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SPECIAL REPORT

A Brownstone Research Publication

The “Tech Shock” Portfolio: Companies to Buy Now

By Jeff Brown

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The “Tech Shock” Portfolio: Companies to Buy Now By Jeff Brown, Editor, The Near Future Report

Right now, the world is facing down a monumental shortage in semiconductors like we’ve never seen before.

Back when I worked as a high-tech executive for some of the biggest chipmakers in the world, I saw the semiconductor industry go through normal boom-and-bust cycles. But what we’re experiencing now is different… and it’s impacting daily life.

While it’s easy to disregard semiconductors, we shouldn’t make that mistake. After all, our own federal government has referred to computer chips as “essential to modern day life.”

That’s because semiconductors are used in many technology trends. They are the “brains” of all electronics. And as technologies like artificial intelligence (AI), robotics, and 5G networks become more prevalent and complex, the demand for semiconductors increases.

That’s why the recent supply shortage has been causing so much trouble.

We’re experiencing shortages of the essential chips that power our smartphones, TVs, microwaves, air conditioners, laundry machines, cars, personal computers, medical devices, and other electronics like never before…

It’s what I like to call a “tech shock.” That’s a

moment in time when things are changing so quickly, and demand is so high, that it is hard to keep up.

The reality is that demand for semiconductors is off the charts right now. The rate of technological change continues to accelerate each week.

Technology, consumer electronics, medical, industrial, and automotive companies are bringing new products to market faster than ever before. And all of these products are using more semiconductor content than in previous product generations.

Nothing has been able to stop this trend. The pandemic certainly didn’t. Even economic lockdowns couldn’t make a dent. It’s a flywheel effect. The more advanced the semiconductors, the more advanced and incredible products can be designed and manufactured. And with every generation of semiconductors, the demand for more power, functionality, and efficiency only increases.

And right now, the manufacturers of these chips are playing catch up – and spending tens of billions of dollars to build out new production capacity.

Of course, this has massive implications for the various megatrends we follow here in The Near Future Report.

Special Report 2021

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That’s why, in this report, I’m uncovering four companies poised to profit from this tech shock. These companies are perfectly positioned to benefit as the semiconductor shortage plays out…

Welcome to The Near Future Report

Welcome to The Near Future Report. Our mission here is to profit from technology trends that are right around the corner. We do this by identifying “sleep well at night” technology investments that are still in “growth mode.”

My name is Jeff Brown. For nearly 30 years, I worked as a technology executive for firms like Qualcomm, NXP Semiconductors, and Juniper Networks. I’ve earned degrees from Purdue University and the prestigious London Business School.

I’ve received professional certificates from MIT, Stanford, and the University of California, Berkeley, School of Law. I’m also an alumnus of Yale University’s School of Management. And I’m an active angel investor in early stage technology companies.

As of this writing, I’ve invested in 200+ private deals. You might even know some of my private investments. I was a private investor in Coinbase, for instance, the world’s largest digital asset exchange that recently went public.

I don’t mention all this to brag. I simply want to emphasize that I’m not a typical Wall Street analyst trying his or her hand at technology research. I come from the industry.

I’ve helped build and turn around technology companies – many within the semiconductor industry. As President of NXP Semiconductors Japan, for example, I worked closely with industry giants like Sony to provide essential chip sets for the latest gaming consoles and other popular consumer electronics on the market. It’s an industry I know very well. And I’ve devoted my entire life to researching, working with, and

investing in bleeding-edge technologies.

And through my investments, I’m trying to help lay the foundation for the biggest megatrends in technology right now.

Blockchain technology, autonomous vehicles, cloud computing, decentralized finance, and the other trends we track in this service are seeing exponential growth… That’s why I believe we’re set to profit as we invest in the companies working hard to create the chips all of these massive tech trends will need in the coming years…

Tech Shock Stock #1: Advanced Micro Devices (AMD)

Advanced Micro Devices (AMD) is a Silicon Valley institution. Formed in 1969, AMD dominates the computing space with its top-of-the-line graphics processing units (GPUs) and field-programmable gate arrays (FPGAs). We can find these chips in a whole range of high-tech devices – from smartphones and virtual reality (VR) headsets to gaming PCs and electric vehicles (EVs).

And AMD’s GPUs are driving one of the hottest megatrends I’m tracking – the next generation of the internet. It’s what I like to call “Web 3.0.” And it’s the most consequential change that the internet has seen in decades.

