The Time for 3D Printers May Have Arrived
Those of us who were around in 1999 remember those heady days of the Dot.Com bubble, where the promise of the Internet boosted the shares of companies with no earnings, no real products, and no prospects. The key was the presence of the phrase dot.com somewhere in the company’s name.
Unfortunately, who can forget the emblematic icon of the times: the sock puppet. Yes, I went there, but I did so for a reason.
Leaping forward, nearly a quarter of a century later we find ourselves living through the AI-Craze, where money is pouring into artificial intelligence stocks, often with mixed results. Certainly, big companies like Nvidia (NSDQ: NVDA) and Microsoft (NSDQ: MSFT) are profiting from this technology. That’s because they have viable products which are directly or indirectly related to AI, which add to their top and bottom lines.
Interestingly, unlike the Dot.Com bubble days, where the prevailing perception was one of nothing but upside, due to the fear of automation there is now an emerging and fearful subculture of young people who characterize their innermost anxieties with the four letters F.O.B.O – fear of becoming obsolete.
That’s an interesting development for sure. But from an investment standpoint, it’s best to go in with an open mind while appreciating both negatives and positives of potential investments while letting the answer reveal itself through the exercise of due diligence and sound analytical practices. These include the careful perusal of products, balance sheets, the way management conducts operations and how these metrics are expressed on price charts.
Of course, the ultimate truth is price.
Shifting Through the Rubbish
Here at Investing Daily, our mission is to help investors sift through Wall Street’s maze of confusion to find areas of the market with profit potential. And as we discovered after the Dot.Com bust, where there were plenty of sock puppets, there were also a handful of future blue chips. Think Amazon.com (NSDQ: AMZN) and Alphabet (NSDQ: GOOGL).
So now that we’ve had the first big move in AI stocks and the wide eyed wonder phase is over, it’s time to roll up our sleeves and see what’s really happening. And what I’m seeing is that while Chat GPT is still grabbing the headlines, well under cover, there is a select group of companies in the sector which are gathering attention from smart investors.
The most interesting aspect of this trend is that, unlike the sock puppets of the worlds, many companies whose products are related to AI are running stable businesses. Many are even growing their client lists as their technologies’ applications widen. On the other hand, profitability is still evading many of them.
This is especially applicable to the promising 3D printing sector. Thus investors should balance the potential for growth with the reality that eventually profits must come.
Applied Technology: 3-D Printing
One of my basic tenets for buying technology stocks is figuring out how useful and applicable the processes and products produced by any sector are and how each individual company goes about using the basic concepts of said technology. I refer to this as applied technology. In other words, it’s not the widget, but how the widget can be used, how the world is adapting to it, and how each company’s management adjusts to the changing environment and plans for the uncertainties of the future.
One of my current favorite widgets is 3D printing. It’s been around for a while, and there are plenty of uses for it, ranging from building homes to operating in remote industrial areas such as oil fields. In fact, a year ago, I wrote about a 3-D printer based homebuilder in Texas, Austin based Icon, whose 3D printed subdivision, Wolf Ranch, was in the early phases of planning and construction, and where according to recent news, homeowners are now starting to move in.
But aside from local stories, you just don’t hear that much about Wolf Ranch or 3D printing these days. It’s just not that sexy. Yet, this AI related sector of techno-world, is starting to make its move, as the machinery designs improve, and processes become simpler to apply. Moreover, as global supply chains and populations shift it’s not unreasonable to expect steady growth in the sector.
Positive Developments in the Oil Patch
In a recent STW article, I noted that 2024 may be a year in which supply chain logistics may play a significant role due to the unfolding wars in Ukraine and the Middle East and the weather related problems in the Panama Canal. As a result, if things get worse and building materials get squeezed, companies will be looking for ways to improve building and design problems.
3D printers may come in handy. For example, the oil industry has slowly been implementing 3D printing technologies in remote fields, such as in the northernmost areas of Alaska, where weather and distance related transportation problems are common.
Specifically, maintenance and repair of equipment due to routine wear and tear or breakdown often requires weeks to months before a replacement is found. Much of the time it’s due to the fact that local contractors who replace the equipment require time to design and manufacture the parts.
Oil companies have quietly been adapting AI and 3D technologies to speed up the replacement cycle and are beginning to see improvements in costs and times. As a result, they are deploying the technologies elsewhere.
Where to Put Your Money
If you’re new to the sector, the best way to enter is via a sector specific ETF such as the Ark 3D Printing ETF (PRNT). PRNT’s portfolio houses a wide variety of companies. Perhaps the most interesting one is Sweden’s BICO Group (BICO.ST), which trades on the Stockholm stock exchange.
BICO uses 3D technology to “print” cells which are currently used in organ function research, and may eventually be used to 3D -print synthetic – biolab developed – organs for transplantation. It’s other divisions develop tools which speed up the drug development process.
But here’s where BICO is typical of many of the companies in the sector. It’s growing its revenues “organically,” at a modest pace. That means that its current customers are ordering more products. But it’s business is not growing rapidly through other means, such as by increasing its customer base. As a result, BICO is not profitable.
On the other end of the spectrum is perhaps the bellwether for the group, HP Inc. (NYSE: HPQ), whose 3D printing division continues to add to its top and bottom lines during a period of slowing earnings for the PC maker.
In fact, HP expects a flat performance in its printing portfolio, which includes 3D for the next twelve months. Still, the stock has done well recently. One reason is that HP has plenty of cash on its balance sheet to withstand difficult periods. Another is that investors are willing to be patient as the dynamics of the 3D printing sector evolve.
Because the industry has plenty of quirks, but lots of potential, a one-stop shop for investing in the sector makes sense. That’s a big reason for the recent action in the Ark PRNT ETF which has appreciated nearly 35% from its November 2023 bottom. You can see that money is moving in nicely via the upslopes in the ADI and OBV lines.
ADI is a great way to gauge the actions of short sellers, who in this case, happily, want nothing to do with this ETF. The rise in OBV shows that buyers are moving in. When these two lines rise in tandem, it’s a doubly bullish sign for the underlying shares. When these lines slope downward, the opposite is true.
A Technology Whose Time May Have Come
Investors are quietly moving money into the AI related sector of 3D printing, as the technology’s uses are becoming more apparent.
External pressures from the post pandemic period: ongoing commercial deglobalization process, the wars in Ukraine and the Middle East, and weather related problems in the Panama Canal are prompting companies to find more efficient ways to streamline processes while cutting their dependence on supply chain related situations beyond their control.
Moreover, 3D printing may be a way for companies to regain some control and increase their efficiencies. A great case in point is that of how the oil industry is cutting its parts replacement and repair cycle via its use. But 3D printing’s uses and improvements are only beginning. As more money pours into the sector, companies will have increasing amounts of capital with which to innovate and expand operations.
Many companies in the sector are still searching for profitability, a fact which could hamper the performance of individual shares. A simple solution for investors is that of using a sector specific ETF, such as the Ark PRNT ETF.
In the meantime, if you’re looking for proven ways to make money with mitigated risk, I suggest you consider the advice of my colleague Jim Pearce, chief investment strategist of Personal Finance.
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