Jan 29, 2021
Jeffrey Cohen, President, US Advanced Computing Incorporated.
Hello to our faithful readers. We just published two Medium articles with recent stock picks.
Three key takeaways:
1. You can see the stocks we picked, and how they all beat the market benchmark (the SPY, or S&P 500 ETF). These will likely continue to outperform. Our President, Jeff, has money invested in one of the stocks that was picked.
2. You can see how a dividend-payer only portfolio behaves differently than analyzing all stocks (regardless of dividend).
3. You can see how we incorporated a 'risk tolerance' parameter into our model that we are considering to add to our public offering. We can incorporate it, but would like some market feedback first.
Happy reading. Hope you continue to learn from our use of a quantum algorithm on quantum and classical computers to pick stocks. We believe we have found financial advantage from this work.
Hello all, we remain very busy.
1. Quantum walks on graphs
2. Using the IBM quantum computer to pick stocks (we always used D-Wave or classical)
3. Learning about Microsoft Azure for quantum and quantum-inspired
4. Lots of small improvements to our stock picking application
5. Increasing our use of advertising over Q4/2020 to attract people to our website, Facebook page and LinkedIn page. Increased activity on Twitter. Decreased activity on Medium.
On the 'however' side, we are a bit distracted by the movements in the stock market. Significant learnings underway about how the stock and options markets work.
Give us a shout at email@example.com
Ask me anything: Jeffrey Cohen, Chicago Quantum
At the end of the 3nd week of the year...we have a few things to share:
- The change in presidents caused a subtle change in the trading in the market. We stayed out of the markets this week, except for a very small trade on Monday.
- IBM (a major quantum computing player) announced earnings and had its investor call. We listened, twice, and share our views of the IBM quarter and forward view.
- We successfully found, customized and ran the IBM tutorial for portfolio optimization on the IBM Q Experience quantum computer named 'ibmq_16_melbourne.' We share our results.
- We found a way to select lower risk (and likely lower return) portfolios that are still efficient and have a strong CQNS score. We ran today (Thursday EOD data) and were able to select 2 completely different portfolios with the same data.
- We determined that Quantum Approximate Optimization Algorithm (QAOA) is important to make gate-based quantum computers pick stocks. We also determined that the sample QAOA in the IBM Qiskit tutorial did not work very well. We also tried the Variational Quantum Eigensolver (VQE) in the IBM Qiskit tutorial, and that algorithm seems to be more useful for other types of problems. More work to do on mastering these quantum algorithms.
- We picked up advertising our website, https://www.chicagoquantum.com and learned. We stopped advertising while we apply the learnings. Our website is focused on our business and our services, and might benefit from being more focused on our client's questions. Also, it is exceedingly slow to load. So much to do to fix our website.
We look forward to next week.
Learn more and please do your own due diligence before investing in the stock market. Investing in stocks carries significant risk, and you can lose your entire investment. Do your homework. Know what you are buying.
And now a word from our sponsor...
Please buy a portfolio analysis if you like what you hear. It picks the stocks with expectations of large movement, but when held together lower the risk to you. Prices range from $50 to $1,000 per detailed analysis.
You provide the list of stocks, or we analyse entire stock exchanges (NYSE, NYSE American, NASDAQ Global Select Market, and NASDAQ Global Market). We can also limit our runs to stocks that paid a dividend in the past year.
Here are a few of my thoughts and opinions as I listen to the 4Q2020 IBM earnings call.
There is a strategy shift from the IBM leadership:
IBM Management deep dives:
1) IBM Z (release 15) is having a strong cycle. IBM Z revenue is down 24% in Q4, some clients delayed Z15 adoption, but still IBM Z delivered growth in the year. IBM Z is seen as a high value, secure and scalable platform that supports cloud-native applications running on zLinux. The installed based of MIPS is 3.5 x higher than a decade ago.
2) The NewCo(Managed Infrastructure Services) (NewCoMIS) spinoff facts:
$62B in backlog
90,000 employees in over 100 countries.
Reduced service offerings.
$2B charge - largest portion was in GTS cost reduction efforts.
Revenue down 8%, but 70 bps higher margin.
Some Q4 deals were delayed / extended out of Q4 due to the announcement.
Leaner and more efficient operating model.
This is an integrated business.
When the new CEO of NewCo(MIS) was asked about his focus for 2021, he replied with a financial focus:
- Margin, profit and cash are the fundamentals of this business that we will focus on.
- This business will be attractive to a value-based investor. It should approach double digit net margins.
- We are on track to complete the spin by the end of 2021.
- There is excitement within their employees about the change.
3) Confidence in 2021 and 2022 revenue growth:
- Confident in the hybrid cloud business, at ~ $25B and growing 20%. This drives downstream business revenue ($1 platform = $3-5 software => $6-8 services)
- Strong ELA cycle, with shorter deal duration meaning more negotiations.
- Better software renewal rate (top of the range), even excluding RedHat, which helps economics.
- GBS: will return to pre-pandemic levels, then accelerate into 2022
- Systems: Product dynamics are a tailwind into 2022, but the numbers are not that big
- Ecosystem investments should benefit across the segments (systems, services and software).
A few opinions as I listen:
1) I did not hear much about technical things the company is doing to improve their offerings, whether hardware, software or services. I heard about reducing costs and driving operational leverage, but had to strain to hear about investing in people, skills or quality of employee experience. I heard a restatement of segment value propositions, but not of the actual product or capabilities.
2) I am concerned that IBM is committed to its own IBM Cloud as a platform, powered by RedHat, with 2,800 clients. There were 260 engagements that included IBM hybrid cloud (so around 9%). I was surprised that the RedHat growth was only 18% and that 80% of new implementations came through GBS (I might have heard that incorrectly, could have been 80% of GBS engagements included RedHat usage). I wonder how this compares to Amazon Web Services, Microsoft Azure, Google Cloud, and the other public cloud and SaaS infrastructure providers?
3a) Quantum computing and Artificial Intelligence have great potential, but limited current penetration. Quotes about AI from Arvind Krishna (CEO): "Opportunity for AI is massive, but deployment is in single digits" (I assume percentage of clients). "We are helping clients develop intelligent workflows" and "Trust is paramount." Clients use our "rich capabilities."
3b) The CEO's comments on quantum were more specific, saying "Quantum [computing] has the ability to unlock 100s of billions of dollars of value for our clients." IBM committed to a roadmap to delivering larger quantum computers and IBM has been deploying more quantum computers for clients to use.
4) IBM delivered strong cash flow and operating profit performance, but at what cost? During COVID 19, IBM has been able to grow operating gross profit margins (70bps for the quarter, 140bps for the year). There is a charge of $2B for structural changes (which lowered those costs). This is a tricky situation w.r.t. revenue growth, capability growth, employee engagement and morale. Cash flow was exceptionally strong in 2020, $6B in free cash flow (FCF) in Q4, and over $10B FCF for the year.
5) IBM will maintain a financial focus in 2021 (but these may be chilling words for clients and employees):
-- IBM will continue to de-lever, and maintain a single A credit rating with an improving financial profile.
-- "We know how to drive operating leverage"
-- "We will have operating margin expansion in 2021"
Strategic IT Management Consultant with a strong interest in Quantum Computing. Consulting for 29 years and this looks as interesting as cloud computing was in 2010.