There is no other company like Amazon.com (Nasdaq: AMZN), whose presence is becoming ubiquitous in so many segments of the U.S. economy. It’s almost easier to enumerate the sectors it is not getting into than the ones it is.

One such sector is the financial sector, where I shared with you in March that Amazon was in talks with potential partners about offering a checking account-like product. This would not be Amazon’s first foray into the financial sector. In a very low-key launch in 2011, Amazon began offering loans to the small businesses that operate on its Marketplace platform. Amazon said last June that it had made $3 billion worth of loans to these businesses.

The e-commerce giant also offers a pseudo-debit card, Amazon Cash. It lets consumers add cash to an Amazon wallet and purchase items online without a credit card. And in 2017, Amazon dipped its toe into the deposit business with Prime Reload. This gives customers a 2% bonus when they use their debit card to move funds from a bank account to their Amazon account for use for transactions on the website. This lowered the fees Amazon paid to credit card networks like Visa (NYSE: V) and Mastercard (NYSE: MA).  

The goal here is to disrupt the decades-old credit card payment system – the entire swipe-fee system is a $90 billion a year industry. This includes not only the aforementioned payment networks, Visa and Mastercard, but also payments processing companies such as First Data (NYSE: FDC) that collect 2% on every credit card transaction and 24 cents on most debit card transactions.

Now, Amazon has placed greater emphasis on targeting of companies involved in payments.

Amazon Offers Discounts to Adopt Its System

The company is now offering the discounts it receives on credit card fees to other retailers if they use its online payment system, Amazon Pay. This service, which was revived in 2013, has attracted more than 30 million users.

This latest move by Amazon is a very real threat to not only the credit card-issuing banks, but also payment processors like the aforementioned First Data and other online payments firms such as PayPal Holdings (Nasdaq: PYPL) and Square (NYSE: SQ).

Paypal is the current leader in streamlined online payment methods with 237 million accounts globally. Taking aim at them is Visa and MasterCard, which have teamed up to offer a one-button online checkout feature later this year that will replace their separate Visa Checkout and Masterpass initiatives. Other credit card companies – American Express and Discover – have announced they will also join in the project.

And now, looking to disrupt all of them, is Amazon and its Amazon Pay…

Previously, online merchants using Amazon’s service have paid about 2.9% of each credit-card transaction plus 30 cents. This in turn was divvied up among Amazon, the card issuers and the payment networks. But now, Amazon is offering to negotiate lower fees with merchants that make long-term commitments to use Amazon Pay.

Amazon is able to export the rates it has negotiated with banks and payment networks because, like PayPal, it is acting as a so-called payments facilitator. That means it aggregates smaller merchants to help them lower their cost for accepting electronic payments.

This move from Amazon here in the U.S. reminds me of what China’s technology giants, Alibaba Group Holding (NYSE: BABA) and Tencent Holdings (OTC: TCEHY) have done with Alipay and WeChat Pay in China. Alipay, for example, has a stand-alone valuation in excess of $80 billion.

Related: Add These Two Stocks to Your Portfolio as the Tech Rally Goes Global

And there’s no reason that Amazon cannot be just as successful. . . . .

Another Win for Amazon?

It has had a history of being a successful disruptor. And it will enter the payments space with several distinct advantages. These include a network of more than two million merchants, 100 million Amazon Prime users and those 30 million users already of Amazon Pay.

And importantly, people trust Amazon. A survey from the consultancy Bain on whether people were willing to try a financial product from a technology company showed that Amazon was at the top of the list of those most-trusted tech firms.

The list of firms that will be affected by Amazon’s new emphasis on the payments sector is long, but there are two firms perhaps most at risk – the two high-flyers in the sector, PayPal and Square. Both stocks fell sharply on the day the story on Amazon’s intentions hit the newswire.

PayPal is little changed year-to-date and is actually down slightly over the past three months. And while its stock didn’t crater after the latest earnings report, as it did after the prior report, it is still down in price from the earnings report date.

This relatively poor performance is likely due to the fact that it has become the target of not only Amazon, but also all the major credit card firms. And it lost eBay as a major customer earlier this year.

