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Wall Street Needs a Geography Lesson

0 | By Michael A. Robinson

Canadian Prime Minister Justin Trudeau visited San Francisco in February in a bid to lure more high-tech jobs up north.

He did the usual…

He met with several top tech CEOs, including Jeff Bezos of Amazon.com Inc. (Nasdaq: AMZN) and Mark Benioff of Salesforce.com Inc. (Nasdaq: CRM).

He toured some startups.

He probably stopped by Fisherman’s Wharf.

It was touted by many media outlets as a visit to “Silicon Valley.”

But here’s the thing. According to media accounts, including pieces by the Associated Press and San Francisco Chronicle, Trudeau never left the confines of San Francisco.

That means he actually never made it to Silicon Valley, a region whose northern border lies – not counting traffic – about a 30-minute drive south of the city.

So, while the nation’s financial media may know a thing or two about numbers – geography, not so much.

That said, it’s telling that Trudeau didn’t visit the Valley itself.

Having kicked around the Bay Area for the past 34 years, I have seen a huge movement of tech companies from Silicon Valley to San Francisco. Without thinking too hard, I can come up with at least 30 privately held tech startups worth $1 billion or more that are headquartered in the city.

There’s a reason for that – beyond the fact that San Francisco has better restaurants than Cupertino (though that’s part of it).

So, today I’m going to show you why San Francisco is quickly becoming a high-tech mecca.

And then I’ll reveal a market-crushing way to play this geographical power shift…

The Story of Silicon Valley

There’s no official birthdate for the founding of Silicon Valley as a tech hub. But Bill Hewlett and David Packard getting started out of a Palo Alto, Calif., one-car garage (pictured below) in 1938 after graduating from Stanford University comes closest.

Then the “silicon” arrived in 1956, after a decision by William Shockley to make semiconductors with that element instead of germanium while at Beckman Instruments in Mountain View, Calif.

However, as innovative as Shockley was, he was a terrible manager – and eight of his senior managers left to form Fairchild Semiconductor. Two of that “traitorous eight”Gordon Moore and Robert Noyce – would go on, in 1968, to found chip giant Intel Corp. (Nasdaq: INTC), pretty much sealing the deal on the region’s future.

The suburban region south of San Francisco got its Silicon Valley nickname in the early 1970s when an enterprising tech journalist coined the name to refer to all the companies located there focused on semiconductors. Since then, the Valley remained largely a center for hardware firms – chip and computer makers – and after that the venture capitalists who backed a steady stream of startups.

The area was generally considered to run from San Jose north to Palo Alto, home of Stanford, where many tech entrepreneurs studied before forming their own firms.

From the 1960s through the 1990s, the Valley proper reigned supreme. Besides Intel, Alphabet Inc. (Nasdaq: GOOGL), Apple Inc. (Nasdaq: AAPL), Cisco Systems Inc. (Nasdaq: CSCO), Nvidia Corp. (Nasdaq: NVDA) , and Oracle Corp. (NYSE: ORCL) all make their home there.

But with the rise of the internet and mobile communications in the 21st century, high tech has become as much about software and apps as it is about chips and computers.

Accordingly, tech firms have become free to move away from San Jose and its bland suburbs to exciting and beautiful San Francisco, one of the world’s great cities…

Unicorn City… and IPO City

Doing so also allowed their leaders and workers to make their home in the city – and bypass Silicon Valley’s seemingly endless traffic jams.

A recent report by the venture capital news website Crunchbase reveals just how much of a lure San Francisco has become – making it arguably the most expensive city in the country. It’s now home to dozens of “unicorns,” privately held startups with a pre-IPO value of at least $1 billion.

More than 30 unicorns and near-unicorns are now based in San Francisco, according to the Crunchbase data. These include two of the most valuable unicorns – No. 1 Uber Technologies Inc. and No. 4 Airbnb Inc.

Data compiled by The Wall Street Journal shows that Uber is now valued at $68 billion, after piling up total VC funding of $12.9 billion. Airbnb has raised $3.3 billion and is now valued at $31 billion.

But there’s a lot more going on here than just those two.

The total worth of the city’s 30 most valuable companies stands at more than $140 billion. Not only that, but some 1,400 SF-based firms have now raised at least $10 million in venture funding.