Over the past year… with major platforms like Twitter and Facebook censoring or outright banning any voices of dissent… the internet has increasingly become the domain of a select few tech giants. We’ve given the majority of our data – often unknowingly – to companies like Google and Facebook. And we’ve allowed them to profit from it.

What have we received in return? Powerful companies that have the ability and the willingness to censor, hide, and even manipulate what we see. As our data has become more centralized around these companies, we’ve seen the original promise of a free and open internet seemingly disappear.

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But “Web 3.0” is different. It will be decentralized, secure, and will prioritize user privacy. It will, in essence, remove the “gatekeepers” like Facebook and Google from their positions of power and give control back to internet users.

And the advent of one key technology will restore the promise of a free and open internet. It’s called blockchain technology.

As some of you may already know, blockchain technology is the underlying technology of bitcoin and other cryptocurrencies. I’ve also referred to it as a distributed ledger technology (DLT). We can think of this as technology that securely records each and every transaction that occurs over its network.

And it’s this technology that will pave the way for decentralized versions of the internet, the global financial system, and much more.

With the move toward a decentralized internet, semiconductors with lots of processing power will be needed. And all this power will come from the GPUs and FPGAs that AMD excels at building.

AMD has already spent years building out the infrastructure enabling blockchain networks. Since 2017, AMD has been designing software for its GPUs to support blockchain networks and improve cryptocurrency mining performance.

And AMD is already homing in on how to best serve this lucrative market with its next generation of hardware and software updates.

Its Radeon GPUs are a big part of this strategy. Though not specifically made for cryptocurrency mining, they’re widely used by crypto miners all over the world today. They’re also the workhorses of AI and machine learning (ML), with the ability to run thousands – even millions

– of parallel computations and “infer” solutions to complex problems on the blockchain.

And in March, AMD announced a “set of fixes” to a driver for GPUs originally manufactured exclusively for Apple. Specifically, the changes to the GPU drivers are perfect for cryptocurrency miners. Having GPUs specifically designed and optimized via software for mining cryptocurrency will increase the speed and computational abilities of these GPUs.

AMD has also methodically courted companies that build hyperscale data centers to use its GPUs to support AI/ML applications for clients at the “edge” of a network. This is a massive business for AMD, and servers powered by its technology are used by all of the major cloud service providers.

These moves will ensure that AMD maintains a large chunk of the cryptocurrency mining, data center, and AI/ML segments for years to come.

And with its entrenched position, AMD will remain an overall leader in semiconductors over the next decade.

The company’s revenues over the past few years are a testament to its dominant position in

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the semiconductor market. In the chart on the previous page, we can see that AMD is projected to grow its revenues to more than $21 billion by 2024 – more than doubling in four years.

And the majority of that growth is being enabled by AMD’s head start in building out the performance of AI/ML applications and blockchain technology.

AMD’s growth has been and will continue to be impressive. That’s why we should take the opportunity to establish a position in AMD and benefit from its massive share of the semiconductor market.

Action to Take: Please refer to our model portfolio for the most current recommended buy-up-to price for Advanced Micro Devices (AMD). Be sure to use a limit order when placing trades. For the time being, we will hold AMD with no stop loss. Always remember to use rational position sizing.

Risk Management: Because we will be holding AMD without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go “all-in” on any one investment. Our mission is to build a portfolio of our companies. That’s how we’ll optimize our success.

If this stock is trading above its recommended buy price, I encourage being patient. Regular volatility typically gives us a good entry point.

Tech Shock Stock #2: Micron Technology (MU)

Established in 1978, Micron Technology (MU) is one of the longest-running semiconductor firms outside of Silicon Valley. In that time, it has become a global leader in computer memory.

And over the past decade, Micron has gone

through a major transformation. In 2010, Micron made one of its most important acquisitions with Numonyx, which specialized in nonvolatile memory technology. Nonvolatile memory simply means data can be stored and recalled even if power is turned off. Solid-state drives (SSDs) are a type of nonvolatile memory storage.

And in 2016, it acquired Inotera Memories, a manufacturer of dynamic random-access memory (DRAM) chips. DRAM is a type of RAM (random-access memory) technology.