Square is still up solidly for the year, but that is largely due to Bitcoin hype. Famed short-seller Andrew Left said recently that the stock was rising solely due to Bitcoin mania from investors and that Square was a “collection of yawn businesses.”

The company has been incurring losses for several years now. It reported net losses of $212 million, $171.6 million and $62.8 million in 2015, 2016 and 2017, respectively. At the end of 2017, Square had an accumulated deficit of $842.7 million. And with the company continuing to invest heavily, there is no obvious path to profitability in the foreseeable future.

So once again, Amazon looks to be a likely winner, with Paypal and Square to be the long-term losers in this battle.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
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Source: Investors Alley

Tesla Inc (NASDAQ:TSLA) stock has always been a highly volatile stock with a wildly entertaining backstory. But recently, Tesla stock has been even more volatile than ever, while the backstory has become even more entertaining than ever.

Credit concerns amid sluggish Model 3 production caused Tesla stock to plunge from $350 to $250 in a just a few weeks in March. All the while, CEO Elon Musk was humorously engaging on Twitter Inc (NYSE:TWTR) as if nothing were going on with TSLA stock.

Then, Musk and company announced first quarter deliveries that were much better than what most feared. Tesla stock proceeded to bounce. All the way back to $300.

Shortly thereafter, Q1 earnings hit the tape. Those numbers were also better than expected, led by a surprise beat on margins. But those numbers took a backseat to what happened on the conference call, when Musk brushed aside questions from analysts, calling the questions “boring”, and instead fielded questions from a relatively unknown YouTube blogger.

All together, it has been a wild ride for Tesla stock. This volatility won’t smooth out any time soon. It will be a bumpy ride forward for TSLA investors.

But amid all this noise, investors shouldn’t lose sight of the big picture, which is that Tesla is building the car company of the future. Eventually, production issues will be resolved, profitability will ramp, and the balance sheet will be cleaned up.

At that point in time, Tesla stock will roar higher.

Here’s a deeper look:

Tesla Is a Big Growth Story

All conference call and Twitter theatrics aside, Tesla is still building tomorrow’s biggest car company.

The electric vehicle revolution is here, and traditional automotive manufacturers have been slow to pivot. Consequently, Tesla got a head start, and by getting a head start, the company has not only captured market leadership, but also brand leadership.

When you think of electric cars, you think of Tesla first. That is why Tesla’s Model 3, despite production issues, is still America’s top-selling electric vehicle.

Because of this brand leadership, as the electric vehicle market grows both nationally and globally, TSLA will be at the forefront of that growth. Considering growth in the electric vehicle market actually accelerated in the U.S. in 2017 to 40% (from 32% over the prior several years) and that global electric vehicle adoption is still anemic, Tesla’s leadership in the EV market means that this company has guaranteed itself a robust growth trajectory over the next several years as EV adoption rates rise.

Important note: that robust growth trajectory is big even without considering the company’s energy business, which could also be quite large at scale in 5-10 years.

All together, then, this is a big growth story. Bears will pound on the table about leverage, margins, and the need for a capital raise. But those things will get resolved. Tesla has a ton of options when it comes to raising money, and the company’s gross margins are already above its peers. Thus, once revenue scales and opex rates naturally drop, the company’s overall profitability profile will actually be best-in-class in the auto industry.

As such, the bear thesis seems short-sighted here and now, while the bull thesis seems to understand the full scope of Tesla’s growth narrative.

Tesla Stock Could Reasonably Hit $500

Here is the case of Tesla stock hitting $500 in 4 years.

The EV market is growing at a 40% clip in America, and growth is only picking up. Globally, growth rates will likely also start to accelerate given secular trends towards EV adoption.

Consequently, even amid rising competition, TSLA should be able to grow revenues around 40% per year over the next 5 years, assuming the EV market grows in excess of 40% per year in that time frame.

Gross margins of other auto manufacturers hover around 15-20%. But Tesla’s gross margins over the past several years have hovered around 19-23%. Once Model 3 gross margins scale towards 25% and above over the next several years, the company’s overall gross margin rate should trend towards 25%.