San Francisco also is the city that spawned what was then the most valuable IPO of the past year for a U.S.-based company when cloud storage firm Dropbox Inc. (Nasdaq: DBX) went public on March 23.

Dropbox defied the market’s gravity to do so. The S&P 500 was down nearly 2.5% year to date at the time. But Dropbox opened 38% higher than its stated offering price and closed just 50 cents off that mark. The move gave Dropbox a market cap of $12.5 billion in its first day of trading.

DocuSign Inc. (Nasdaq: DOCU) – another San Francisco-based tech firm that often gets the Silicon Valley tag – also recently pulled off a successful IPO. It makes electronic signature software that greatly speeds up the closing of contracts.

The stock debuted on April 27, opening more than 30% above its high offering price. DocuSign then gained another $1.73 a share to end up 37% for the day.

Indeed, San Francisco has given birth to several of the tech sector’s top growth stocks.

These include fintech leader Square Inc. (NYSE: SQ) and cloud-centric firms Twilio Inc. (NYSE: TWLO) and Zendesk Inc. (NYSE: ZEN).

And if you haven’t heard of those, you’re likely familiar with the likes of Twitter Inc. (NYSE: TWTR), Fitbit Inc. (NYSE: FIT), and Yelp Inc. (NYSE: YELP). All have their headquarters in San Francisco. Just these six firms have a combined market value of $58.5 billion.

Then there’s cloud leader Salesforce, which I mentioned earlier: based in San Francisco with a market cap of $93 billion.

So, San Francisco is becoming a hub not just of great startups, but also of highly valued global tech companies.

It all makes the HBO series Silicon Valley – as funny and mostly accurate as it is – look just a little out of date. The show’s fictional company, Pied Piper, is a web-based software firm – and should definitely be based out of the city.

Indeed, web-based software is clearly the dominant theme here

And that leads us to the market-crushing play you can make to take profitable advantage of technology’s slightly northward geographical shift.

I Made My Fortune in San Francisco

Investors looking to cash in here should take a close look at the iShares North American Tech ETF (NYSE: IGM).

Let me be clear. This cost-effective ETF is not focused on firms based in San Francisco – or Silicon Valley for that matter.

Instead, it holds a wide range of cutting-edge companies that exemplify what we’ve been talking about today.

Of the SF-based firms we’ve discussed so far, it holds Fitbit, Salesforce, Square, Twilio, Twitter, Yelp, and Zendesk. It also holds such big winners as Apple, Intel, and Microsoft Corp. (Nasdaq: MSFT). Holding nearly 300 stocks, IGM covers just about every aspect of tech today.

It’s also very cost effective, with a management fee of just 0.48%. Plus, it’s a great performer – meeting all three of our ETF Profit Screens.

Over roughly the past year, IGM has gained nearly 31%. That compares with a nearly 12% advance for the S&P.

That means, with it, you could have crushed – no, demolished – the market by 158%.

And it’s going to keep on stacking up that kind of performance for years to come.

So, you can count on IGM to make the sort of money you’ll need for your eventual trip to San Francisco to check out your holdings.

Maybe I’ll see you there.

All that said, Silicon Valley is not dead as a pocket of innovation.

Far from it.

In fact, a tiny Silicon Valley company just dropped a bombshell on the tech world – and it’s about to change everything. This company reported that the Federal Communications Commission granted approval for its breakthrough device… one that’s capable of something that will make your head spin…

It’s a technology The Washington Times said “will change the world on a scale hardly seen in human history.”

Soon, 50 billion devices could be using this new technology. And the FCC’s approval just opened up a massive profit opportunity.

See, this one tiny company sits at the heart of a global revolution – holding critical patents for a technology even more disruptive and life-changing than the lightbulb. In the next few years alone, the market for this could hit over $37 BILLION.

Not only does this device have the potential to be used in nearly every home in America… but it’s being incorporated into hotels, restaurants, airports – even entire cities. And right now, we’re on the precipice of a colossal run-up. Your best shot at capturing a fortune from this opportunity is right now – before global, full-scale adoption begins.

To learn what this new technology is, and how it’s forever going to change your life, click here.

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