By Jeff Brown, Editor, The Bleeding Edge

Another exciting week at Brownstone for the books…

Many of you joined me on Wednesday night for my Deep Access launch event. I’m thrilled to talk about the event a little more below in today’s AMA. I know many of you were curious about the volatility I believe is about to tick up in tech stocks… particularly in companies supposedly dedicated to artificial intelligence (AI).

To be clear, I’m still pounding the table on the rise of AI and those companies I believe will continue to lead with their technology. And I’m also watching those companies that just can’t keep up, are overvalued, or are destined to lose the race.

But more on that later. If you want to hear more about this coming slump for certain AI stocks – or on my strategy for how we can profit from both the winners and the losers – you can go here to watch the replay of Wednesday’s Deep Access event.

In any event, we have an interesting stack of questions to get to today. One of the questions was about a publicly traded company with a next-gen battery technology not dissimilar to what I wrote about in The Bleeding Edge – The Battery Graveyard.

And a lot of you were particularly interested in the future of biotech in light of the long-term winter the sector has been in and the impact of President-elect Donald Trump nominating Robert F. Kennedy Jr. to head the Department of Health and Human Services.

Spoiler: what you’ve probably been hearing from the mainstream media’s 24-hour doom cycle is highly sensationalized.

Let’s get into it…

A Golden Age for Biotech?

Hi, Jeff. I’m curious about your thoughts about the impact of the Trump administration on the Biotech industry.

I have finally freed up some funds with the plans to invest, but now that RFK has been appointed to head up the Department of Health and Human Services, the biotech industry (XBI) has taken a blow this week.

I know you are bullish on the biotech industry over the next several years as interest rates come down, but how do you see the Trump administration and RFK impacting biotechs even as interest rates come down? Thanks for all you do.

– Scott S.

Hi, Jeff. With RJK Jr just being announced as the nominee for HHS Secretary, what are your thoughts on how this might affect some pharmaceutical stocks?

Specifically, will this be as bearish for Pfizer and other big pharma stocks as some suspect?
And could this be good for stocks such as HRTX and PCRX whose intention is to treat post-operative pain without the use of Opioids?

– Brian K.

I think it’s safe to say we have gone from biotech winter to Arctic freezeover. Every biotech stock that’s been recommended from more than one Marketwise affiliate is now hitting stop losses and this is after years of brutal performance.

It is so hard to hang in there watching this. We absolutely have to see something happen here as these companies from a market valuation perspective are virtually bankrupt. EV values are surreal. Unless they have meaningful poison pills, you could scoop up half a dozen of these companies for almost nothing. That certainly would be better than trying to win in the stock market. Sadly disappointed.

– Allerd S.

Gentlemen,

I appreciate you writing in about this topic. It’s very timely. And the new administration gives us reason to be optimistic about the biotech industry over the next four years.

But if we listen to the mainstream media, they all tell us that RFJ Jr. is going to be terrible for the industry, or that “he’s a nut.” It’s complete nonsense, of course, and the reason for the media’s behavior is simple – money.

In 2020, the pharmaceutical industry spent $4.58 billion on U.S. TV advertising which made up about 75% of total ad spend. This is also why the mainstream media doesn’t report at all on the side effects of the COVID mRNA “vaccines” and how unsafe they are. If the media did this, they’d lose their advertising dollars.

RFK Jr. is a lawyer and is very evidence-based. His political platform is simply about reviewing the data with transparency and making determinations based on that data. His goal is to clean up the corruption in the pharmaceutical industry and pull unsafe and ineffective drugs from the market, as well as toxic chemicals used in our foods.

This will be bad for some large pharmaceutical companies. For example, if he is successful in pulling the COVID-19 mRNA drugs from the market, this will obviously hurt Pfizer and Moderna.

To your point, Scott, this is why XBI is down more than 10% since November 11.

Large pharmaceutical companies pushing unsafe products will likely be negatively impacted by RFK Jr.’s evidence-based methodology. I also expect RFK Jr. will put a stop to the use of self-replicating mRNA technology which is (stupidly) being used in Japan right now and is also now being tested in the U.S.

Government agencies, scientists, academic institutions, and medical institutions received tens of billions of dollars in grants, payments, and royalties to support anything COVID-related. It sucked the air out of the room for just about anything else.

This will come to an end immediately under RFK Jr. It has to stop so the biotech industry can return to developing new drugs, and the FDA will do its job in an evidence-based way, prioritizing the safety and efficacy of drugs working through clinical trials.

This alone is very bullish for the biotech industry. It’s a return to the way things worked pre-pandemic. I believe RFK Jr. will make some marked improvements in policies and processes during the next administration.

Had RFK Jr. been in his new role during the criminal and civil cases against the Sackler family and Purdue Pharma regarding its abuses related to opioid drugs, I’m confident that he would have aggressively gone after this kind of corruption.

That case resulted in an $8 billion-plus settlement between the Department of Justice and the Sackler family. It was one of the largest pharmaceutical scandals in history. Sadly, it’s one of many such scandals with Pfizer, Johnson & Johnson, GlaxoSmithKline, etc.

So, Brian, yes, I do believe that RFK Jr. and his team will be supportive of non-opioid solutions to pain during the next four years.

Allerd, the issue around the enterprise valuations (EV) is so ridiculous right now. It’s entirely a result of the persistent inflation and elevated interest rates driving institutional capital away from small-cap growth stocks (except those generating and growing free cash flow). Particularly biotech stocks because they are mostly pre-product revenues with negative free cash flow.

The enterprise valuations are so low that there is no price discovery… so low that the boards of these companies would never accept a buyout offer at current levels because the EV doesn’t in any way reflect the value of the companies.

