KUHN CAPITAL Thursday, October 19, 2017
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Nano Returns

May 1

We’ve always been a bit skeptical of the near-term promise of nanotechnology, but the huge investor flows into the industry kept us quiet till now.

As it turns out, if all those early nanotech investors were onto something, it must be for the long-run. Since the beginning of 2003, a basket of the 19 largest public nanotech plays has declined 30% according to Punk Ziegel & Company. See their stock price graph. Some of the larger players in the field are FEI, Veeco, Symyx, Flamel and UltraTech.

The starting gun for the great nano race was fired 45 years ago by the brilliant physicist Richard Feynman who laid out the field’s promise in a widely-quoted paper entitled "There’s Plenty of Room at the Bottom". Feynman’s genius was an extraordinary fusion of mathematical fluency, creativity and common sense. He’s the guy who demonstrated the critical NASA oversight that led to the Challenger disaster simply by dropping an O-ring into a glass of ice water.

But in the case of nanotechnology, Feynman’s characteristically brilliant observations are still ahead of our time. One problem is that the expertise needed to make nanotech products can vary wildly depending on which field the product is designed to address. Choose your application: biotech, textiles, processor chips, weaponry, etc. Like RFID technology, the list of applications is nearly limitless. But unlike RFID, many applications require a deep mastery of fundamental science to exploit.

Not that there aren’t real businesses populating the field, though most of the larger ones are supplying tools (i.e., picks and sluices) to the manufacturers (i.e., gold miners) rather than making end products themselves, sort of like the vendors of software and servers to dotcom entrepreneurs in the first years of the Internet.

Then there’s the problem of all that early money flooding the market and creating unsustainable market caps. In fact, despite the average 30% decline in industry marketcaps, the valuations of many of the field’s larger players still look awful rich to us, though their business models appear promising. So we think the industry will eventually prosper but we’re on the sidelines till all that early money flushes though and out the system.

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