This week, we discuss record high robot orders for Fanuc, the critical role of networking infrastructure in keeping data centers running, and the next big catalyst in genomics: detection for colorectal cancer with a simple blood test. We're also hosting a webinar on May 18th covering the latest in M&A activities across disruptive tech. Reserve your seat here.
Please enjoy these insights from our research team.
ROBO: The King of Robots Sees Orders Roll in
Fanuc, the world’s leading provider of factory robotics and a bellwether for the industry, reported its quarterly orders had reached a new record high, reflecting strong demand for automation equipment around the world. Orders reached JPY225bn, up 11% year over year, in the first quarter of 2022, and were particularly strong in North America (+29%) and China. While management warned of continued restrictions on the availability of certain parts and materials, and some pressure on margins due to rising costs, the company is sitting on a record high backlog of orders that exceeds its annual sales and provides good visibility for the rest of the year.
In February, Fanuc reached an important milestone with the sale of its 5 millionth Numerical Control system for factory automation. The company recently launched three new collaborative robots, expanding its offering of easy-to-use robots that can work alongside humans for a variety of industrial purposes such as machining, logistics and assembly.
Fanuc’s stock is down more than 30% from its 2021 high and trades on 20x forward earnings, a level that has marked the bottom of its valuation range for nearly 10 years.
THNQ: Arista Network’s Underrated Role in AI Training
When people think of AI training, they often think of specific training software, or perhaps even the latest generation of chips. But one underrated component that is allowing for quantum leaps in AI training involves the networking infrastructure and management in these data centers.
California-based Arista Networks is a leading provider of network connectivity solutions to data centers for high-performance computation and large AI cloud deployments. Their hardware solutions, such as network switches, which represent most of the revenue (80%), are getting major support from growing software solutions (20%), such as autonomous virtual assistants (for optimal networking experience across security + optimization) and third party application support. Additionally, their Extensible Operating System (EOS) for the cloud utilizes AI to support large enterprise clients, such as Microsoft, META, and nearly a quarter of revenue in a segment known as Campus, which is essentially workforce management.
Arista has seen robust growth (21% 5-year CAGR) and expects to reach 30%+ in the near term, with solid margins (64% gross) expanding with increased software and services-related revenue. Arista has been taking market share from Cisco and is more immune to supply chain issues than its larger peer. We expect Arista to continue to gain on competitors in the fast-growing cloud infrastructure market. As a testament to this, Arista is up over 40% over the past 12 months in an overall down market.
HTEC: That Colonoscopy You’re Putting Off May No Longer Be Needed
One of the most anticipated data reads in years is approaching this summer, as the world awaits results from Guardant’s ECLIPSE trial. Guardant is an innovative company that offers genetic tests that help physicians determine which therapies to use to treat cancer, and once treated, whether the cancer remains present or recurs in the future. Now Guardant seeks to provide the first-ever insurance-covered blood test to screen for colorectal cancer (CRC). This means eligible people could get screened while at their routine checkups. Guardant spent the last two years recruiting more than 12,000 patients to participate in a study known as “ECLIPSE” to determine whether this new test meets the performance criteria required by the Centers for Medicare and Medicaid to be used as a screen for patients considered to be average risk, a market that includes 130 million people aged 45 to 84. Guardant plans to launch the test in-house this year and is hoping for full FDA approval by the end of 2023.
This test is just one of many in development in the liquid biopsy industry, an area that has seen more than $15 billion in investment in just the last few years, as companies seek to service a $75+ billion market opportunity. Liquid biopsy tests are essentially blood tests that can detect DNA of mutations that are indicative of cancer. Current screens for CRC include colonoscopy and Exact Science’s Cologuard, an at-home stool sampling kit. While we believe the conventional methods will hold a place in the market, an estimated 24% of those eligible did not get any screening at all. At a minimum, Guardant’s test could offer a solution to the people who avoided screening based on aversion to the conventional methods, making this new test a welcomed concept, by people over 45 and Guardant shareholders alike. Read more...