Dear Subscriber,
AMD Is Officially the Market’s Hottest Stock in the S&P 500 --Again.

AMD's stock has now risen 101% year-to-date through Wednesday afternoon, versus the S&P 500’s 24% return. That performance ranks number one for the entire benchmark index, according to FactSet. On Tuesday, Chinese giant Tencent, who is ramping its cloud business to better compete with Alibaba, announced they were the latest major cloud services player to use its latest server chips. They now run 1.1 million servers in their data centers and see that number doubling over the next 3 years.

For our subscribers that have been around since our initial November 2016 recommendation, we have over 1200% in gains aka a 12-bagger in our original $10,000 position in AMD . We also have owned double down overweight positions and long call options over the last three years on market corrections that have returned another 500%+ return on our invested capital. AMD was also the #1 performing S&P 500 stock in 2018 with Nvidia #2. Nvidia was the number one performing stock in the S&P 500 in 2017 as well. So (knock on wood) we have a very good chance of picking the #1 performing stock in the S&P 500 for three years in a row--mee likee!

Why the humble brag? Look--I have been an investment newsletter publisher and editor since 1995. I get the letters and emails--I know that 12-baggers like AMD, NVDA and in the old days 20-baggers in Apple, Sirus Satellite Radio, and other 10X investments we have advised making changes people's lives. They pay 4-year college tuition. They pay off mortgages or buy second homes. They overfund 401-k's and retirement accounts and fund early retirements.

My point? My point is one of the MOST IMPORTANT reasons our Transformity Research returns are 54% per year since 2013--or nearly 500% better than the S&P 500 returns is CONVICTION and CONCENTRATION. The metaphor or analogy is this--IF you have identified a secular 3-5 year industrial or technological transformation AND the companies that own the key high margin enabling technology IP--you ride em. Investing in 3-5-8 year secular transformations (and their underlying enabling IP owners/providers) is like investing in a fast-moving aircraft carrier; when the inevitable market storms hit the stocks, we hold on and ride through. We also check our investment thesis--and if it is still sound we buy MORE or buy longer-dated call options.

New AMD Price Target $50 by 2021. Buy Under $36 We will buy a longer-term call option on the next correction.
Hedge: AMD is now very overbought and the option premium is very tasty here. I'm going to sell Nov 22 $36 call options against our original 3300 shares (cost basis $2.80) for $1.50 or more just monetize a 50% return on our original shares. Why? This AMD chart is looking really ready for a rest.

WHEN we get a reasonable 5% or more pullback on profit-taking (most like early January--from now till year-end EVERY tech and growth fund is going to HAVE to have AMD shares in their portfolio report for Q4--that is how the game is played.)

Next Stop $50 by 2021
From this point on, AMD has created a refreshed and much richer product mix of CPU s and GPUs which challenge Intel and Nvidia (NVDA) head-on. They are taking market share in high-end server products so that AMD can increase its profit margin to 44%-45% without giving up the low pricing advantage on the low-end products. For the first time of a long time, AMD finally has a decent chance to grab a meaningful share of GPU market from Nvidia (NVDA maintains its monopoly is high-end gaming, AI data center and autonomous vehicles) and AMD gains CPU market share from Intel in notebooks (who is chip output constrained) that deliver higher EPS profitability at the same time.

Remember, the chipmaker launched its new Zen 2 family of 7-nanometer (nm) CPU And GPU processors in July and they have market share traction every since. Its main competitor Intel primarily offers 14nm desktop chips. Smaller-nanometer manufacturing processes from Taiwan Semiconductor (TSM--which we are adding on next pullback) allows AMD to create faster, more power-efficient chips. Last week, Nomura Instinet analyst David Wong noted AMD is gaining a big market share in many of the key computing categories against Intel. “AMD’s share momentum continues,” he wrote. “AMD gained impressive share in the data center, desktop, and notebook processors in the September quarter.”

AMD reported clean "meet and meet" earnings results for Q3 and Q4. We see increasing 2020-2021 sales and market share expansion on broad-based desktop, data center server deployments continued notebook traction, and the new game console ramp-up cycle starting June 2020 where AMD GPUs are in the next-gen Microsoft and Sony Playstation consoles (with Nvidia in Nintendo).

NetNet: As a result of all the above, AMD is in a "remarkable position" to gain share in every segment next year," while spending less on R&D, according to analyst Joseph Moore. AMD will also have new opportunities in IP licensing (read China), semi-custom solutions (read China), cloud gaming (read Microsoft and Google), and supercomputers. Furthermore, more indications surfaced that Intel's (NASDAQ: INTC) 10nm Ice Lake and Cooper Lake server technology may not be easily scaled, nor competitive with AMD's 7nm Rome.

It has been a life-changing run for many of our subscribers--but it ain't done yet.