Meanwhile, other at-scale auto manufacturers operate with an opex rate of roughly 10-15%, with the median hovering closer to 10%. Tesla should be able to drive its opex rate down to around those levels at scale. Thus, in 5 years, Tesla’s opex rate should be down to about 15%.

A 25% gross margin on a 15% opex rate implies 10% operating margins in 5 years. That margin on 40% revenue growth per year over the next 5 years leads me to believe that Tesla can do about $25 in earnings per share in 5 years.

A market-average growth multiple of 20-times forward earnings on that implies a four-year forward price target of $500.

Bottom Line on TSLA Stock

As Musk said on the recent conference call, if volatility scares you, don’t buy Tesla stock. Otherwise, the bull thesis makes a ton of sense on Tesla stock. Over the next several years, a surge in global EV adoption rates will send TSLA stock to $500 and up.

As of this writing, Luke Lango was long TSLA.

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The current U.S. corporate earnings season is the best seen since the third quarter of 2010. With just over half of the S&P 500 companies having reported, the largest U.S. companies are on course to post earnings per share growth of 23.2% from a year ago, according to FactSet

But apparently, the best growth in seven years isn’t good enough for Wall Street which is feeling a bit ‘biblical’ these days. Right out of the story of Joseph in Genesis, Wall Street is worried that these seven years of ‘plenty’ will be followed by seven years of relative ‘famine’.

Despite spectacular gains in revenues and earnings, some companies’ stocks have barely budged or even dropped. The worry is that rising borrowing costs (interest rates going to 4% or 5% and beyond) and inflation mean that a turn in the business cycle is close. These worries were intensified when Caterpillar (NYSE: CAT) said rising input costs may mean that the first quarter would be the “high watermark for the year.”

As it usually does, I believe Wall Street is over-reacting. Yes, a recession is coming… eventually. But I believe it will not arrive until late 2020 or even 2021 and it will be caused, as usual, by a misstep by the Federal Reserve.

But it’s just too soon to get out of stocks now. If you do, you will miss a lot of upside that still remains, especially in the large cap technology stocks, such as ‘old tech’ stalwarts Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT) as well as the new tech titan Amazon.com (Nasdaq: AMZN).

Intel Moves Beyond PCs

Its first quarter showed all the doubters that Intel’s long-running efforts to carve out a future in the post-PC era is moving along nicely. Revenues from its newer endeavors in markets including autonomous vehicles and artificial intelligence (AI) were about even with revenues from its PC chips for the first time ever!

Thanks to the surprising boost from these markets, Intel reported revenues were about $1 billion ahead of Wall Street estimates. This outperformance was largely due to a 24% jump in revenues from the data center division, which has quickly grown to become the second pillar of Intel’s business behind its PC-related business. Demand from customers in this sector had driven growth, with “a significant bias for high-performance compute” leading to a shift in chip sales towards more powerful chips and therefore higher average selling prices.

Further expected expansion in these newer markets for Intel allowed its management to raise its revenue forecast for the rest of the year by 4%. And it confirmed that CEO Brian Krzanich made the right moves when he acquired Altera (its products are used in AI) for $16.7 billion and Mobileye (driverless vehicle technology) for $15.3 billion.

I expect Intel to continue “to step on the gas” with even further investments into faster growing markets away from PCs. Its stock, already at a 17-year high, will also continue to accelerate.

Microsoft’s Best Growth in a Decade

Another company that has broken away from its PC past with a bang is Microsoft. The company looks to be on track to record its best annual growth for more than a decade. This follows a revenue boost from its cloud business in the latest quarter and a bullish forecast for the final quarter of its fiscal year.

Microsoft reported revenues of $26.8 billion, boosted by growth of 17% in both its intelligent cloud division and its productivity and business processes group. That was $1 billion ahead of Wall Street’s expectations. Earnings per share rose by 36% to 95 cents, compared with expectations of 85 cents.

Microsoft’s management forecast revenues of as much as $29.5 billion in its current quarter, which is roughly $1.5 billion above most analysts’ estimates. Hitting that target, which is likely, would represent growth of more than 20% for the year to June.

