An Insider’s Guide To Making A Fortune From Small Tech Stocks
SPECIA L REPORTAn Insider’s Guide to Making aFortune from Small Tech StocksBy Jeff Brown
2020SPECIAL REPORTAn Insider’s Guide to Making a Fortunefrom Small Tech StocksBy Jeff Brown, Chief Technology Analyst, Brownstone ResearchOver the next 10 years, advances in technology will bring suchfundamental changes to our lives,they’ll dwarf all the progress we’veseen since the great tech revolution that began in the late 1990s.Everything will change. The waysin which we work, shop, sleep,eat, travel, bank, communicate,entertain ourselves, conductwarfare, manufacture, design,distribute, create, transact, andmaintain our own health will allbe different.Already we’ve seen radicalchanges in technology duringthe last two decades – streamingvideo, cellphones, the internet, etc.This has resulted in some life-changing returnsfrom the high technology companies poweringthese transformations. The nearby chart givesyou an idea of what I mean. It shows the returnsfrom some of the largest technology companiesover the past 10 years.But the advancements in technology we’ve seento date are only incremental BROWNSTONERESEARCH.COMIn fact, they’re just the foundation fortechnology-based changes that will beexponential.We’re on the cusp of a new revolution. Andthose who act now will be the first to realize theextraordinary wealth these changes will bring.If you’re an investor looking to stake a claim inearly-stage, cutting-edge technology companies,then you’ll want to read the next few pagescarefully.2
I’ll show you why investing in the righttechnology companies can deliver you gains ashigh as 1,000%, 5,000%, even 10,000% in theyears ahead.I’ll also show you why transformative technology,and the companies behind them, are progressingfaster than any other time in history.I’ll reveal why now is the perfect time to gainexposure to these companies.Finally, I’ll show you the top tech trendsthat need to be on your radar, including onetechnology that I believe could reshape entireindustries, create 3 million new jobs, add 500billion to America’s GDP, and provide investorswith the chance to see 10 times their money.Let’s get started Silicon Valley’s Inner CircleFirst, allow me to introduce myself and show youhow I know as much about technology as I do.My name is Jeff Brown. For almost threedecades, I worked at the executive level for someof the world’s top technology companies.I was the Head of Global Strategy and Development for a division of semiconductor companyand wireless technology giant Qualcomm.I was also a division President at NXPSemiconductors. That’s the company that createsthe microchips that go into the iPhone and justabout every automobile manufactured.Every year, I attend about 50 technologyconferences, from New York City to Tokyo toSilicon Valley. Many of these conferences areinvite-only.I’m also an active angel investor. I’ve nowinvested my own money in over 140 early-stageprivate technology companies. By my ownBROWNSTONERESEARCH.COMestimates, several of these investments will likelyyield 100x returns.I’ve built early-stage startups. I’ve runorganizations generating hundreds of millions ofdollars in annual revenues.And I have a wide range of technology industryexperience. From semiconductors to mobility,broadcasting to video technology, technologyinfrastructure to networking, cybersecurity toautomotive, and even consumer electronics I’vedone it all.I don’t say all of this to brag.I just want to show you that I’ve devoted my lifeto the technology industry. And I’ve used mydecades of experience and my numerous SiliconValley contacts to gain an inside track on thebiggest technology trends before they hit the frontpages of Bloomberg or The Wall Street Journal.So believe me when I say that investing in themost exciting technology companies will be a winning strategy in the years ahead. That’s becausethe rate of innovation and growth in bleeding-edgetechnology won’t be linear. It will be exponential.The Power of Exponential GrowthThe difference between linear and exponentialgrowth is summed up by the first chart on thenext page.With exponential growth, changes appear to growquite slowly in the early stages. But when theyreach a certain tipping point – the steep “ramp”you see in the chart – they take off like a rocket.As an investor, you want to be in position justbefore the ramp up.Think about a company like Apple. It enjoyedexplosive growth – and explosive returns onits share price – during the early years of thecomputer revolution. After that, the companyheld steady for quite a while.3
