get you to a hotel for a good night’s sleep.
It can also help you avoid costly navigation errors – and not just in a car.
Two summers ago, while sailing with my crew out on San Francisco Bay, an exceptionally heavy fog rolled in. We grabbed a smartphone, discovered we were off course, and traversed the dangerous Berkeley Reef – which would have ripped our keel right off had we not turned.
And the drama involving location-based-service technology doesn’t end there.
You see, this market has finally reached critical mass and is poised to skyrocket.
When Ray Harroun came out of retirement in 1911 to race in the first Indianapolis 500, he made one request: He wanted to ditch the ride-along mechanic that the rules required in order to save weight and give his yellow Marmon Wasp a racing edge.
The Indy organizers balked: The mechanic provided a big measure of safety, they said, acting as a spotter who could watch for cars behind or on either side of the racer.
Harroun bolted a mirror to a bracket on his dashboard, was permitted to race without a mechanic, and won the inaugural Indy race – leading 88 of the 200 laps, the most of anyone.
And the rear-view mirror that Harroun used to gain an advantage in a car race? It’s now standard safety equipment on motor vehicles of all types – meaning it occupies the ranks of devices or substances that were designed to solve one problem, but were later found to solve others just as well.
Today I’m going to share a similar story, and show you how a fluid developed to keep aircraft parts clean or suppress fires is being used to solve one of the biggest computer problems we face today.
When you peruse the tech-dominated headlines these days, a lot of the talk is about how smartphones and tablets are taking over for notebooks and laptops – which had taken over for desktop PCs.
But with the confusing mix of keyboards, track pads, touch-screens, and even voice and gesture commands that are in use today, there are at least as many different ways to interact with all those computing devices as there are different devices themselves.
But Intel Corp. (NasdaqGS: INTC) is pioneering a new type of technology the chip-giant says will bring order to this interface confusion.
And that’s no surprise. A best-selling author and subject of a major documentary, Kurzweil has an unmatched talent for explaining how cutting-edge technology is going to change our lives. That means this “A-list” speaker is always on the go, traveling the globe as he spreads his futurist technology gospel.
That’s why I made sure to buttonhole Kurzweil at the recent Singularity Summit technology conference. As he headed into the San Francisco lecture hall to share the newest insights into how the brain works, I was able to walk along with him and have a quick chat.
As we talked, little did I know that Kurzweil was working on something that would stun the tech world in a manner that’s usually reserved for one of his predictions.
Kurzweil, as it turned out, had accepted a major position at none other than Google Inc. (NasdaqGS: GOOG), the Web giant that is to search what the tech futurist is to prognostication.
And Monday was Kurzweil’s first day on the job as the company’s new Director of Engineering.
A lot of investors have glossed over this news. That’s a big mistake. As I see it, this single hire speaks volumes about how Google views itself, and how it intends to keep building shareholder value.
If you’re interested in Google, this is a bit of strategic intelligence that you absolutely have to know. Here’s why: With this single move, the world leader in Web search is telling investors like you that it intends to remain a growth company. This also tells us that Google wants to invent the types of technology that will change the world and make money for investors – even if it means breaking free of the Web itself.
I defy anyone to identify another leader in the tech field who will have more of an impact on the world in the Era of Radical Change. I’ve followed his career for years now and know firsthand that many of his predictions that people dismissed as crazy have actually come true.
Kurzweil began pushing the tech envelope as a teenage inventor and has literally never looked back. Along the way, he has invented dozens of new products, penned groundbreaking books on the technologies of the future, and altered our view of what is possible and even probable in the Era of Radical Change.
I can guess what the naysayers are already saying – that Kurzweil won’t fit in at Google because the company is so darn huge. Or that Google, with a market cap of $235 billion, can never recapture its free-wheeling days as an early-stage startup.
If you could find a way harness the speed of light – 299,792,458 meters per second – in computer processing, processors could handle massive amounts of data at mind-numbing speeds.
At the very least, it could lead to computer speeds that are up to 100 times faster than those in use today.
That’s why industry leaders have been pursuing the promise of optical computing for decades now.
Indeed, we’ve figured out how to pump light through fiber optics for super-high-speed communications in computer networks and the Web. That’s become routine today.
But still, no one could find a way to solve the challenge of focusing light in tiny spaces like computer chips. It’s a brick wall known as the “diffraction limit.” Simply stated, it means that once you get into tiny spaces – like the postage-stamp size of a semiconductor – you can no longer focus a light beam.
Two teams of computer researchers have just announced major advances that promise to make optical computing a reality in the very near future.
One comes from a famous tech leader whose shares are publicly traded; the other out of academia. Of course, major advances in the lab often make it to market in ways that mean profits for early investors. This is one of those rare cases where a breakthrough happens at a prestigious university… and you could literally invest in the field today.
With the world going through so much fast-paced change, high-tech execs need to keep their eyes clearly focused on the future.
Sadly, some are still looking in the rearview mirror.
Take the case of Intel Corp. (NasdaqGS:INTC). The world leader in PC chips has just announced it’s borrowing another $6 billion.
Of course, borrowing money isn’t necessarily a bad thing. It’s the purpose of the debt that matters most.
Here’s the thing. Intel is taking on more debt to help it buy back more of its flagging stock. See, the senior brass think that at $20 a share, this is a great value. And on paper, they’re right.
After all, Intel has strong profit margins. Not only that, but its 15% return on assets is solid. It means that for every dollar the firm invests in assets, it earns 15 cents.
Try getting that rate on a bank CD. Or a T-bill, for that matter. Pretty much, it’s impossible.
No, the problem for Intel and its shareholders is the stock has become a “value trap.” In other words, investors buy the stock because they see they only have to pay nine times earnings and think it’s a great bargain.
But, as I like to remind tech investors, a $20 stock that goes down is a lot more expensive than a $200 stock that goes up. Look at it this way, if you had simply bought an index fund tied directly to the S&P 500 you would have made a nice 12% return so far this year.
Holding Intel, however, would have cost you more than 19% as of the market’s close yesterday. By buying its own stock, Intel isn’t getting anywhere near the return it could by simply buying a basket of equities.
Don’t get me wrong. It’s not going away. The famous region at the southern end of San Francisco Bay will continue being home to the world’s top high-tech companies. It’s just that we won’t be able to call it “Silicon Valley” much longer.
After all, the region earned its nickname based on the type of material we use to make semiconductors for a wide range of computers.
And that material is going to have to change.
Of course, silicon still holds a huge lead over other substances in computer chip design. But there’s a fundamental problem with silicon chips.
Engineers are running out of room on them.
You see, the Valley runs on a basic rule that has remained unchanged for many decades. It’s called Moore’s Law, and it states that computing power roughly doubles every two years. This explains why your smart phone is a better, faster computer than the mainframes NASA had when it made its moon shots in the ’60s.
To keep up with Moore’s Law, we need to pack ever more transistors – the tiny switches used to control computers – on semiconductors. The current number stands at more than a billion (on an area smaller than a postage stamp). That’s impressive. But at some point, the law of physics will limit how many transistors we can place on a piece of silicon.
It’s fast getting to the point where we can’t physically make transistors any smaller. And once we run out of real estate, the growth in processing power will hit a brick wall, in turn, slowing the entire pace of innovation around the globe.
That’s why I’m glad to tell you today about a new computing breakthrough from International Business Machines Inc. (NYSE:IBM). They scored a huge advance that could soon put the tech world light years ahead of where we are today.
No coins to fumble with. No waiting while the store’s machine dials up your bank. No receipts to sign or stuff into your pocket. The spread of NFC technology is a win-win for the customer and the merchant alike.
With NFC, your phone becomes your wallet. It’s able to “talk” to any vendor, bank, brokerage, or credit card firm you like. This technology is set to take the world by storm. In as little as a decade, billions of people around the world will convert to digital currency as their means of paying for the things they need every day.
There’s just one thing slowing it all down right now – mobile security.
Using mobile phones as de facto wallets alarms some people. They fear that if your phone gets stolen, thieves could gain access to every bank, brokerage, or store account you have.
But that’s about to change.
Indeed, much to the chagrin of thieves and con artists, mobile security will hasten the advent of bulletproof digital money used around the world.
“I think the most important thing to be said about mobile security, and maybe mobile identity, is there are one million organizations in the world that have obsolete, ineffective identification systems now. Most of these things – passports, credit cards, driver’s license, even things we think are reasonably secure, aren’t. And many things aren’t secure at all.
“I think that it’s now possible to create a mobile identity system that runs on a smartphone which is anywhere from 100 times to 10,000 times as secure. Not only are they more secure, it’s impossible to counterfeit and impossible to forge.”
In fact, there are three key security features Saylor believes will make mobile commerce the standard of safe business transactions in just a few years.
The Apple iPad is more than just a great tablet; it’s the single most important computing device released in more than 25 years.
In fact, you’d have to go back to the introduction in 1984 of the Macintosh personal computer to find a machine as game-changing as this one.
Of course, back then, the Mac grabbed only a small share of the huge PC market. But what it did do was establish Apple Inc. (NASDAQ:AAPL) as the sector’s clear technical leader. It also gave birth to desktop publishing.
This time around, however, Apple has turned the tables on its rivals in two ways…
First, it came up with a breakthrough approach and the ideal screen size. At nearly 10 inches diagonal – very close to the size of a piece of paper – this format feels natural to most users.
Second, it’s a runaway success, boasting 70% of the market share.
That leaves tech investors like us with two choices: Learn what this all means, or get left in the dust.
You see, the PC industry is going into a long decline. It’s already started. Ditto for newspapers, magazines, music distribution, and lots of other physical products that will get transformed into software.
His is hardly an academic view. See, Saylor also serves as the CEO of MicroStrategy Inc. (NASDAQ:MSTR), a leader in business intelligence.
He believes five billion people will use iPads or a comparable device within a decade. That’s roughly 75% of the population of Earth. No doubt, he admitted to me, that’s a bold prediction. He added this:
“It’s a prediction upon which you can make a lot of money if you’re an investor. Because if I’m right, then you will have beaten the crowds to that conclusion. And the reason I believe that is – we’ve reached an inflection point, where it’s now cheaper to learn to read on a tablet than it is to learn to read on paper. And I think that’s a very, very meaningful thing.”
Naturally, I wanted to know just what investors need to do to make money off this trend, so I could share the information with you.
Saylor answered by sharing four key facts every investor needs to know about this market-dominating device.