Underpinning Microsoft’s move into becoming a growth company is its move into the cloud. In the latest quarter, the company showed a 58% jump in revenues from its commercial cloud operations — its Office 365 productivity service, Azure cloud platform and Dynamics 365 cloud applications. They a accounted for 22% of overall sales in the quarter at $6 billion. Azure continued its explosive growth, with revenues growing by 93% from a year earlier. This firmly cements Microsoft’s place as the second-largest public cloud computing platform after Amazon Web Services (AWS).

Revenue from the company’s overall commercial cloud business soared by 58% in the quarter. That was nearly 10 percentage points faster than the pace of growth from number one AWS. Microsoft’s CEO Satya Nadella says the growth in cloud services is just starting:

“We’re still in the early innings of the cloud transition.” Nadella also predicted that further growth in the cloud would lead to a jump in “lower-margin services first [and] higher margin services over time”.

Under Nadella’s leadership, Microsoft is once again a growth company. I don’t see that changing any time soon.

Amazon Blows Away Wall Street

That brings me to the aforementioned Amazon, which completely blew away all of Wall Street estimates by posting earnings that were more than twice as good as had been expected – $3.36 a share versus $1.27.

Revenues for the first quarter jumped 43% to $51 billion. Amazon’s net income more than doubled to $1.6 billion, due largely to what it called “very strong customer demand” in its cloud computing services business and a darn good performance in its online advertising business. Its AWS business grew by 49% to $5.4 billion and now makes up about 11% of its total sales and almost 75% of its operating income, at $1.4 billion.

And talk about positive forward guidance… in its outlook, Amazon said operating income might triple in the current quarter. It gave a guidance range of $1.1 billion to $1.9 billion, up from $628 million in the second quarter of last year, with net sales growing as much as 42% to between $51 billion and $54 billion. That sort of growth is almost unheard of in a company the size of Amazon.

Add in the $3.1 billion that Amazon Prime (with 100 million subscribers) and services like Amazon Music Unlimited brought in and you have an almost unstoppable juggernaut.

This growth is the main reason why Amazon is the top challenger to Apple (Nasdaq: AAPL) in the race to a $1 trillion valuation. A race where one company is still sprinting and another company seems to have dropped the innovation ‘baton’.

The bottom line for you is that even if you are worried about growth or inflation, stick with the companies like these three that have idiosyncratic growth. And that can raise prices like Amazon, which is raising the price for its Prime membership by $20, from $99 to $119 a year, adding billions of dollars to its revenues to the bottom line.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley

Maybe you were thinking about investing into the cloud computing sector. I’m here to tell you that investing into the latest computing trend is changing, much along the lines of transportation changed the horse and buggy era when automobiles came on to the scene.

The technology research firm Forrester Research says that the Internet of Things – and the coming deluge of sensors and data – make a good bit of cloud computing passé. It will be more practical and efficient to process all of this data right on the spot where it is being collected.

In other words, data will be processed not in a centralized cloud, but at the edge of the network. Thus you get the term ‘edge computing’.

Welcome to Edge Computing

This makes sense. Think about an autonomous car. Some estimate that these data centers on wheels generate as much as a gigabyte of data every second. Doesn’t it make sense then to process all that data from radar, lidar, cameras and other sensors right there instead of sending it all up to the cloud and then wait to have an answer back to the vehicle? That’s the logic behind Nvidia’s Drive PX Pegasus artificial intelligence (AI) platform.

Peter Levine, general partner at the venture capital firm Andreessen Horowitz, also sees edge computing as the future. He believes that the proliferation of devices such as autonomous vehicles, drones and robots are going to require very rapid processing of data. The data needed in such a short time frame means, Levine believes, that sending data up to the cloud and back to get an answer will simply be too slow. Slow responses, for example, in autonomous cars could mean crashes and fatalities.

Of course, there are privacy issues too. Some data is just too sensitive to be sent to the cloud where it might remain on the public device it was sent to. Apple is leading the way with devising ways for its users to keep control of more of their personal data on their own devices.

Edge computing will become a big business. In October 2017, the IT research firm Gartner estimated that by 2022, half of all data generated by businesses will come from smart edge devices – IoT sensors as well as smartphones and PCs – rather than from the cloud or their own data centers. That is no doubt part of the reason behind the forecast from TrendForce that the edge computing market of products and services will enjoy a compound annual growth rate (CAGR) of more than 30% from 2018 to 2022.

