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Digital transformation is enabling wild innovations, yet most of these pale in comparison to generational investment themes like the internet and smartphones. That’s a problem.
Executives at Mastercard
The tide has shifted. Cool new features are not enough.
Some of this is a withering response to recent hype. Many investors feel burned by sky-high stock price valuations for biotechnology, electric vehicle and software-as-a-service firms. Those stories boomed in 2021 as the pandemic and a wave of neophyte investors pulled forward big digital ideas.
It has been all downhill since. The uneasy realization that the businesses might never live up to the hype sapped the euphoria. Stocks that got rave reviews from Wall Street analysts a year ago have been decimated .
Editas Medicine (EDIT) traded in January 2021 as high as $90.63. Rivian Automotive (RIVN) rallied in November to $179.40. And Upstart Holdings (UPST) pushed last October to $401.49. Those shares could be bought last week at $9.71, $19.25, and $26.78 respectively.
In hindsight investors were looking past the obvious: The ideas and the players were too small.
Editas holds key patents to the gene-editing technology that promises to make drug discovery easier, and expedite cures for existing illnesses. Rivian makes a distinctive electric pickup truck that journalists and owners love. Upstart culls scads of digital data to help loan-seekers with financing.
These are cool ideas, yet they are not really platforms. They are features that could easily be absorbed into larger platforms. The companies may never grow into their 2021 valuations.
As easy as it is to love the growth trajectory at Upstart, a big portion of its sales originates at Credit Karma, an Intuit
That’s part of the problem with the current tech environment. There is simply no really big idea on the horizon that will suck in investors for the long haul.
Investors during the 2000s fell in love with the idea of the internet. The so-called information superhighway promised to connect everything. Ultimately, the one-way Web 1.0 network grew into two-way connectivity. Alphabet (GOOGL), Amazon.com (AMZN), Meta Platforms (FB), Netflix
The smartphone era that started in the 2010s changed everything again. Billions of people carrying connected supercomputers in their pockets and handbags led to new cloud-first networks capable of machine learning at scale. Real artificial intelligence became viable.
There is no doubt that the next really big idea is the metaverse. It is the evolution of the internet and smartphones and artificial intelligence. Unfortunately, it isn’t here yet. It’s too early to build a hype cycle around the virtual world.
Even still, the metaverse is driving biometrics research at Mastercard.
The Purchase, N.Y.-based company is doing a lot of innovative things in the field. Ajay Bhalla, president of cyber and intelligence, said the company is developing technology to allow gamers to buy items using nothing but their eyes inside virtual reality worlds.
While adding facial recognition and fingerprint scanning into point-of-sale terminals might seem a bit creepy, the new tech is direct affront to fraudsters, the archenemy of the credit industry.
CNBC reported on Tuesday that the POS program is now live at five grocery stores in Sao Paulo, Brazil. Rollouts at a later date are planned for the United States, Europe, the Middle East and Asia.
The bigger idea is to make biometrics operable everywhere Mastercard payments are accepted. In theory, a cardholder would be able to travel across physical and virtual worlds, making payments without carrying a card. It’s cool tech.
I have not been buying any tech shares. There is too much worry about valuations for smaller companies, and too little buzz about big new investment themes to justify new positions.
At $338.86, Mastercard still trades at 26.7x forward earnings and 15x sales. It is a great business, however now is not the time for new investment.
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