Investment newsletter legends, Jason Bodner and Jeff Brown are warning against putting money in traditional artificial intelligence (AI) stocks.
Instead, they recommend rotating into “Secret AI Stocks” which could be the next trillion-dollar businesses.
The Teaser
Host Chris Hurt provides some background by saying these are AI stocks, that don't seem like AI stocks, but are AI stocks nonetheless.
We're very familiar with Jeff Brown's work, having recently reviewed his backdoor SpaceX IPO pick and Quantum Computing Stocks.
But this is our introduction to Jason Bodner, the man behind TradeSmith's Quantum Edge trading system, which we'll learn more about in this teaser.
The two have been collaborating on a special project for months…identifying the next trillion-dollar AI stocks.
They're “Secret AI Stocks” because they aren't on any top AI stock list and make up a tiny 0.3% of the thousands of stocks that our pair track.
Furthermore, each is honed in on a specific component of the AI value chain or as Nvidia's CEO Jensen Huang likes to call it, the AI layer cake:
Mmm I like cake and this one could be profitable too!
The argument has merit.
After all, the likes of Google (Alphabet), Palantir, and Nvidia itself, all started out as highly specialized businesses before becoming the AI behemoths they are today.
They were “secret” non-obvious AI plays.
These are extreme outliers no doubt, but our guys say there is a reliable way to spot them early, with Jason Bodner's proprietary Quantum Edge system.
It has apparently identified several “secret” plays that are perfectly positioned to receive the trillions of dollars set to hit different corners of the AI market, beginning this year.
The Pitch
All the names are revealed in a new report called Secret AI Stocks: How to Get in On Tomorrow’s Trillion-dollar Companies Today.
To get it, we'll need a subscription to TradeSmith's Quantum Edge Pro newsletter.
This would set us back $2,000 upfront for the first year (normally $4,000), which comes with a 90-day money-back guarantee.
What in the World is a Quantum Score?
A system is only as good as it's data.
Jason Bodner says this is his quantum system's edge.
On Wall Street, the crown jewel of data is order flow, especially large block trades by institutional investors which are capable of moving markets.
As an example, back in his days managing the European equity derivatives desk at Cantor Fitzgerald, part of Jason's job was profitably trading large blocks of shares and other financial instruments.
One day he got a call from a large hedge fund interested in acquiring shares in a company Cantor provided liquidity for.
This single investor purchased $50 million worth of shares, which had a predictable effect on it's market price…it sent it soaring!
If you can see large share purchases as they happen before they make headlines, you now have an informational edge over most retail traders and even some institutions.
In Jason's example, this could have meant doubling our money in just a month, if we started buying up shares around the same time as the large hedge fund.
This institutional order flow and early indicators of it, is the heart of the Quantum Edge system, but it's not the only thing that goes into determining a stock's Quantum Score.
Identifying anomalies in volume and price is a beginning, earnings and revenue growth velocity are the other half of the equation that creates a stock's overall Quantum Score.
Those that score in the top quartile and are discreetly and efficiently putting AI to work in their businesses, are “Secret AI Stocks.”
Let's try to find out what they are.
Revealing Jeff Brown and Jason Bodner's “Secret AI Stocks”
We finally get down to brass tacks and picks around one hour into the hour and a half long presentation.
Generic clues are provided on three “Secret AI Stocks” hiding in plain sight:
First Secret AI Stock
- The first pick is labeled a “Specialty Industrial Machinery” company.
- It's technology is key to helping power energy grids run at maximum efficiency, which is hugely important to AI.
Pretty generic clues, but Eaton Corp plc (NYSE: ETN) fits the description.
- It is a traditional power management company providing various products that optimize power distribution, which counts as “specialty industrial machinery” and makes grids more efficient.
Second Secret AI Stock
- It sits in a corner of the AI market being flooded with money from Silicon Valley, the Trump administration, and more.
We know that this corner is AI infrastructure, with Silicon Valley and the Trump admin committing billions to the build-out of data centers.
However, without any company-specific clues, there's no way to know the name of this secret AI stock.
Third Secret AI Stock
- This last pick is a “Secret AI Biotech Stock” using AI to transform drug development.
- It's technology can help any biotech company leverage AI to find the next big breakthrough.
There's no way to be sure, but Schrödinger Inc. (Nasdaq: SDGR) is a distinct possibility.
- The company's AI-enabled software platform is built for precise molecular simulations and predictions to accelerate and optimizatize drug design.
Double Your Money in One Year?
A steady, reliable stock-picking system that doesn't require spending all day staring at a screen, poring over price movements and data.
This is the Quantum Edge pitch.
There's no arguing with results and the ones shown in the teaser were impressive:
This is supposed to be post 2010.
Indeed, getting alerted to big institutional trades and piggybacking off them can be profitable over the short-term.
Hiwever, over the long-term, a business' underlying economics and growth are still what matter most.
From this standpoint, how sound are the “Secret AI Stock” picks?
Eaton Corp: At first glance, I was surprised by it's 15% profit margins and 21% return on equity, as a commodity industrial equipment supplier. Albeit one with massive economies of scale, operating in 160+ countries.
Notably, it has also paid a dividend longer than your pet tortoise has been alive, since 1923.
Eaton's electrical equipment and eMobility (electric vehicle powertrains) divisions are set for above-average growth moving forward, so a forward P/E of 26x is a reasonable, but not a good, price to pay.
Schrödinger: Combining physics-based simulation with leading-edge AI and machine learning to make drug development easier sounds complex and difficult to replicate, but I'm no expert when it comes to pharma plays.
After getting slammed so far this year, the stock is trading for just over half the cash equivalents on it's books.
But don't get too excited, the business is still losing over $100 million per year, so cash burn and stock dilution will quickly change any perceived margin of safety.
Out of the two, Eaton is your best bet for a double over the next year or so.
Quick Recap & Conclusion
- Jason Bodner and Jeff Brown are rotating out of traditional AI stocks and into some “Secret AI Stocks” which could be the next trillion-dollar businesses.
- These “Secret AI Stocks” are businesses that are quietly implementing AI into their everyday operations and something called a Quantum Score, which combines insight into institutional order flow with fundamental analysis, is how they are identified.
- Their names are only revealed in a new report called Secret AI Stocks: How to Get in On Tomorrow’s Trillion-dollar Companies Today. A subscription to TradeSmith's Quantum Edge Pro newsletter is required and it costs $2,000 (normally $4,000).
- The first “Secret AI Stock” could be Eaton Corp plc (NYSE: ETN) and the third, Schrödinger Inc. (Nasdaq: SDGR), not enough clues were provided to guess the second.
- Piggybacking large institutional orders isn't a bad way to trade short-term and Eaton Corp. is likely to be a double over the next year or so.
Will AI infrastructure returns live up to projections? Let us know what you think in the comments.