Every year around this time, the whole tech world starts to buzz just a little bit louder. With September officially kicking off, the market is once again gearing up for a barrage of new consumer-targeted devices.
Like clockwork, Silicon Valley’s hottest gadgets have always come out of the woodwork in late summer, as companies anticipate the approaching holiday season. And as we’ve come to expect, all eyes are on Apple, Inc., Amazon, and Google this year, with leaks and rumors galore.
For investors, following these leaks can prove a highly profitable practice. Suppliers of major devices have been well known to go boom or bust in the “iPhone Super Cycle,” for instance.
The same general premise applies across the entire consumer tech industry, too, with rumors alone sending small component suppliers upward of 300% on speculation of the next big thing.
Rational or not, the market will always find a few suppliers to hype up this time of year. While some are moonshots, others are practically shoe-ins. If you know what you’re doing and where to look, it’s a trader’s utopia.
What’s Up With the Notch?
For this year’s consumer tech super cycle, all your attention should be focused on one place, and that’s “the notch.” The long and short of it is that hidden behind the notch is an array of sensors (mostly lasers) capable of measuring the three-dimensional environment around them.
We first saw the notch emerge last year, most notably in the iPhone X, which used it for 3D facial recognition. But tech companies were only testing the waters in 2017. Now that they’re all in, suppliers behind the notch are prepped to go hyperbolic.
Earlier this week, the next generation of Google’s flagship Pixel phone was leaked just about in its entirety in its premium “XL” form. While the device isn’t expected to be officially revealed until early October, we already know enough about it to draw some pressing conclusions about a major emerging trend in consumer tech.
As you can see in the leaked image of the Google Pixel 3 XL below, the smartphone sports the infamous notch at the top of the screen. There’s no doubt about it: Google has effectively made a clone of Apple’s top-of-the-line iPhone X.
Since Apple introduced “the notch” last year, the company has caught plenty of flak. In January of 2018, KGI Securities called the device a failure. Fast Company had a similar take, calling the iPhone X one of 2017’s “biggest, baddest hardware failures.”
You might be wondering, then, if the iPhone X was such a failure, why is Google following suit? Why do Android phones like the LG G7 ThinQ, the OnePlus 6, and Asus ZenFone 5 all sport a notch now, too?
Well, the short answer is that the iPhone X wasn’t a failure. In fact, it’s done everything Apple has intended for it to do.
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Another Notch on Our Belt
You see, while the mainstream media was hyperventilating over the iPhone X’s awkward-looking notch last year, we were reading between the lines and looking at Apple’s endgame. The company wasn’t banking on the device to be a total breakout in 2018; it was more interested in building a supply chain for augmented reality.
As I put it last September:
Apple is taking baby steps right now. It’s dipping its toes in the water and presumably building up the supply chain for 3D depth-sensing technology. The iPhone X, as far as investors should be concerned, is effectively a test bed for AR devices to come.
While it’s highly unlikely we’re going to see a pair of augmented reality smartglasses this year (we expect to see glasses in 2019 or 2020), that doesn’t mean investors have to wait another year or two to ride the cycle. The opportunity is happening right now, as Apple and the broader tech industry build out their 3D-sensing supply chains.
After all, the smartphone industry is now pushing 1.5 billion units a year. It takes time and investment to secure the infrastructure for what will in the future become standard features.
The 3D sensing industry remains fragmented, but there are a few key players, including Lumentum (NASDAQ: LITE), Finisar (NASDAQ: FNSR), and Viavi Solutions (NASDAQ: VIAV). All three have their own place as a component supplier behind the notch.
I first mentioned those three names in these pages on June 15th. Here’s how those stocks performed over the last two and a half months:
As you can see, the 3D sensing stocks in this basket are highly correlated and are moving quite closely in tandem on a bullish trend. This gives investors a great opportunity to diversify and build what you could consider your own 3D sensing ETF.
While nothing, of course, is ever guaranteed, this can easily be regarded as one of the most obvious investment opportunities on the market right now.
Supply remains constrained, while demand is ramping up. Add in the fact that the next “iPhone Super Cycle” is just weeks away, and this is a trifecta that’s simply too compelling to pass up.
That said, you never want to be putting all your eggs in a single basket. Spreading your bets is incredibly important, not just across companies but industries as well. For another extremely obvious investment opportunity, I suggest you check out our free presentation here.
Until next time,
Jason Stutman
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