Technology is key to whether a country’s economy grows and to whether a country can exert geopolitical influence. Every country knows this including the world’s top two economies – the United States and China.

The United States has held the technological top spot for longer than many people’s lifetimes. But that dominance is being challenged at the moment, particularly by China.

This challenge is a primary reason for the demand by the U.S. in trade talks that the Chinese government quit directly supporting technology start-ups and projects through its ‘Made in China 2025’ program whose aim is to make the China the leader in technology. The Chinese simply smile and point to the Apollo program where the U.S. put men on the moon as an example they’re following with joint efforts of government and private corporations.

For whatever reason, the U.S. seems to be losing its technology edge. For example, a recent study by the consulting and research firm Analysis Mason found that in the next global wireless technology, 5G, China had a narrow lead over both the U.S. and South Korea.

The company pointed to the benefits that 4G technology gave the U.S. with its leadership position as to the importance of the race to 5G. Findings from Recon Analytics include the following.

• Winning the race to 4G boosted America’s GDP by nearly $100 billion and its 4G launch spurred an 84% increase in wireless-related jobs.
• American 4G leadership helped secure leading positions in key parts of the global wireless ecosystem, including the app economy.
• Losing wireless leadership had long-term negative effects on Japan and Europe, contributing to job losses and the contraction of their domestic wireless industries.

As important as 5G may be, even more important will be leadership in artificial intelligence (AI), which is one of the pillars of the Made in China 2025 plan. Russian president Vladimir Putin emphasized AI’s importance last year when he said: “Whoever becomes the leader in this sphere will become the ruler of the world.”

Related: The #1 Stock Powering the Artificial Intelligence Revolution

The AI Arms Race

And here, Michael Chui – a partner at McKinsey that led its most recent in-depth study on AI – said it best, “If you look globally, it’s a two-horse race in AI.” The McKinsey study found that the U.S. and China were the two clear leaders.

The study from the McKinsey Global Institute found that, for some industries, deep learning — the most advanced form of artificial intelligence — has the potential to create value equivalent to as much as 9% of a company’s revenues. Multiply that many times and it will translate into trillions of dollars of potential economic value.

That’s why the most important aspect of the AI revolution comes from a source that isn’t always visible with just a cursory glance — the ability to sweat the largest amount of data the hardest. Machine learning systems that can find patterns by analyzing huge volumes of data are at the cutting edge of today’s AI.

Overall, most experts still think the U.S. is in the lead. Here’s why – it takes three things to be a world-class AI power: the most advanced algorithms, specialized computing hardware, and as mentioned previously, getting your hands on as much of the raw material that machine learning systems depend on — data .

In the first category – algorithms – the U.S. has a lead, but it is narrowing fast. China’s growing capabilities were evident in the good showing by Chinese researchers in the annual ImageNet competition for image recognition or when relative newcomer Alibaba (NYSE: BABA) tied perennial powerhouse Microsoft (Nasdaq: MSFT) in a reading comprehension test for AI.

In the second category, the U.S. maintains a clear lead as China still struggles to get a homegrown chip industry off the ground. But keep in mind that semiconductors are also a pillar of the Made in China 2025 plan.

In the third category – data – China is far and away the leader. The reason is simple… not only are there a lot more Chinese people from which to gather data from, but with a Communist government there is no such thing as privacy rights. All Chinese citizens’ data is open for use by both government and companies.

So what does this AI race between the U.S. and China mean from an investment perspective?

Related: 5 Stocks to Buy in the AI Race Between the U.S. and China

China AI Investments

I’m largely in agreement with a Silicon Valley venture capitalist quoted in the Financial Times with regard to AI opportunities: “The business is bigger and better in China.”

However, some of the very best Chinese AI companies are either still in the start-up stage or their stocks trade only in China. That leaves the three national champions, the so-called BAT stocks – Baidu (Nasdaq: BIDU), Alibaba and Tencent Holdings (OTC: TCEHY).

These three giants often are the leading investors into the top Chinese AI start-ups. According to McKinsey Global Institute, China is in the world’s top three for venture capital investment in core sectors of digital technology: virtual reality, autonomous vehicles, 3D printing, drones, robotics and artificial intelligence (AI).

Baidu, the smallest of the BAT group, has staked out its strategic future on leading the global research in self-driving cars and other AI applications. The company is investing heavily into Apollo, its open-source autonomous car software. At the last Consumer Electronics Show in Las Vegas, it unveiled Apollo 2.0, which offers improved security against hacking.

Baidu already has partnerships with Intel and Nvidia, as well as automakers Ford and Daimler. In China, it is working with local auto manufacturers JAC and BAIC, who plan to start producing autonomous vehicles based on Apollo as soon as next year.

In addition to its own research, one start-up that Tencent invested into is UBTech. It has developed a small domestic robot called Lynx that costs only $800 and which has facial recognition and can be used to talk to Amazon’s Alexa. It also developed a Star Wars Stormtrooper that can be controlled with a smartphone or tablet, and which sells for $300 in partnership with Disney.

Alibaba is pouring $15 billion into its research and development projects. One prominent project it is working on is a neural network chip capable of carrying out AI functions such as facial and speech recognition with substantially less power used. And the company is also acquiring local chipmaker C-Sky Microsystems.

Meanwhile, one start-up that Alibaba invested into is SenseTime. Its facial recognition software is used by Chinese police and the plan is for it to have its technology adopted around the world. It is considered to have the best face recognition technology because it has had so much data – the faces of Chinese citizens – to work with and to learn from.

There are many more Chinese start-ups these companies have invested into. Today, there are almost as many Chinese unicorns as there in the U.S. Research firm CB Insights rates China second worldwide with 64 businesses valued at $277 billion versus America’s 114 unicorns valued at almost $400 billion. And CB Insights did not include one of the biggest companies – Ant Financial – in its calculation.

Bottom line – China is closing fast in the AI race. The best way for you to play that currently is through owning the BAT stocks.

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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.

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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

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