Linear vs. ExponentialExponentialGROWTHBut then, with the introduction ofthe iPhone in 2007, Apple’s stockbegan its meteoric rise. In August 2018, Apple became the firstpublicly traded company valuedat 1 trillion. Had you purchasedshares in Apple back in 2008,you’d now be seeing returns ofmore than 1,000%.DisruptionOr take a look at the exponentialgrowth in another well-knowntechnology company Amazon.Amazon experienced rapidgrowth during the dot-com era.But for most of the 2000s, growthin its share price was roughly flat.LinearTIMEBut starting around 2015,many of Amazon’s innovativeservices like Amazon Prime andAmazon Web Services began tohave a noticeable effect on thecompany’s bottom line.Shares soared. Amazon was thesecond publicly traded companyto hit the 1 trillion valuationmark.Had you purchased Amazon asrecently as 2015, you’d now be sitting on gains of more than 700%.We see other examples ofexponential growth in thetechnology sector.Over the last few decades, it tookabout 20 years on average for thetypical Fortune 500 company toreach a valuation of 1 billion.In 1998, Google was able to reach 1 billion in market cap in onlyeight years, which was consideredBROWNSTONERESEARCH.COM4
fast at the time. By 2004,Facebook had done it in fiveyears. By 2009, Uber had done itin less than three years. In 2012,virtual-reality firm Oculus Riftdid it in just over a year. And backin 2014, a workplace productivitycompany called Slack pulled it offin eight months.As you can see in the chart atright, this trend is speeding up.And investors are reaping thebenefits.Facebook shareholders whobought at the initial public offering (IPO) arenow enjoying returns of over 300% on theirinvestment. And they’re the laggards. Teslashareholders who bought at the IPO are up morethan 2,500%. And for Google around 3,000%.You may be wondering, what accounts for thisexponential growth in technology?It’s all explained by one of the most well-knownobservations from a Silicon Valley giant.Moore’s LawIn 1965, before he was a billionaire andcofounded Intel, Gordon Moore was working asthe director of research and development (R&D)for a company called Fairchild Semiconductor.He was asked by Electronics magazine, a populartrade journal at the time, to predict what wouldhappen in the semiconductor componentsindustry.(You’ve probably heard of semiconductors.They are the electronic components made upof integrated circuits that are essentially the“brains” of any kind of electronic machinery orconsumer electronics product.)But back in 1965, semiconductors were still inBROWNSTONERESEARCH.COMtheir infancy. That’s why what Moore said toElectronics magazine was so shocking.Moore noted that the number of componentsin an integrated circuit doubled approximatelyevery year. He predicted that this trend wouldcontinue for at least the next 10 years. Later,Moore revised his prediction to say that adoubling would occur every two years.This prediction, known today as “Moore’s Law,”has been astoundingly accurate. Microprocessorshave become smaller, cheaper, and morepowerful since 1965. And as Moore predicted, thenumber of components in a semiconductor havedoubled approximately every two years.Thanks to Moore’s Law, we have an abundanceof affordable, powerful electronics today. It’s thereason why the smartphone in your pocket hasmore computing power than all the computersused by NASA to send astronauts to the moon.And while Gordon Moore originally made thisobservation with regards to computer chips, it’salso held true for many other innovations in thetech space.For instance, the number of bits per second thatcan be sent through an optical fiber cable hasincreased roughly 10 million-fold since 1980.5
That rate of growth actually faroutpaces Moore’s Law.And consider another example.The cost to sequence a humangenome – providing a“blueprint” of a human’s geneticcode – has fallen dramatically inrecent years.As you can see in the chartat right, the cost to sequencea human genome kept pacewith Moore’s Law for the firsteight years of the 21st century.But then, the cost plungedexponentially.In 2001, the cost to sequence ahuman genome was 100 million.At the time of this writing, thecost is less than 1,000. That’s areduction in cost of 99.99% in lessthan two decades.That’s the power of exponentialgrowth. And this sort ofaccelerated innovation will onlycontinue in the years ahead.And as an investor, there hasnever been a better time toinvest in cutting-edge technologycompanies.Here’s why Tech IPOs Picking UpThe number of exciting technology companiescoming to market has picked up in recent years.As I’ve explained to my readers in the past, thepace of exciting technology IPOs over the past 10years has been underwhelming.That’s due to a flood of venture capital (VC)BROWNSTONERESEARCH.COMand private equity funding that’s been readilyavailable for private technology companies. Thishas made it easier for companies to stay privateand raise round after round of private capitalrather than having an IPO.And while this has been good news fortechnology executives and venture capitalists, it’smeant that average investors have been lockedout of investing in some of the most innovativecompanies in the world.6