These acquisitions have made Micron the go-to company for all memory needs. In fact, it’s the only company that offers DRAM, NAND, and 3D XPoint technology. These memory chips are used in our smartphones, laptops, the guidance systems in our cars, and many more devices.

Having SSD, NAND, and 3D XPoint products gives Micron a strong foothold in the quickly growing NAND industry. And Micron estimates that the DRAM market will grow 15% a year for at least the next couple of years, while the NAND market will grow 30% a year.

Micron’s huge strides in the memory market have allowed it to infiltrate another profitable segment – expanding the memory capacity of blockchain networks. After all, the more transactions executed on the blockchain, the more memory is needed. Cryptocurrency “miners” authenticate new transactions daily and work to secure the chain for other users. All of these tasks require huge reserves of memory and computing power.

Micron’s products are the key to ensuring the stability and storage capacity of blockchain networks across the globe.

And Micron’s massive R&D spending over the past couple of years has propelled it to a leadership position in all of its memory verticals. Last year, Micron spent over 12% of its revenues on R&D. That’s a huge amount for an $80 billion company like Micron.

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In the nearby chart, we can see that Micron’s R&D spending has increased each year over the past decade, with over $2.5 billion deployed last year alone. We can expect Micron to maintain its leadership position as it grows revenues and increases its R&D spend.

With the rise in smart contracts, cross-border transactions, and Internet of Things (IoT) applications across the blockchain, Micron’s semiconductors will play a dominant role in powering the next generation of decentralized networks.

And Micron’s large array of offerings in the memory market will ensure it remains the go-to supplier for the data centers, mining platforms, and other integral players in blockchain technology in the years to come.

This is too good of an investment opportunity to pass up.

Action to Take: For our current buy-up-to price for Micron Technology (MU), please see our online model portfolio. Be sure to use a limit order when placing trades. For the time being, we will hold MU with no stop loss. Always remember to use rational position sizing.

Risk Management: Because we will be holding MU without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go “all-in” on any one investment. Our mission is to build a portfolio of our companies. That’s how we’ll optimize our success.

If this stock is trading above its recommended buy price, I encourage being patient. Regular volatility typically gives us a good entry point.

Tech Shock Stock #3: Taiwan Semiconductor Manufacturing

(TSM)

Taiwan Semiconductor Manufacturing (TSM) is the largest semiconductor foundry in the world. Significantly, TSM produces semiconductors for companies like Qualcomm, NVIDIA, Broadcom – and even AMD – among many others.

These contract partners essentially design their own chips and contract the actual production out to TSM. And this arrangement gives these companies a huge advantage. It allows them to focus on innovating their wares while leaving production in the hands of a trusted third party.

This high volume of production has in turn allowed TSM to set new standards of quality for the entire semiconductor industry.

Just over two years ago, TSM broke ground on its Fab 18 plant. It’s here that TSM developed its 5 nanometer (nm) manufacturing process, for which it entered volume production in 2020. Now, 7 nm and 5 nm processes would generally be considered the bleeding edge of semiconductor technology today. But TSM recently went one step further…

It announced it would begin working on risk production of its bleeding-edge, 4 nm

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manufacturing process later this year. That’s at least three generations ahead of other semiconductor giants like Intel. And next we’ll have 3 nm mass production by the end of 2022.

These developments show just how fast the pace of innovation moves at this industry-leading foundry.

Simply put, the world runs on the chips that TSM provides through its many partnerships. And it has proven time and time again that it can improve semiconductor manufacturing processes above and beyond its nearest competitors.

What’s more – TSM’s entrenched position in the market ensures that it will remain on the leading edge of chip manufacturing for years to come. And its manufacturing capabilities aren’t just for the big players in tech…

Over $7 billion of venture capital investment has flowed into dozens of private, early-stage semiconductor companies focused on AI and/or ML over the past eight years. And guess what? Every single one of these companies uses TSM’s manufacturing processes. From tech giants to startups, TSM has cornered the global market for semiconductors.

In the nearby chart, we can see that TSM holds the largest share of the semiconductor market. In fact, this bleeding-edge company is responsible for about 90% of the world’s most advanced semiconductor manufacturing. Its nearest competitors simply can’t command the wealth of innovation and large production capacity that TSM provides.

There is no company in the world like this.

TSM is an opportunity to essentially benefit

from all of the innovations being driven in the semiconductor space. To that end, I don’t want any subscribers to miss out on holding a position as this industry-leading foundry builds out the next generation of advanced semiconductors...