But that doesn’t mean cloud computing is dead. It will still play an important role. Let’s go back to the example of the autonomous vehicles. These vehicles, at the end of a day of driving, send all the data collected to the cloud. This data can then be used by the vehicle manufacturers to ‘train’ and refine their software to improve vehicle safety and performance. In other words, the cloud will still handle the most intensive data storage and processing needs.

This new reality in computing suggests to me the best way to invest in edge computing, while still keeping exposure to cloud computing, is through certain stocks.

Edge Computing Stocks

At the top of that stock list is Microsoft (Nasdaq: MSFT). When Satya Nadella first became the CEO, he said the company would pursue a “cloud-first, mobile-first” strategy. But in 2017, Nadella updated the strategy to say that Microsoft is all about the “intelligent cloud and intelligent edge.” The company has filed nearly 300 patents in the field.

In last quarter’s earnings report, Microsoft showed a surge in business (revenues nearly doubled) for its centralized cloud data centers. Nadella though gave a counter-intuitive reason for the surge: that growing interest in edge computing was the reason. More customers were turning to Microsoft to deal with their edge needs, which in turn fed Microsoft’s centralized cloud business.

Microsoft has a product called the Azure Stack that offers a set of public cloud services inside a data center. This gives a customer public cloud-like resources at the data center level without having to move data back and forth from the public cloud. Carnival Cruise Lines has used Azure Stack on some of its cruise ships to power many of the day-to-day operations.

It also has launched Azure IoT Edge which it says is “a dynamic software platform that delivers cloud services to edge devices, making hybrid cloud and edge IoT solutions a reality.”

Microsoft’s results in the last quarter do  seem to confirm what Peter Levine of Andreesson Horowitz said several months ago, “There’s going to be a symbiotic relationship between the edge and the cloud.”

The next company is Amazon.com (Nasdaq: AMZN), which is the biggest public cloud provider with its AWS service. It has a product called Greengrass that provides a set of computing services directly on IoT devices when public cloud services are not available. Greengrass builds on top of AWS IoT and AWS Lambda, its serverless computing service.

Then there is also Alphabet (Nasdaq: GOOG) and its platform for intelligent IoT services. Google Cloud IoT is a comprehensive set of fully managed and integrated services that allows businesses to securely connect, manage, and ingest IoT data from devices dispersed around the world at a large scale. That data can then be processed and analyzed in real time to take actions as necessary.

The bottom line is that all the major players in cloud computing are embracing edge computing in one way or another. You should embrace these stocks as investments in the future of computing.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

In what was a very poor April Fool’s joke, the stock market took a tumble on Monday, closing below its 200-day moving average for the first time since June 2016. U.S. stocks had their worst start to an April in many decades as measured by the S&P index. The 2.2% plunge was exceeded by only the 2.5% dive in 1929 when the index only consisted of 90 stocks. This drop followed the worst three month period for global stocks in more than two years.

This selloff was once again led by technology stocks – the Nasdaq 100 index lost 2.9% – as more reasons to sell tech outweighed expected stellar earnings reports (average gains of 22%) later this month. The so-called FAANG stocks extended their recent fall. On Monday, they lost $78.7 billion in market value, bringing the total decline in value to $397 billion just from March 12.

The reasons behind the tech selloff were many and included: the continuing worries over regulation of social media, thanks to Facebook; a stupid April Fool tweet from Tesla’s Elon Musk joking about bankruptcy; tweets from President Trump continuing his rants about Amazon; further tweets from the President threatening the future of NAFTA, reigniting the market’s worries about a global trade war; and finally a report that Apple may use chips of its own design in Macs rather than Intel’s chips.

Hopefully, the political worries coming from the White House will eventually fade: if so, then that means the main long-term worry surrounds the social media stocks and in particular, Facebook.

The Anti-Social Network

There are now clever articles being written calling Facebook the anti-social network. And with good reason.

