| | | | | By Jeff Brown, Editor, The Bleeding Edge | | |
Happy holidays to all. | | I hope everyone is enjoying some good down time this week. We're still making time for our Friday AMAs this week and next, despite our modified publishing schedule. | | This week, we dig a little deeper into eVTOL companies and whether hydrogen might be a good solution for aircraft. This was also an opportunity for us to step back and consider what's driving the eVTOL market right now and whether valuations are reasonable. | | We also revised Intel and ask the question as to whether it is a good time to get back in. Read on if you're interested in knowing the answer. | | And we even explore one of the critical failures of the Fukushima nuclear meltdowns. Hint: It wasn't the tsunami at all. | | Another critical topic came up – that of China-manufactured products potentially carrying software that can cause damage. This is a timely topic given what transpired this year, and even this month. This is a topic worth understanding. | | Hopefully this will make for some interesting holiday reading and help us all be better prepared for the coming year. | | Happy holidays again, and I'll see you in the New Year. | | Best wishes for a fantastic 2025, | | Jeff | | Joby and the Progress of eVTOLs | | | Glad that you're following and sharing some writing regarding eVTOLs! Joby's acquisition of H2FLY – and more recently, the 523-mile trip done purely on hydrogen – is another unique factor I'm definitely considering when I evaluate them, specifically from an investing standpoint. I don't believe Archer (or anyone else in eVTOL space) has acquired any comparable hydrogen fuel companies – or made as much progress – as Joby has thus far with respect to utilizing hydrogen as a fuel/energy source for the flights. But I may be wrong on that. | | I'm curious. I have a brother who's a mechanical engineer for Joby, and I've had the fortunate opportunity to "peek under the hood" and see their operations in person on a family visiting/demonstration day, in addition to hearing about Joby regularly through conversations with him. | | They're doing some remarkably innovative work, that's for sure. I'm curious (as a Brownstone Unlimited member), have you considered covering either Joby or Archer (or another eVTOL business) within one of Brownstone's advisories? I would be so thrilled if your team did share some analysis on Joby, for example. Always appreciating your work… | | – Greg S. | | | | Hi, Greg. | | Yes, Joby is one of my favorites in the eVTOL (electric vertical take-off and landing) industry. In fact, I've written about it a couple of times in The Bleeding Edge. | | | | | Joby also has rotors that transition from vertical to horizontal throughout a flight and has four passenger seats. It's capable of flying at up to 200 miles per hour. | | Both the Archer and Joby eVTOLs operate at 20-25 fewer decibels than a normal helicopter. That means that these eVTOLs are four or five times quieter than traditional helicopters. This is a dramatic improvement to both the surrounding environment, as well as a far more pleasant ride for passengers. | | Joby has already launched a software platform designed for air taxi operators called ElevateOS, which is designed to simplify the launch of commercial eVTOL air taxi services. This was a smart move to develop this technology in advance of the final approvals of its eVTOL for commercial flight. | | | I also touched on it briefly back in August in The Bleeding Edge – Autonomous Deliveries when I discussed Uber's spinout of its air taxi division to Joby where Uber paid Joby $75 million to take Uber's Elevate division off its hands, thus removing the operating expenses of that division from Uber's books. | | As for your point about Joby's acquisition of H2FLY and hydrogen for aviation, you are correct that Archer hasn't made an acquisition in this space. In fact, Archer as a company hasn't made any acquisitions at all, and smartly it doesn't appear to be making any investments to develop its own hydrogen technology for aviation. | | I say "smartly" because hydrogen for aviation is a terrible idea. And there are several reasons for that: | - Hydrogen has very low volumetric energy density. Just to hold the same amount of energy equivalent to that of jet fuel requires significantly larger tanks that require cryogenic storage systems in the case of liquid hydrogen (note: tank requirements are completely unreasonable for hydrogen in a gaseous form).
- The weight of the cryogenic storage systems is disadvantageous for aviation. More weight results in shorter distances and less room for cargo and/or passengers. This is always a tradeoff.
- Hydrogen is very pernicious. Due to the tiny size of the molecules, it is easy for hydrogen to escape anywhere in the supply chain, including on an aircraft.
- Hydrogen is invisible, odorless, and very flammable. This creates safety issues that are not trivial.
