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[Gilder's Daily Prophecy]
July 4, 2019
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âThe Internet as we know is finished. Itâs being replaced as we speak.â - George Gilder
Americaâs #1 Tech Futurist reveals an internet ârebootâ and the massive opportunities for early investors.
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How to Leverage the Element of Surprise
[George Gilder]Dear Daily Prophecy Reader,
As I mentioned in [yesterdayâs issue of Daily Prophecy,]( the desire to make a million dollars is a commendable goal.
Why?
Because doing so will require you to provide new things to the economy.Â
Or, as an investor, you will need to invest in companies that generate new knowledge: an innovation.Â
And as I also mentioned yesterday, the signal of innovation is surprise.
Surprise, however, is not always welcome. It violates cherished assumptions. It does not fit into the familiar rearview mirrors of financial projections.Â
It is unexpected.Â
In the Information Theory behind computers and networks, surprise signifies high entropy outcomes, which tend to be rejected as mistakes or anomalies.
Hereâs an example of how the unexpected can quickly turn into a missed opportunityâ¦Â
A Costly Mistake
Last year, a good friend of mine told me that he had signed up for a certain Agora newsletter that promised large returns.Â
He was excited. But he balked when he discovered that the chosen stock was Advanced Micro Devices (AMD).Â
âThatâs bull,â he said.Â
He knew that AMD was an also-ran behind Intel (INTC) in microprocessors for computers⦠and Nvidia (NVDA) in graphics processors for videogames.Â
At the time, AMD held just 1% of the crucial market for Central Processing Units (CPUs) in datacenter servers. And it was losing share in videogames to Nvidia.Â
Not to mention the conventional wisdom in Silicon Valley was summed up by venture capitalist Marc Andreessen as âsoftware eats everything.â So AMD as a hardware company did not fit the mold.
AMD violated my friendâs favorite assumptions about million-dollar returns.
It was unexpected, so he rejected the investment and gave up on his subscription.
Big mistake.Â
The company was reborn under CEO Lisa Su, a wafer-fab expert who had shepherded a complex IBM move to faster copper interconnects.Â
At AMD, she led the company toward âchipletsâ that divide the chip die into more manufacturable modular subunits.Â
She focused on high-performance computing suitable for datacenters⦠She made a breakthrough deal with Samsung... She targeted advanced 7-nanometer â and even 5- and 3-nanometer â chip geometries at a time when arch-rival Intel was stalled at 10 nanometers and above.Â
The result?Â
During Suâs regime at AMD beginning in 2014, the stock has risen 900%. It is up some fifteen-fold since a dip in 2015. And last year it led the entire S&P 500.
A well-timed, unleveraged hundred-thousand-dollar investment could have yielded a million-dollar return.Â
Surprise leads to innovation⦠learning⦠knowledge.Â
All of which is tied to true wealth.
Thatâs why I have spent much of my career seeking such companies and investing in them.Â
Here are two examples.
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Example #1: Micron Technology
In the early 1980s, I identified Intel and Applied Materials as foundational companies in what was then the embryonic semiconductor industry.Â
Each had stints of leading the entire market in returns.
In the mid-1980s, I wrote a book, The Spirit of Enterprise. It described the early history of Micron Technology, which had yet to have its IPO.Â
Micron was entering one of the worldâs most competitive chip markets, dynamic random-access memories (DRAMs), at a time when Japanese dominance of the industry was believed to be impregnable.Â
Eminent management theorist Peter Drucker famously declared: âTo make DRAMs in the US is like growing pineapples in North Dakota.â
(Another example of a surprising innovation being labeled a mistake.)Â
Micron had not only entered the market, but was competing successfully with the Japanese by producing the smallest chips.
Its unique design philosophy produced a more efficient layout of the chip and ultimately would make it the world DRAM leader.Â
By 1985, on a White House visit with Ronald Reagan, I handed him a Micron 64K memory chip. It was perhaps the first time he had ever actually handled a microchip.Â
He asked me many questions about it. Proposing a Strategic Defense Initiative (SDI) focused on missile defense, he was intrigued by the promise of chip technology to perform computations for anti-missiles.Â
I told him chips could obviate vast centralized and bug-prone software systems.Â
Micronâs stock rose some 900% from its IPO in 1989 to a top in 1996. It ended up peaking at a more than 2,000% rise in the vertiginous year of 2000, affording many chances for a nimble investor to make his million-dollar return.
Surprise is key to big returns.Â
Example #2: Qualcomm
As a student of Information Theory, I was captivated by Qualcommâs (QCOM) Code Division Multiple Access (CDMA) systems.
These systems allowed the use of all the allotted spectrum for calls rather than breaking it up into timeslots that were often empty.Â
During that period the entire industry was still committed to the timeslot method called TDMA.Â
My key moment in appraising the size of Qualcommâs opportunity came when I interviewed Bruce Lusignan, the head of Stanfordâs program studying such radio technologies.Â
Lusignan told me that CDMA âviolated the laws of physics.âÂ
Now, if the lead expert at Stanford believed that Qualcommâs technology was essentially impossible, I knew that its success would shock the industry.Â
It would be surprising enough to bring million-dollar returns on reasonable investments.Â
Sure enough, Qualcommâs stock ended up rising some 2,000%, leading the market.
The Hunt for Surprise Continues
Fast forward to today, and I was recently shown a tiny chip.
Itâs perhaps 60% smaller than the Micron DRAM that I handed to President Reagan.Â
Yet it operates thousands of times faster, performing trillions of complex bitcoin mining âhashesâ per second.Â
The chip was made by a Chinese company called Bitmain â that by some reports may have been last yearâs most profitable chip company (murky accounts make it hard to tell for sure).
To say I was surprised is an understatement.Â
In this epoch, this tiny device is the most shocking development in chips. It makes possible systems that perform petahashes per second (thatâs 10^15).Â
Simply put, thatâs faster than the worldâs leading supercomputers.Â
Such chips now portend huge surprises over the next few years.Â
Thousands of companies are competing to reconstruct the entire architecture of the Internet in order to correct its currently catastrophic security flaws.Â
After a billion breaches in 2018, the industry splurges on feckless old fashioned security patches and post-hack remedies.
At the same time, as symbolized by bitcoin and its imitators in cryptocurrencies and Facebookâs coming Libra coin, engineers around the globe are now preparing to challenge the entire global monetary system.
Todayâs Prophecy
When such efforts triumph in coming years, this Internet reboot will represent an overwhelming surprise â both to current Internet leaders and Central Bankers.Â
Such surprises will yield many million-dollar wins. And we will be watching out for these opportunities every step of the way.Â
Are you ready?Â
Regards,
[George Gilder]
George Gilder
Editor, Gilder's Daily Prophecy
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