A June 2016 internal memo written by Facebook vice-president and long-time employee Andrew Bosworth entitled “The Ugly” was an eye-opener. It said that the company must pursue its aim of connecting people using “questionable” means even if it costs lives. In other words, anything and everything Facebook does in pursuit of growth was “justified”. What hubris!

Bosworth said this justified “questionable contact importing practices” where users give up their friends’ data, and implied that the privacy policy language was meant to deceive with “the subtle language that helps people stay searchable by friends”. He also suggested Facebook was prepared to use even more “questionable” practices in order to break in to the Chinese market.

This is what happens when only dollars matter. As the author of The Facebook Effect, David Kirkpatrick, told the Financial Times, “They simply allowed an advertising based system to get out of control. “You could use the word greed if you wanted to be uncharitable. They clearly prioritized growing profits over cautionary controls [over users’ privacy].”

The Consequences

As a result of these Facebook failures, lawmakers and regulators in both Europe and the U.S., where Facebook signed a privacy deal with the Federal Trade Commission in 2011, are now scrutinizing the problems posed by data-hungry businesses. The question is how to regulate these fast-changing technologies without ruining their business model.

The underlying problem is that Facebook’s business model, like Google’s, is based on constant commercial surveillance. These companies have massive amounts of personal data on users… in effect, they have a psychological profile on each user. Think about how Google is a ‘data miner’ too. When you search using Google or use Google’s Chrome browser, all that data goes to Google so it can target ads to you. In effect, like Facebook it has a profile on you based on your searches and location.

Related: Facebook, We Have a Problem

Beginning in May, Europe’s GPDR (General Data Protection Regulation) will limit how companies store, process and share personal data. The consent to collect and use personal data will have to be specific and unambiguous, not buried inside many pages of legalese and a user must consent every time. This law alone caused Google to warn its shareholders the reforms could “cause us to change our business practices”. The EU I believe will also pass an e-privacy directive, which if passed, would likely have an impact on both firms’ business, because it would significantly restrict the tracking of users’ behavior online.

Go With Microsoft and Apple Instead

As for the investment implications of all this, I would steer clear of both Alphabet and Facebook as well as other social media stocks even though I suspect Congress will punt on imposing regulation on them. Instead of investing into these companies, I would opt for other blue chip technology companies – Microsoft (Nasdaq: MSFT) and Apple (Nasdaq: AAPL).

Of course, Apple also collects data on its customers, perhaps even more than Facebook. But it has a much better track record of respecting its customers’ privacy than Facebook. Apple has imposed some voluntary restrictions on itself. For example, it makes location data anonymous (unless you’re using the “Find My iPhone” feature) and generally employs “differential privacy” — a cryptography-based practice of obtaining usage and preference data without linking it to specific users.

And there are more differences between the two pairs of companies. Neither Google nor Facebook will make the same commitment as Microsoft that no ads will be targeted based on a user’s email and chat contents. Nor will they make it as easy as Apple and Microsoft make to shut off ad personalization. That’s because their business model won’t work without vast data collection and then ad targeting.

To put it bluntly, the business models of Microsoft and Apple are quite different from Google and Facebook and not reliant on ads. Apple is a hardware company that also sells content and software on commission or subscription basis. And Microsoft, with its cloud, software licensing and subscription businesses, is even less likely to be interested in your data since it no longer has a mobile platform to speak of.

These are the companies to buy on any market weakness, while Facebook and Alphabet should be sold on any rallies.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

2018 was supposed to be the year that Mark Zuckerberg said he would “fix Facebook”. But it’s only three months into the new year and his task looks a lot tougher after the company went through one of the worst periods in its history in recent days with $75 billion wiped off its market value.

To be honest, I don’t know which is worse. . .the fact that an analytics firm used by Donald Trump’s presidential campaign improperly received data about 50 million users of the social network Facebook (Nasdaq: FB) or how poorly senior executives of the company handled the situation.

Natasha Lamb, managing partner at the impact investing firm Arjuna Capital, described what Facebook faces succinctly “[The revelations are] fundamentally troubling from the investor perspective, not only because the company has been so recalcitrant in its response. There are material risks here in terms of regulator risk, revenue risk and brand risk. There are also risks to our democracy.”