- Almost all hydrogen is produced using fossil fuels, usually natural gas. It is therefore not green. Burning carbon to produce an even more expensive fuel with the disadvantages listed above makes no sense at all.
| | It is possible to produce green hydrogen. For example, it could be produced with electricity from nuclear energy, but the above disadvantages are still relevant, and the costs are much higher than jet fuels or electric eVTOLs. | | There are companies pursuing hydrogen-based flight, but the only way that they will be able to operate in the near future would be with heavy government subsidies. | | That's why it makes far more sense for companies like Joby, Archer, and Beta Technologies to use electricity from lithium-ion batteries for their commercial operations. | | Joby and Archer, both publicly traded, have had a good couple of months. Joby is up 84% and Archer is up 252%. The reason for the run-up is that in late October, the Federal Aviation Administration announced the completion of the Special Federal Aviation Regulation (SFAR) for powered-lift pilot training and operations, which directly impacts the eVTOL industry. | | The regulations now make it possible for eVTOL manufacturers to train pilots with a combination of full flight simulator sessions and solo flights. Clarity was also provided on eVTOL flight operations and reserve fuel requirements specifically for eVTOLs, which are clearly different from helicopters. | | Archer's stock got an additional boost from an announcement of a strategic partnership with leading private defense tech company Anduril to develop a hybrid VTOL aircraft for the Department of Defense. In conjunction with the announcement, Archer raised an additional $430 million. | | Now, as for your specific question, yes, I've been tracking developments in the eVTOL space very closely and am always considering these companies as potential recommendations. And I'm always doing so, taking into consideration valuations and market conditions for small capitalization stocks. | | Let's take Joby (JOBY) for example. Even with its 84% run-up in share price, the company is now trading at 267-times 2025 forecasted sales (EV/Sales). And while it has only $32 million in debt and $710 million in cash, it is burning through money as it is still in research, development, and certification mode and burning through almost $500 million every year. | | It's clear that Joby is going to need to raise a lot more cash, which always comes at a dilution to existing shareholders. In fact, Joby already filed for a secondary offering of new shares in hopes of raising $300 million on the latest run-up in its share price. Morgan Stanley and Allen & Co. are the banks managing the offering. | | My concern is that these valuations are ridiculous, especially considering the market we're in right now. Interest rates remain elevated and institutional capital has not yet rotated into small caps with negative free cash flow. | | Joby and Archer can both be exciting companies with great potential, and at the same time be grossly overvalued and very volatile. The slightest bit of bad news will result in the share prices to plummet. And the moment that hedge funds have decided that the trade is up, they'll dump shares quickly. | | | | | | If you've missed out on NVIDIA's recent 1,600% run… Don't worry. Because there's one AI stock that could be a lot more lucrative. It's currently trading for only $16. And it pays out 270X more in "AI Royalties" than NVIDIA. Get the ticker here >>> | | | | Hi, Jeff. | | I was wondering if you have reevaluated INTC, now that they will be getting a new CEO. Do you think it might be a good investment at the current price? | | – Robert F. | | | | Hi, Robert. | | For more than the last five years, I've predicted Intel's (INTC) downfall. I definitely received some negative feedback from my predictions, but the numbers speak for themselves. Since Intel's 2020 highs, Intel's share price is down more than 70%. | | But it's always a fair question. Is now the time to get back in? Is Intel too cheap to ignore? Is a rebound right around the corner? | | And I assure you, I don't have any emotion around my predictions, it was just my analysis. So if conditions have changed for the company, I have no problem becoming a bull again. | | In fact, I would love to become bullish on Intel. It would be great to see it return to becoming an industry leader, and it would be even better to see it step up and become a U.S.-based competitor to TSMC. | | But at the moment, I just don't see that happening. | | | | | Intel's gross margins have collapsed from around 62% in 2017 down to just 40% this year. | | Annual revenues this year are down 3.5% compared to 2023 despite being in the largest boom in data center infrastructure buildout in history. | | Worse, Intel sits on $53 billion in debt right now and will have a negative free cash flow of $14.8 billion this year. Further multibillion-dollar losses will continue into next year. | | From a competitive standpoint, AMD now has 23% of the desktop CPU market, 20.1% of mobile CPUs, and 24.1% of the server CPU markets. | | And while Intel ships more volume (in terms of units) than AMD… AMD dominates the server market when it comes to high-performance semiconductors. | | […] | | High-performance, bleeding-edge products carry much higher margins. AMD is crushing Intel in this space and its market share will continue to grow. | | So where does that leave Intel? What does the future hold? | | | | A few days ago, news broke from Bloomberg that Apollo