Bloom Energy--It's About Time $12 Target early 2021

Finally, our long-term analysis and short term reality got in sync. The short squeeze we thought would happen happened--boy did it happen!

Action to Take: $5 HARD Sell Stop. There is going to be more November and some December tax-loss harvesting for sure. Many of the retail shareholders have been in BE since its private placement days 11-12 years ago at $15-$20 cost basis pre-split.

Thus the stock should fall to a resting point near3.80-$4 range where we will repurchase shares

Here is a synopsis of earnings call comments.
Highlights: The call was upbeat (both from a management and sellside perspective) on the California and North East Power Outages:

The recent power outages in California were widespread, multi-million customer events - they were completely unprecedented. These events are growing in scale. And they can be scaled and addressed via microgrids of which Bloom has 89 now in operation.
Notably, management said 26 of these microgrids were in areas impacted by the safety power outages in California. ALL of those microgrids operated flawlessly during the crisis. Bloom noted one example of a manufacturing site that lost grid power and was disconnected from backup. While the site was evacuated for safety, the company kept its Bloom servers running to handle the critical load, knowing the servers would run unattended and could be monitored remotely.
Recent California government comments center on a critical need for a more reliable "grid" going forward. A grid of the future. This plays to Bloom's strengths.
Meanwhile, in the northeast in August, power outages due to the heatwave saw a retailer with 5 sites on a Bloom microgrid remains in operation.
Furthermore, Bloom notes some progress in mindset towards natural gas and power with Democrats from Long Island in recent months altering their opposition on new pipeline capacity feeding NY. This is due to power outages and even the governor seems more inclined now faced with the alternative of burning oil for power.
Bloom sees this increase in frequency and duration of power outages as changing the mindset on power from "cost of power to cost of NOT HAVING power". They see the decision-making process moving to the C-suite rather than the business unit and this change potentially compressing the sales cycle (3 to 7 months, maybe shorter; this effect is new).
Revenue ramp from orders attributable to these events will likely lead to sales materializing in 2021 (9 to 12 months to build install still applies).

The CalBio venture: They noted the previously announced deal to use their servers with dairy farm waste in CA to produce power. In CA alone this could be a 320 MW market. A 320 MW solar facility would cost $1.2-$1.5 billion for context. They also noted a deal to rollout 4 MW in India next year and that market will have high potential given large amounts of currently burned biomass that could be used for power generation, especially in light of air quality issues and need for power issues there.

China is not on the horizon because China steals IP and imports most of its nat gas--and I do applaud our current administration for going after them on IP theft.

Shipping:

Bloom elaborated on the partnership with Samsung Heavy to put Bloom servers on ships. They have moved from the design phase to early development.
The size of the market is large: each ship would require between 19 and 100 MW (as a reminder, 1 acceptance would be 100 kW). Between 2,000 and 2,500 ships are expected to join global fleets each year for the next five years.
The U.N. is rapidly pushing for lower ship carbon footprints and they see potential revenues in 2 years as adoption demand will be high.

The Long View - Increasing Project Scope: Eventually moving beyond microgrids to utility-scale implementations.

Eventually, Bloom sees an expansion to utility-scale projects. The projects would be cleaner than already "clean" gas-fired plants while still consuming natural gas. They have a power stack option that takes the traditional Bloom row of servers (see photo below) and stacks them vertically. The Korea Power Tower demonstrated the efficacy of this approach albeit in an 8.35 MW format in 2018. 100 MW would require only 1 acre of space at a height of 50 feet (with no easement - after all, you're not burning that gas).

Addressing Fuel Cell Life and Service Contract Profitability

They issued a white paper showing increasing fuel cell life with each generation.
They are in the 4th generation now (installations starting in 2015) and show a useful life (so far as they are still running) of 4.7 years and they note the 2018 versions are showing better early time performance.
Generation 5, the 7.5 product, is on track for delivery next year. It will have 50% greater power per module and they see it as having at least a 5-year life.

Other Items:

They added two new board members including a Stanford economist and former GE CEO Jeff Immelt who is DEEPLY connected in the Power Generation space via his 30 years at GE Power.
Short Interest: Still 20% of shares outstanding.

Balance Sheet:

Net debt to annualized EBITDA of 0.4x (excluding nonrecourse debt and PPA cash).
Jefferies has been hired to evaluate options for debt maturing in late 2020 (revolver to pay some, cash to pay some, term roll, all on the table and want to have it addressed in 1H20).

Nutshell: Strong quarter. Solid 4Q19 guidance. We came away from the call with a much greater sense of urgency from management, that the long term outlook continues to evolve and improve and that the company is moving to a time in which its products will see greater acceptance as well as in new market segments.

Food for thought watch: Aside from being always on with ZERO downtime, the BE solution is, MW for MW, a 100X SMALLER footprint than solar.

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Cheers!

AMD Humble Bragging & New $50 Target

Toby