But the good news is that, after years of low IPOnumbers, we’re finally seeing the pace of techIPOs pick up.Have a look at the chart on the previous page.As you can see, the valuations of tech IPOs stayedrelatively low after the 2000 dot-com bubble. Thishas caused a bottleneck in exciting companiesgoing public. But that bottleneck is breaking up.Many of these companies will experienceexponential growth in the coming years. Ahandful of them may prove to be the next Appleor Amazon. And their stock price will skyrockettens of thousands of percent as a result.Of course, the question is which companies? Andhow can you select the best ones?There are a few methods I’m using to help myreaders pinpoint the biggest winners.Two Winning StrategiesMy mission is to pinpoint world-changingtechnology companies for my readers. Make nomistake, the companies I write about have thepotential to be the next Apple or Amazon.But how do we do this?In business, it’s critical to track a well-definedpipeline of potential opportunities. This isessential for resourcing, product development,forecasting, and strategy decisions.Investing is no different. In order to be preparedfor profitable opportunities, it is critical tounderstand where those sharp “elbows,” like theones you see in the charts above, will be.This is something I’ve always focused on as anangel investor – and it’s given me great success.As I mentioned, as an angel investor, I’ve investedin over 140 private deals. By my estimations,many of those deals have increased 100x in value.BROWNSTONERESEARCH.COMI break it down into two winning strategies.Early Trend SpottingOne of the best ways to be a successful investoris to identify trends before they becomemainstream. This is especially true in the rapidlychanging tech sector.My research in fact starts with scientificpapers. I go to great lengths to understandtechnological developments which have yet to becommercialized, but have fantastic potential.Then I look for the companies that take thattechnology and build new companies. It is notunusual for me to track private companies foryears waiting for a potential IPO, or perhapsbeing acquired by a larger technology firm.Through regular contact with my peers andassociates across the tech landscape, I’m alsoable to get firsthand answers to the mostimportant questions How are tech companies spending theirmoney? What are the current pain points for endcustomers? What technologies are gaining momentum?Questions like these help me target emergingtrends before the typical investor does.The other area that I follow closely is the venturecapital community. This helps me understandwhat sectors of technology are getting support– in the form of VC money – to create the nextgeneration of disruptive technology.In this context, “disruptive” is a good thing. Itrefers to the type of game-changing innovationsthat forever alter an industry.And these are the kinds of companies I identifythrough early trend spotting.7
A few years ago, I really started topay attention to the emergence ofwhat is now called “fintech.” Thisis short for financial technology,and some of the developmentshere are truly disruptive.For instance, back in 2016, asmall company called “Square”caught my attention. Square is aninnovative technology companythat made it easy and affordablefor small businesses to acceptcredit cards.Before Square, businesses wouldhave to purchase expensive“point of sale” systems. And theprocessing fees for these systemswere often unrealistic for a smallbusiness operating on a narrowmargin.But Square changed that.Square’s hardware plugs directlyinto a smartphone or tablet.And it comes with an easy, flatprocessing fee of 1%.I recommended Square to myreaders in August 2016, saying that it would atleast double in value.And as you can see from the nearby chart, thestock certainly hasn’t disappointed.Another trend I’ve been following closely is thedevelopment of genetic editing technology.For those of you who don’t know, one of thebiggest revolutions in modern medicine todayis happening around a technology known asCRISPR-Cas9.CRISPR-Cas9 stands for Clustered RegularlyInterspaced Short Palindromic Repeats/CRISPRBROWNSTONERESEARCH.COMAssociated Protein 9. It’s known as “CRISPR” forshort.It’s not essential for you to know all thescience behind CRISPR. But at a high level, thetechnology has the potential to permanentlycure thousands of genetic diseases by “editing”strands of mutated DNA.In October 2016, I recommended a “best ofbreed” company researching CRISPR: CRISPRTherapeutics.Again, that recommendation has worked out wellfor my readers 8
Sector Cycle InvestingUnderstanding sector cycles is another excellentstrategy for technology investing. It helps usknow when there’s a strong, broad trend lifting acertain sector.During those times, the best equities will tend tooutperform. And by knowing which companiesare the strongest in that sector, we can generateoutsized returns.A simple example is the semiconductor industry.It goes through classic boom-and-bust cyclesevery few years. Why does this happen?As economic activity picks up, semiconductorfactories across the industry become fullyutilized, requiring a lot of investment to buildout new capacity. This is a very profitable periodas demand exceeds supply, driving up pricesand profits. This is a great time to invest insemiconductor companies.But then, once capacity catches up with – andeventually surpasses – demand, factories are nolonger fully utilized. Those larger fixed costs eataway at profitability, requiring deep spendingcuts.Gradually, the industry scales back until supplyonce again falls short of demand, and the cyclestarts all over again.CRISPR technology is like a softwaredevelopment platform for hacking plant,animal, and human genomes. (The genome isan organism’s complete set of DNA, or geneticmaterial.) It’s a way to program the genome andremove the “bugs” – or, in genetic terms, the“mutations” – from DNA.CRISPR can be used to “fix” or improve thegenetics of any living thing. To say that thistechnology is revolutionary is an understatement.It will empower the human race to do things like: Cure serious genetic diseases, such asHuntington’s disease, cystic fibrosis, ormuscular dystrophy Eradicate major diseases like malaria bygenetically changing a mosquito’s ability tocarry and transmit the disease Create higher-yield, pest-resistant cropsthat can solve the world’s hunger problem Engineer healthier livestock Accelerate new drug developmentWhat makes CRISPR so revolutionary is thesimplicity of its use.By using these two strategies, identifying whichsectors are trending up and which technologytrends have the potential for massive industrydisruption, you can position yourself for outsizedgains like the ones my readers have already seen.And if you’re interested in investing intechnology companies, there are a few trendsthat need to be on your radar.Four Trends to Watch TodayThe first trend you need to watch today is theadvancements being made in genetic editing.BROWNSTONERESEARCH.COMAbove is a simple diagram of the CRISPR-Cas9system at work. First, the scientist or doctorfinds the segment of DNA that contains a geneticmutation responsible for a disease or condition.Next, a guide RNA (ribonucleic acid) is9
programmed to target the segment of the DNAthat contains the genetic mutation. The guideRNA (in dark orange above) is designed to becomplementary to the segment of the DNA thatis targeted for repair. Put simply, it is drawn to it.They were playing Pokémon Go. It lets you viewthe world through your smartphone camera, butit overlays images of these Pokémon – animated“pocket monsters” who “live” in the augmentedreality world alongside humans – on top of it.After the guide finds the target DNA, the Cas9protein is used to “cut” the defective DNA and“insert” the healthy replacement DNA. Thereplacement DNA has the potential to curethe disease originally caused by the geneticmutation. The DNA has been “edited,” hence thename genetic editing.So you might look at a park and just see apark. But if you look at the same park throughPokémon Go, you might see a little animatedcharacter standing in the real-world park.Recently, a study was released showing howCRISPR-Cas9 gene editing can be used to fightcancer. Scientists were able to use CRISPR to editcancer cells using CRISPR in mice. They thenreleased the edited cells back on the canceroustumors they came from and the CRISPR’d cellsdestroyed the tumor.How’s that for amazing? And remember, we’restill in the R&D phase with CRISPR technology We haven’t even started commercializingtherapies yet.I expect exponential growth in this technology inthe years ahead.Replace Your SmartphoneThe next trend I want to put on your radar isaugmented reality (AR).Augmented or “mixed” reality overlays graphics,images, or data on top of the world you normallysee. You’re able to view the real world. But it’saugmented, or mixed, with these other visuals.The example of AR that you’re likely mostfamiliar with is Pokémon Go. Soon after this ARgame was released in July 2016, a lot of youngpeople started walking around, exploring theoutdoors, looking through their smartphonecameras.BROWNSTONERESEARCH.COMHow a Pokémon Go character appears in thereal-world view on your screenThe aim of the game is to catch and catalog thehundreds of Pokémon within the game’s worldand battle against other Pokémon.The game was an overnight success. Twenty-fourhours after it launched, the number of users was50 times higher than the developers originallyexpected.What will really kick off interest in ARtechnology, and what will ultimately replaceyour smartphone, is the next generation of ARhardware. I’m talking about true AR glasses.When you put on a pair of AR glasses, it displaysinformation, messages, alerts, or updates right inyour field of vision.And this technology is fast becoming a reality.And it could soon be part of our day-to-day lives.Apple CEO Tim Cook recently said AR would soonbe as commonplace as eating three meals a day.10
Imagine you’re sitting in a café.You put on a pair of AR glasses.Without looking at your phone,you can
An Insider’s Guide to Making a Fortune from Small Tech Stocks By Jeff Brown, Chief Technology Analyst, Brownstone Research SPECIAL REPORT 2020. ROWNSTOERESEARCCO 3 I’ll show you why investing in the right technology companies can deliver you gains as high as 1,000%, 5,000%, even 10,000% in the
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