Facebook Folly Fallout

The fallout is just beginning as some high-profile people have begun to publicly withdraw from Facebook. Elon Musk deleted the Facebook pages of his companies Tesla and SpaceX and several major firms ‘temporarily’ paused their advertising on the social media site.

In addition, two class action lawsuits have already been initiated against Facebook. But that will pale in comparison to the legal woes it will face from governments on both sides of the Atlantic.

Here in the U.S., the Federal Trade Commission is looking into whether Facebook violated a 2011 privacy settlement, while the attorneys-general in both New York and Massachusetts have opened investigations.

If Facebook is found to have violated the FTC settlement, it would be costly for the company. It could face fines of $40,000 per affected user if it violated its 2011 consent agreement with the FTC, in which it was ordered to be more upfront with users about how their data were being shared. If found guilty, we are talking about over a trillion dollars in fines, folks.

The 2011 order followed complaints from the Electronic Privacy Information Center (Epic) and other consumer groups that Facebook user data were being shared with developers even though the company’s privacy settings said only friends would see the information. Interestingly, the president of Epic – Marc Rotenberg – said the recent revelations were “a clear violation” of the consent order and that the FTC should reopen its investigation (it subsequently has).

This only adds to the possible monetary penalties Facebook may face in the future. In May, the European Union will introduce stricter data protection rules that will put Facebook at risk of fines of up to 4% of global sales for violations. The EU is also considering an e-privacy directive, which if passed, would likely have an impact on Facebook’s business (targeted advertising) because it would significantly restrict the tracking of users’ behavior online.

Stay Away

So what does all of this mean for Facebook as an investment?

I know that most of the pundits on CNBC and elsewhere are telling you to buy it since it’s now ‘cheap’. And indeed the recent plunge has Facebook stock selling at the cheapest valuation since its IPO in 2012. Its one-year forward price-to-earnings ratio has fallen to just 18 times, its lowest ever as a public company and only slightly higher than that for the S&P 500 index.

But what these pundits are doing is “talking their book”. In other words, they already own it and are trying to entice others to buy Facebook.

I would stay far away. Even before its recent woes, Facebook was fighting against a poor public image – it wasn’t nicknamed ‘Fakebook’ randomly. And as Brian Wieser of Pivotal Research said in a recent note to clients, “Facebook is exhibiting signs of systematic mismanagement.”

And while this recent episode will lower trust among Facebook users, the company has already been losing the trust of advertisers. For example, in August 2016, it revealed that its metric for the average time users spent watching videos was overinflated by 60% to 80%.

However, Facebook’s problems should not stop you from investing in other technology stocks outside the social media sector. As editor of Growth Stock Advisor, I continued to be excited about technology sectors including robotics, photonics, semiconductors and ‘new energy’.

Earnings per share for the companies in the information technology sector of the S&P 500 grew 17% in 2017 over the previous year and are expected to rise 16% this year, according to FactSet. And among the larger names, there are quality companies like Microsoft, Intel and Amazon. These stocks are up 5.8%, 6.5% and 29% respectively year-to-date. So why bother with the problem child, Facebook?

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Source: Investors Alley 

While President Trump fights the battle to save jobs in old-line industries such as steel, he may be losing the war for the future (despite the imposition of direct tariffs on China). The United States has always been predominant in new technologies, such as artificial intelligence (AI). But now China is rapidly closing the gap.

Think about some examples of U.S. prowess in AI: DeepBlue, which defeated chess grandmaster Garry Kasparov, was developed by IBM (NYSE: IBM), as was Watson, which defeated champion Jeopardy players in 2011. The robot Stanley, which demonstrated the feasibility of driverless cars in 2005, was developed at Stanford University in the heart of Silicon Valley. And don’t forget that one reason for U.S. dominance has been Darpa (Defense Advanced Research Projects Agency), the U.S. military research funding agency, whose backing was behind many of the most prominent research papers in AI.
However, one recent example highlighted how China has come to the fore in AI.

In January, companies from all over the world subjected their artificial intelligence systems to questions from the Stanford Question Answering Dataset, which assess reading comprehension. The winning AI systems came in at a few percentage points above the average human score of 82.3%. The two winning companies (in a virtual tie) were Microsoft (Nasdaq: MSFT) and Alibaba (NYSE: BABA).

