Lightspeed Computer Chips

Brian Hicks

Updated November 10, 2005

Dear Wealth Daily Reader,

As the Wealth Daily team at the east coast command office in Baltimore sat around one computer watching, through live streaming video, Senators grill big oil execs about their charitable contributions, I thought to myself just how far the Internet has come from the days of dial-up.

In 1996, it took an hour to upload a picture of Sung Hi Lee. Today, it takes an eye-blink.

It’s about to get better.

WD’s resident techie, Luke Burgess, is looking at the next generation of Internet technology.

Something he’s hot on – but it’s not new – are optochips.

They were first introduced to the market in 2000. The euphoria over optochips were tempered by the market bubble bursting that same year.

However, chances are your PC may be using one, as Intel is a believer in the chips.

You see, optochips offer information-processing speeds that are upward of 1000 times faster than speeds from modulators from the late 1990s. The optochips, also known as polymeric electro-optic modulators, transform electrical signals into optical signals at speeds as high as 100 Gbps.

New polymers replace standard lithium niobate in the electro-optic modulators, which serve as a link between electronics and fiber-optic equipment. New polymers are intended to bring about the development of high-capacity devices with low noise and low power usage.

To give you an example of what this means, you’ll be able to download a 2-hour movie within a half-a-second. That’s the kind of speed we’re talking about.

There’s a reason why I bring this up.

Yesterday’s Senate hearing is a microcosm for what’s currently happening… and for what’s about to happen.

While queen Barbara Boxer, the descendants of Mao, Wall Street, and Joe-sixpack focus on the rising costs of energy, savvy investors are beginning to – and quietly – take positions in technology companies.

Perhaps they’re building positions for a renewed rally, or a new bull market in technology stocks.

I’m not the only one recognizing the potential opportunity on the horizon.

From the November Issue of Business 2.0, article titled "Tech’s Big Comeback":

There’s a time-warp feel to some of what you see around 285 Hamilton — the excitement, the energy, and, yes, the hype. But this is not the kind of whistling-past-the-graveyard cheeriness of, say, early 2000.

It’s not even the opportunity’s-knocking-with-a-great-big-hammer feel of 1996, shortly after Netscape’s historic IPO triggered the first Internet boom.

What is on display in Palo Alto — indeed, increasingly in all of the nation’s tech centers, from Seattle to Austin to New York–is the early stage of a new technology boom of potentially unprecedented power and durability.

That may sound absurd at a time when the country seems besieged by ominous economic forces, from grinding wars to devastating floods to runaway gasoline and heating bills.

But a growing body of evidence, both statistical and anecdotal, suggests that tech is taking flight again. And this time, even some circumspect observers of the tech scene believe, the industry could soar to greater — and more sustainable — heights than ever before.

Signs of the renaissance are popping up everywhere. Venture capital is flowing more profusely than it has since the late 1990s; money invested in early-stage startups could top $1.5 billion this year, up 50 percent from last year and almost double 2003’s figure.

More significantly, the average seed investment, $4.4 million, is three times what it was a year ago and larger than it was in 2000. That means that VCs are valuing startups at higher levels than at the height of the boom."

I may be premature, but I think we may be setting ourselves up for a repeat of 1995, when on August 9, Netscape went IPO.

On that day, the Internet bull market was born. But it would take another 3 years before the market became drunk with everything

Take a look at a historical chart of the small cap index the Russell 2000:

After a bear market that lasted from 2000 through 2003, the Russell has been in a major rally, rising 85% in value since 2003.

Three months ago, the Russell made an all-time record high.

Historically, small caps lead the market. They also outperform the market because after rallying prior to the start of new bull market, small caps will rise in sympathy with the other major indices.

Here’s a comparison chart of the past 5 years:

I believe that next year, the other 3 indices, the Dow, the NASDAQ and the S&P 500 will begin the first phase of a bull market. The 3 indices may not reach all-time highs achieved in 2000, but I think we could see those levels – and more – before the end of the decade.

Though WD is still bullish on energy and commodities in general, we believe in diversifying into technology.

Having said that, we’ve recommended energy stocks that’ll gain significant capital appreciation in the coming years.

While yesterday’s Senate hearing was going on, Andrew Liveris, president and CEO of The Dow Chemical Company, testified today during a House Appropriations joint sub-committee hearing on the impact of high and volatile U.S. natural gas prices.

Representing Dow and the American Chemistry Council (ACC), Liveris urged government action to address "one of the worst energy crises in American history."

He was talking about natural gas.

– Brian Hicks

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