This is why the biotech industry is “stuck” right now. Mergers and acquisitions activity is not normal because the market isn’t valuing biotech companies at reasonable levels. So, most are just sitting tight, waiting for conditions to improve.

Here’s why we can be optimistic about the Trump/Vance/RFK Jr./Musk/Ramaswamy administration regarding biotechs:

The fiscal deficit will be slashed by at least $1 trillion (hopefully $2 trillion) – a responsibility of the Dept. of Governmental Efficiency led by Musk/Ramaswamy

Bad and/or unnecessary regulations will be eliminated

Energy policy will dramatically improve – more natural gas, less coal, more nuclear. Low energy prices will help bring down inflation along with lower government spending (i.e. reduced deficit)

Interest rates will drop

Institutional capital will flow back into biotechs

FDA will be revamped and will return to evidence-based medicine, as well as streamline the clinical trial process for drugs that demonstrate safety and efficacy

I believe we’ll see these changes in 2025 and the turnaround in biotech will be fast. This is what we’ve been waiting for.

A Viable Solution to the Battery Graveyard?

I just read Jeff Browns November 12 Bleeding Edge – The Battery Graveyard. I was surprised that Jeff made no mention of ENOVIX.

ENOVIX is a Silicon Valley-based company that appears to have resolved the swelling issues associated with Si anode Li-ion batteries along with a patented “backflow” technology that prevents combustion, as experienced on a 15 November Southwest flight.

Finally, I also believe Enovix has demonstrated manufacturing scalability and is planning smartphone shipments to a top five OEM in late 2025.

– John J.

Hi John,

You’ll be happy to know that I actually highlighted Enovix (ENVX) as the one publicly traded battery company to watch closely at a major investment research conference on March 31, 2022, in Washington, D.C. It was part of a presentation that I gave about bleeding-edge battery technology.

I didn’t mention Enovix in The Bleeding Edge – The Battery Graveyard because it doesn’t appear to have battery technology that will scale commercially to electric vehicles (EVs).

One of the main reasons that I liked Enovix back then was because of their go-to market strategy. Rather than taking on the EV market, they focused on much smaller battery sizes and applications centered around small consumer electronics devices, like a smartwatch. Smaller battery sizes make it easier to manage the swelling that still occurs.

2025 is a critical year for Enovix as it is attempting larger battery sizes by jumping from applications like smartwatches to smartphones. There is a lot of risk here, so we’ll be watching closely.

As much as I like the company and its approach to batteries, the company is currently trading at 75 times 2024 revenues and 40 times forecasted 2025 revenues. It is unprofitable and will be burning through cash for years to come. Its gross margins are also very low. It will be out of cash soon and will have to raise additional capital which will dilute current shareholders.

I do hope Enovix is successful, but in this environment, at these valuations and financial metrics, Enovix will most likely be punished badly on the slightest hiccup and join other companies like it in the battery graveyard.

A Condition, Not a Bug, of Transformational Technology

Customer is upset about the AI Crash presentation and mentioned that Brownstone has been recommending AI, stating that it is performing well, but is now claiming that AI will crash.

– Kevin C.

Hi, Kevin. Thanks for calling our customer service team about this. I appreciate your question, and I know a few other subscribers have had the same question. I fully expected this.

I haven’t changed my bullish position on artificial intelligence at all. And I also am not suggesting that all of AI is going to crash. If we thought 2024 was exciting in the world of AI, you won’t believe what’s coming next year. It will be nothing short of remarkable.

With that said, we’re at the stage in the investment cycle where we’re starting to see the split in winners versus losers. Several months ago I wrote a report predicting that several “AI stocks” would fall, while still remaining very bullish on the AI companies that are in my model portfolios in my investment research products.

Six out of seven of those stocks have already fallen, and at the same time, my favorite AI stocks have risen.

Like every other transformational technological shift in history, there will be adjustments along the way. And not every company will be a winner.

That’s just the nature of tech markets. With these substantial technological breakthroughs, we have boom cycles… and we see busts.

We saw it with the dot-com boom, with PCs and smartphones. Even the 19th century had a buildout and burnout during the construction of the U.S. railroad system. These cycles are a condition of transformational technologies rising to prominence and mass adoption, not a bug.

My goal is to use my decades of experience working in high-tech, observing boom-bust cycles, and investing in this space to help guide my subscribers through both the highs and the lows. To help you identify the companies actually supporting and pioneering the rise of artificial intelligence and not get wiped out investing in the companies that just can’t compete.

That’s why my team and I launched our new Deep Access service. We’ve developed a strategy that goes beyond taking the defensive when volatility kicks up. It also lets you profit from the downswings. We need to be dynamic in an environment like that.

So, we applied the power of AI. Similar to how we applied the Perceptron to analyze the crypto markets, we’ve put the Deep Access AI to work spotting the patterns that lead to shifts in stocks.

The thing is, there are losers in every boom-bust cycle. The laggards that struggle to keep up with the pace of innovation, or who adopt the technology too little, too late, and fall behind the pack. And even some of the wildly popular companies are at risk if they fail to adapt.

I actually named one in my Deep Access launch event on Wednesday. If you’re interested in hearing more about the service, you can still catch the replay right here.

That’s all we’ve got time for today. Thanks to everyone for writing in. As always, you can reach us right here if you have any questions, comments, or concerns.

And thank you again to everyone who joined me on Wednesday at the Deep Access event. We had a great time, and my team and I are excited to finally be able to share this service with you all.

Again, if you missed it and want to find out more about the artificial intelligence we’re using to help us pinpoint opportunities in the volatility of the stock market – or the exclusive dataset informing it – you can watch the replay right here.

Have a great weekend.

Jeff