Global Management (APO) had made an offer to invest as much as $5 billion in the beleaguered Intel. How generous. A lifeline. | | Apollo is a hardcore private equity firm known for leveraged buyouts, divestitures, and investing in distressed assets – the prey. Its principals always come well-dressed in suits bearing gifts – the money – allowing them to wander unsuspecting amongst the flock. | | More telling is that Apollo had already succeeded in infiltrating Intel this June, when it made a deal to acquire 49% of Intel's new semiconductor fabrication plant (fab) in Ireland for $11 billion, giving Intel much-needed cash. What saving grace… | | […] | | But [Apollo's] not there to save the entire company… | | It's sinking its claws into its prey, gaining a foothold for what it knows will come, something it will actually help affect: a breakup and divestiture of assets. | | | | That update was from late September. | | But as you pointed out, Robert, there have been some changes in leadership at the tech giant recently. Former Intel CEO Gelsinger was fired. Most of the financial media are positioning this as a good thing, but they're wrong. | | Gelsinger may not have been perfect as the CEO, but he was on the right path making major investments into Intel's foundry business. For Intel to be competitive again, it needed (needs) to become a leader in semiconductor manufacturing. | | But the board, which is mainly comprised of executives without any experience in the semiconductor industry, capitulated on Gelsinger's way forward. My expectation is that the board will expect the new CEO to pull back on foundry-related investment, which will result in a failure to lead on the manufacturing side, and continued failure in the products division. | | The board constitution makes no sense at all for Intel. It's embarrassing. And it will lead to the further downfall of Intel. | | Unfortunately, nothing about what's happening at Intel right now gets me excited about its future; but I'll certainly continue to watch. | | I can just feel the private equity vultures circling, and I'm sure that there are a few corporate development execs at some of the other large semiconductor companies having a look at some of Intel's assets as well. | | Intel will continue to be painful to watch. | | LLM and AGI | | | Hi Jeff, | | I am a Day One lifetimer and have been placing conservative placements in about 75% of those you have recommended and hope that something will eventually hit in a significant way. | | As for AI and all related trends, I see that you have indeed mentioned some aspects of how the legal world is going to interplay – which is a major issue in my mind – with LLMs swallowing up data without regard to sourcing, patents, copyrights and intellectual property etc. | | I have uncovered in my research a company that seems to have a solid structural approach to protocol development that addresses these major areas which seem to not yet to be of much concern but surely will become a major one. Can you have your team look at an already public company but small and emerging, called VERSES AI INC. (VRSSF)? | | Looking forward to strong investment success stories to come. Thank you. Best regards. | | – Richard M. | | | | Hi Richard, | I'm wildly optimistic about the future and what's to come. But I can't say the same about Verses AI. From my perspective, this is a company to avoid. | | Verses went public on the NEO Exchange in Toronto, an exchange well known for many small, fraudulent companies. Not all companies on the NEO Exchange are fraudulent, but there are red flags everywhere regarding Verses. | | The website is full of nothing but fluff. The company has just $2.2 million in cash and $8.6 million in debt. The company had only $2 million in revenue in fiscal year 2024 (ended March 31, 2024), is very unprofitable, and had a negative $29.6 million in free cash flow. | | During that fiscal year, $12 million apparently went into research and development and $15.8 million went into investor relations, marketing, and consulting fees. This screams of a pump and dump scheme hiring marketing firms for the purpose of stock promotion. | | This is one of those companies that the deeper I dug, it just continued to get worse. It's not worth any further analysis. | | Lessons Learned from Fukushima | | | Greetings, Jeff, and thank you for your continued work looking to the future
of so many exciting tech arenas! | | [Earlier this year], you attended the Climate Week conference in NY and reported on
fission and fusion. You mentioned the TMI reactivation as well. | | I'm concerned that with potential dramatic ocean level increases that could be caused by, for example, the failure of geological support at the Thwaites ice sheet in Antarctica or the extreme thawing of glaciers in Greenland/Iceland, installations such as TMI could be threatened with inundation. | | Similarly, there are older fission installations along the Pacific coast that are very near sea level. Are there plans for safety at such installations? And are there restrictions such that newer fusion plants are at safer elevations and away from fault lines? | | The pager explosions in Lebanon made headlines this year. And in a not-obviously-related report, the USG is proposing to limit EVs from China because their operating systems may accommodate spying or similar disruption. Even though there is only a small percentage of Chinese-related EVs on our roads, if they all simultaneously created major collisions all over the country, it would be rather dramatic. | | Do you feel