China Tech Giants and AI

Yes, the Chinese e-commerce giant is rapidly becoming a powerhouse in artificial intelligence.

The evidence can even be seen in its latest Singles Day event, the world’s biggest shopping day. Alibaba used AI to generate 400 million customized banner advertisements in the month leading up to the shopping day. It also used chatbots, to answer 3.5 million simple questions a day over the pre-sale period, such as “Where’s my package?”

And on its Taobao e-commerce platform, users can search by image using deep learning, a technique designed to emulate the way a human brain works, to find a matching or similar item. This enables shoppers, for example, to find a dress worn by a celebrity to order it… an ability that does not exist on Amazon today.
Fellow Chinese tech titans

Baidu (Nasdaq: BIDU) and Tencent (OTC: TCEHY) are also making a big push into AI. Baidu is working on developing autonomous vehicles and unveiled its Apollo 2.0 autonomous driving platform at the recent CES trade show in Las Vegas.

Examples of what Tencent is doing include using AI to detect diseases like lung cancer an early stage and having its FineArt AI program easily defeat China’s human Go (a board game). But the Chinese push into AI is broader than these three companies.

One key reason behind China’s rapid growth in AI is sheer numbers. You see, the machine-learning techniques behind the current AI boom are extremely data hungry. To recognize human faces, translate languages, make medical diagnoses, pilot autonomous vehicles, and numerous other tasks requires huge quantities of “training data”, which is the fuel for machine learning algorithms that we generate every time we go online or use our smartphones.

With a population larger than the U.S. and Europe combined (and limited privacy laws), Chinese companies like Alibaba, Tencent and Baidu have a huge advantage over U.S. firms in terms of access to all sorts of data.

China Closing Fast

If you want to get an idea of how fast China is closing the AI gap with the U.S. just look at the recent annual meeting for the Association for the Advancement of AI. The first meeting in 1980 was an all-U.S. affair. But at the February 2018 meeting, China submitted about a quarter more papers than the U.S. (1242 to 934). And more importantly, it lagged the U.S. in papers accepted by just three.

There are a few reasons behind this rise to prominence in AI by China. The first is backing from the central government, which has a specific target for becoming an AI leader within a decade.

The second reason is that China is overtaking the U.S. in terms of AI start-up funding. Technology research firm CB Insights says that in 2017, 48% of the record global investment ($15.2 billion) into AI start-ups went to China. That is a huge jump from just 11.3% in 2016.

And forget about the old thought about China just being copycats… that hasn’t applied in decades. China has beaten the U.S. in AI-related intellectual property as well. Chinese patent publications with the terms “artificial intelligence” or “deep learning” in the title or abstract surged from 549 in 2016 to 1,293 in 2017. This compares with just 135 and 231, respectively, in the U.S., according to CB Insights.

It’s not a straightforward victory for China though. In terms of the volume of individual deals, the country still accounts for only 9% of the total, while the U.S. leads still in both the total number of AI startups and total funding overall. The bottom line is that China is ahead when it comes to the dollar value of AI startup funding, which CB Insights says shows the country is “aggressively executing a thoroughly-designed vision for AI.”

Investment Implications

China has a vision because it realizes how important AI will be in the future. The former chief scientist for Baidu, Andrew NG, said in 2017 that AI is the “new electricity”, and that “just as electricity transformed many industries roughly 100 years ago, AI will also now change nearly every major industry”. I totally agree. Now the question remains whether the U.S. or China will be the main ‘generator’ of an AI future.

A good way for you to ‘hedge’ on that outcome is to first own the well-known AI leaders in the U.S. – the aforementioned Microsoft as well as other companies that have been snapping up AI start-ups, Apple (Nasdaq: AAPL) and Alphabet (Nasdaq: GOOG). Since 2012, Google has bought 14 AI start-ups while Apple has acquired 13 AI start-ups.

But then you must also own the leaders in China as well. While many AI companies trade only in mainland China, the so-called BAT stocks (Baidu, Alibaba, Tencent) are easily available to you here in U.S. markets.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley