Just a couple of weeks ago, we received news about a huge new breakthrough in computer memory.
The announcement has major ramifications for consumer products like smartphones and tablets as well as for the growth markets of cloud computing and Big Data.
These new memory stats are just off the charts. We’re talking about an advanced system that runs 1,000 times faster, is 1,000 times more durable and is 10 times denser than conventional memory systems.
No, those aren’t typos.
This new technology – perhaps the first truly new memory category in more than 25 years — comes out of a crucial alliance between two tech legends. One’s from Silicon Valley, and the other is out of the Pacific Northwest.
Today, I’ll show you why that’s true – and then I’ll tell you which one of these partners is the best investment.
And it’s on deep discount…
Like I said, the timing for the partnership is perfect for two reasons:
- It’s solving a fundamental problem in computing – performance speed – just at the time when rising demand for ever greater bandwidth is surging.
- It’s a strong rebuttal Wall Street critics of today’s recommendation, who just don’t see why this stock is poised for a major rebound.
As a tech analyst who’s been in and around Silicon Valley for more than three decades, I understand why so many investors focus on semiconductors’ processing power.
The exponential increases in making faster, more powerful chips has fueled huge breakthroughs that have changed every aspect of our lives. Without these tiny, superfast chips, you wouldn’t have a smartphone in your pocket, a backup camera in your car or all your files stored in the cloud.
Today’s chips have literally billions of transistors on them. And that’s one of the big reasons why your smart phone has more power, better speed and far more applications than the ones that came out in the mid-2000s.
But as important as processing power is, our modern digital world also requires a lot of memory.
Indeed, the slower pace of memory advances has led many electrical engineers to believe we are running up against the semiconductor speed limit.
It’s something called the “memory wall”…
Scaling the Memory Wall
See, to get the most out of our digital technologies, we need big advances in computer memory – regularly.
Memory devices – including NAND and DRAM – store dynamic data in order to make computers run faster and smoother. Thanks to large amounts of memory in your laptop, you can open multiple windows on your Web browser while you are working on a document, editing photos, adding graphics to a presentation and streaming music.
With this approach, computers store active files in these memory devices so the machines can access the data faster than if they had to retrieve it from hard drives.
They’re calling it 3D XPoint, pronounced “3D cross point.” It’s so-named because the memory device’s structure creates a stack of lattice-like wires that looks like X’s when viewed from above
Intel and Micron are so far tight-lipped about details. But they have confirmed that they used a new type of material that allows them to bypass putting transistors into individual memory cells – instead, the material deliveries binary changes that move resistance from high to low, vastly improving performance in the process.
This breakthrough will improve Mircon and Intel’s penetration in several big markets all at once.
And now I’ll show you why this makes Intel a good “Buy” once again.
Even More “Intel Inside”
Let’s start with mobile devices and other wireless products, all of which need memory to operate. We’re now shipping more than 1.2 billion smartphones around the world annually. MarketsandMarkets estimates the value of the global smartphone market this year at $258.9 billion.
But that’s just the beginning.
The remote computer servers and data centers that handle all our Web and wireless transmissions could also benefit enormously from Intel and Micron’s memory breakthrough.
That means Intel is, at the very least, targeting the cloud computing industry, where clients pay vendors to host data and applications at these remote centers.
Data compiled by Market Research Media indicates that the worldwide cloud computing market could be worth $270 billion by 2020. Over that period, we’re talking an annual growth rate of 30%.
Of course, Big Data will benefit as well. That’s a term used to describe crunching through mountains of seemingly unrelated data points to do such things as spot cybercrime or develop breakthrough drugs.
SNS Research says business will invest $40 billion in Big Data technology this year alone. SNS forecasts that investments will increase by 14% a year through the end of this decade.
Thus, Intel has a lot riding on the new memory system.
So do it’s investors.
After a 13% rebound from March 25 to June 1, Intel’s stock has declined the last several weeks based on two factors. The first is the continued decline in PC sales, where Intel remains a major chip supplier.
The second stems from Intel’s confirmation last month that it will delay shipping the next generation of its most advanced chip until the latter half of 2017. Wall Street had expected the new semiconductor out a year earlier.
That announcement has many analysts predicting that Intel’s pace of innovation is falling behind.
But really, it’s way too soon to write Intel’s obit.
Yes, I, too, would like to see the advanced processor out on schedule. But this fact remains: The world’s biggest chip company is in the midst of a major turnaround.
It’s moving heavily into chips for the connected car and wearable technology. Those moves require not just money and manpower but also extreme attention to details, because you’re putting billions of tiny components on a piece of real estate smaller than a postage stamp.
With so much going on, I think it’s smart for Intel to take its time and do these jobs correctly.
Also, Intel recently unveiled a big merger that shows the company is committed to becoming a much broader chipmaker.
On June 1, the Silicon Valley pioneer said it’s acquiring Altera Corp. (Nasdaq: ALTR) for $16.7 billion. Altera is the leader in “programmable” chips, semiconductors that customers can configure for their own specific applications.
Because Altera’s chips can be tweaked to add more performance out in the field, its products have proved incredibly popular inside data centers. There, they often sit right alongside Intel’s Xeon computer server chips.
That makes the merger a good one for Intel, as it can continue reeling back its reliance on PCs by getting deeper into cloud data centers.
In this year’s second quarter, the company derived more than half its operating profit from server chips. Thus, I think Wall Street is putting too much emphasis on the delays in the next-gen chip. Analysts and investors have yet to fully account for either the Altera buyout or the new memory breakthrough Intel reached with Micron.
But that’s fine with us… because we can buy Intel at a deep discount.
The stock opened today at $29.47, giving Intel a market cap of $138.15 billion. When you factor in future earnings, that looks like a real bargain. It trades at just 12.5 times forward earnings, or roughly 42% less than the forward price-earnings (P/E) ratio for the Standard & Poor’s 500 Index.
Not only that, but Intel is an extremely well-run firm. It has operating margins of 27% and a 20% return on equity. And we get paid to wait for the stock to rebound – the company boasts a dividend with a 3.4% yield.
All this makes Intel a tech leader that can serve as a foundational play for your portfolio.
And with endurance 1,000 times that of traditional memory, the new 3D XPoint memory could make your “Road to Wealth” last pretty much forever.
Intel and Micron did a pretty good job keeping 3D XPoint “hush-hush” until they were ready to announce it.
But it’s far from the only Silicon Valley secret out there.
Just check out the surprise – and share-price leap – that came along with yesterday’s “Alphabet” announcement from Google Inc. (Nasdaq: GOOGL).
But thanks to my many years in Silicon Valley, I know about some of these secrets ahead of time.
For instance, there’s another tech market – and it offers windfall profit plays that dwarf those in the public markets. This “other” tech market is a playground of the rich – and is inhabited by the top venture capitalists, private-equity players and so-called “high net worth” investors.
Most retail investors don’t know about it. And even those who do wouldn’t be able to find the “secret door” that provides access.
I know where that door is, I know the password – and I’ve even identified the single best place to put your cash for VC-like returns.
Learn about it here.
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