Action to Take: For our current buy-up-to price for Taiwan Semiconductor Manufacturing (TSM), please see our online model portfolio. Be sure to use a limit order when placing trades. For the time being, we will hold TSM with no stop loss. Always remember to use rational position sizing.

Risk Management: Because we will be holding TSM without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go “all-in” on any one investment. Our mission is to build a portfolio of our companies. That’s how we’ll optimize our success.

If this stock is trading above its recommended buy price, I encourage being patient. Regular volatility typically gives us a good entry point.

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Tech Shock Stock #4: ASML (ASML)

For our next stock, we’re revisiting a prior Near Future Report recommendation for even bigger gains: ASML (ASML). Right now, I see the perfect opportunity to jump back into this stock and capitalize on the exponential increases in speed and stability it’s enabling in semiconductors.

And it’s all because ASML is able to leverage a key piece of technology powering the increasingly smaller and more efficient chips behind the key megatrends we’ve discussed – Extreme Ultraviolet (EUV) lithography.

EUV scanners use a form of ultraviolet light that has a wavelength less than a tenth of what was previously used. This is significant because it will allow semiconductor manufacturers to print in a single step what takes several steps with current technology.

And the difference in quality is very visible. If we were to examine the difference with a scanning electron microscope capable of seeing images at a nanometer scale, we would see something like the image below.

We can see a semiconductor produced using EUV technology on the right compared to traditional methods on the left. Notice how sharp and clear the lines are on the right versus what we see on the left. This precision is what

allows semiconductor manufacturers to place transistors more precisely.

And only ASML makes the equipment needed to produce semiconductors with EUV technology. ASML’s EUV technology is used by every high-end semiconductor manufacturing company in the world. And ASML’s signature piece of manufacturing equipment, the ASML Twinscan, is the key factor driving its tremendous growth.

The ASML Twinscan

Source: ASML

The average price per unit is €144 million ($175 million). With a 100% market share of the only technology capable of producing bleeding-edge semiconductors using a 7 nanometer (nm) process or smaller, ASML will be able to consistently grow its revenues in the coming years.

And its machines are already providing the capacity needed to build out the next generation of powerful semiconductors.

Last year, ASML produced 31 EUV machines. This year, it expects to produce 40, and in 2022, 55. And with rising demand for cutting-edge semis, ASML’s sales team will take in many more orders.

I know Wall Street is far underestimating ASML’s future sales. Based on ASML’s 2022 projections, it will add 15 units of additional EUV production from 2021 to 2022. At a sales price of €150 million per unit (we’ll assume a slight adjustment higher for inflation and increased demand), ASML can expect €2.25 billion in

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incremental revenue from just EUV sales.

But that’s all the incremental revenue Wall Street has projected for ASML in 2022. They’re saying the rest of ASML’s business will stagnate… That just doesn’t make sense to me.

Rather than rely on Wall Street’s projections, we can look back at ASML’s history of crushing revenue expectations to see just how valuable this company has become. Look at the revenue projections ASML laid out in 2017 compared to its actual performance in the nearby chart.

As we can see, ASML’s revenues have consistently beaten expectations over the last few years. We can see that management tends to guide conservatively… But it’s clear that ASML’s actual performance consistently trumps analysts’ expectations.

And the fact is, ASML’s technology is required to drive forward innovation in every technological megatrend we’ve discussed in this report. Much like TSM, this stock gives us exposure to almost every segment of the semiconductor market.

ASML’s technology is essential for producing faster, more efficient semiconductors at scale – and the rest of the industry already knows this. With the huge sales ASML’s machines have already seen, tech companies clearly understand the value in leveraging ASML’s technology to usher in the next generation of powerful chips.

This is definitely a company that we’ll benefit from holding in our Near Future Report portfolio.

Action to Take: Please refer to our model portfolio for the most current recommended buy-up-to price for ASML (ASML). Be sure to use a limit order when placing trades. For the time being, we will hold ASML with no stop loss. Always remember to use rational position sizing.

Risk Management: Because we will be holding ASML without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go “all-in” on any one investment. Our mission is to build a portfolio of our companies. That’s how we’ll optimize our success.

If this stock is trading above its recommended buy price, I encourage being patient. Regular volatility typically gives us a good entry point.

Regards,

Jeff Brown Editor, The Near Future Report

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