that such might be a serious risk between now and 2027 when such regulation looks to initiate? | | – Richard S. | | | | Hi Richard, | | You've got a few different threads in your comments, let's break them down. | | In our lifetimes, we're not going to see any "dramatic" rise in ocean levels – measured in 10s of feet. And there's only one exception that I know of, that being if there is a major geologic event, specifically a decoupling of the Earth's core and mantle. This would result in an oscillation in the Earth's rotation, which would be an absolute disaster. Fortunately, it's also unlikely that we'll see this in our lifetimes. | | With that said, your question is still relevant with respect to a rise in water levels as a result of a tsunami like the one that I experienced in Fukushima, Japan. | | Sadly, the Fukushima nuclear power plant related meltdowns were completely avoidable. One of the most important learnings from the Fukushima disaster was the failure of the engineering design of the Fukushima nuclear power plant facilities. | | More specifically, the emergency backup generators were placed in obviously dangerous locations. One was placed in a basement, and the other two were placed at just 10 and 13 meters above sea level. | | This is despite the fact that the plant's owner, Tokyo Electric Power Co. had performed a study that determined tsunami wave heights could reach above 10 meters. The study was done in 2008, years before the tsunami and following disaster. | | Had TEPCO simply moved the backup generators to safe locations where they couldn't be destroyed by a tsunami, the meltdowns wouldn't have happened. | | Naturally, this learned has been shared across the industry. It's common sense of course, but the guidance has been formalized on a global level by the International Atomic Energy Agency (IAEA)… that being that backup safety systems must be placed at an elevation significantly high enough as to be protected from any form of flooding or waves caused by a tsunami. | | Now, as for your question about nuclear fusion plants, there is no risk of a meltdown or any other kind of catastrophic failure for that matter. While fusion plants should have backup systems to maintain operation, nothing bad will happen in the event of a natural disaster. Once a fusion reactor loses power, it can no longer maintain its plasma reaction and the reaction shuts down. There can be no meltdown in a fusion reaction. About the worst-case scenario would be damage to the interior walls of the plasma chamber, but that's about it. | | As for electric vehicles manufactured in China, or any other kind of electronics manufactured in China, the base case working assumption is that they are installed with government backed spyware. This is precisely why the U.S., and many other governments, have stopped using any routers manufactured from Huawei. Once it was discovered that data traffic was being routed through China for data collection, those routers were discovered to have spy software and not safe for use. Using TikTok is the same, the collection of data by China on TikTok users is well documented. It's spyware, and I strongly encourage the immediate deletion of that app from any smartphones. | | As difficult as this might sound, the safest path is to avoid any electronic devices that have been manufactured in China. It's very hard to do, but for those who are concerned about data surveillance, or to your point, taking over control of something like an EV, this is how such a risk can be avoided. | | Earlier this year, the FBI published the results of its Volt Typhoon investigation showing how China has already gained access to IT networks related to "critical telecommunications, energy, water, and other infrastructure sectors." The FBI referred to it as a "broad and unrelenting threat." | | Even earlier this month, the Deputy National Security Adviser announced that eight telecommunications companies in the U.S. have been hacked by state-backed Chinese hackers, and many more in Asia and Europe have as well. It's a broad cyber-attack that is ongoing. Sensitive messages and phone calls have been intercepted, and it appears that the primary targets are politicians and the intelligence community. | | So to answer your question more directly, yes, there is a serious risk of future attacks and infiltrations. And the U.S. and Europe in particular need to harden their defenses against such attacks. | | I have speculated in the past that China would likely only use these infiltrations as a last resort, as I believe that the primary purpose is for intelligence gathering and as a negotiating chip. For example, when China moves to take administrative control over Taiwan, it might threaten to use its technology if the U.S. intervenes. | | Thanks for the interesting topics, | | Jeff | | | | | | | We could argue the information that DeepMind has provided the world is invaluable, perhaps priceless. | | | | | | "Exciting" isn't a big enough word to describe what's happening. | | | | | | A battle for control, or lack thereof, has been brewing on a planetary scale… And it's the biggest conflict... | | | | | | | | | | | | | | | To ensure our emails continue reaching your inbox, please add our email address to your address book. This editorial email containing advertisements was sent to southernstylecooking@gmail.com because you subscribed to this service. To stop receiving these emails, click here. Brownstone Research welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. 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