This Is an AI Company — But Nobody Knows It ... Yet
"Springboarding" itself into an AI leader ...
If you grew up like I did in the ‘70s and ‘80s — back when entire families sat down for dinner every night of the week — you probably remember the clear Pyrex bowls and floral-patterned CorningWare cooking pots.
My Mom still has both — including the white CorningWare dishes with their trademark blue floral pattern — and I remember them as cornerstones of the holidays and other family gatherings we enjoyed through the years.
I remember them for another reason, too: That cookware was my first contact with Corning Inc. GLW 0.00%↑ — a firm that I was destined to cross paths with over and over again in the decades to come.
At the start of my personal investing career. During the Internet boom of the 1990s. As a case study in my MBA program. During my move to the national business beat while with Gannett Newspapers in Upstate New York.
And once again now … today … as part of the Artificial Intelligence Era — and the work we’re doing here for you at Stock Picker’s Corner (SPC).
Corning has long been a “Stealth Tech Stock.” But I’m talking about it here today because it’s quickly morphing into a “Stealth AI Stock” — a reality that “The Masses” of retail investors have yet to discover.
And that gives us an opportunity — a chance to “get the jump” on the rest of the crowd.
A Mentor & a Direction
Knowing Corning from my childhood, I was already sensitized to the name when I started my journalism career 40 years ago this year … and soon after started buying stocks for the first time.
I was working with a Legg Mason broker named James C. Liddle — a value-investing legend in the Baltimore/York/Harrisburg area who embraced me as a “mentee” as my business-reporting career spooled up.
Liddle was a terrific analyst and a terrific mentor. And he introduced me to Corning, a company founded way back in 1851 as Corning Glass Works. As the name implies, these guys understood glass — as a product but, even more importantly, as a technology.
Thanks to Liddle, I knew that Corning invented Pyrex in 1915, did work with lightbulbs and TV tubes and in the 1970s used that glass “know-how” as a table-setter for the Internet, streaming services and even AI: The company created the first “low-loss” optical fiber — which you need to transmit data over super distances.
I crossed paths with Corning again when I took a job with Gannett Newspapers in Upstate New York; the glassmaker was headquartered in that part of the state’s “southern tier,” and it ended up as a “supporting character” in some of the stories I wrote.
And Corning stayed on my radar.
By the middle 1990s, the company couldn’t make enough fiber-optic cable to meet demand. I saw this for myself when I moved back to Baltimore – and crossed paths with Corning yet again. As I drove up and down I-95 in the Baltimore/Washington corridor, traveled to cover big stories or drove through subdivisions hunting for our first house, I lost count of the number of trucks towing trailers with big fiber-optic-cable spools … and the construction crews feeding that cable into the ground.
Internet architects were realizing that “dial-up” Internet had a low ceiling — meaning “broadband” networks, video-on-demand and dreams like the Internet of Everything (IoE) and “The Cloud” would remain just that … dreams.
Corning went “all-in” on this: It divested its cookware business in 1998.
(As an interesting aside, check your kitchen cupboards: CorningWare has become hugely collectible; certain pieces are selling for thousands of dollars – even tens of thousands).
And the company that moved forward was a tech-sector innovator: It started using its “institutional know-how” in glass to develop complementary technologies — like modern displays and advanced materials. (One illustration: In the middle 2000s, Corning worked with Apple Inc. AAPL 0.00%↑ and tech impresario Steve Jobs to develop the iPhone.)
I wrote about the Internet boom from a number of vantage points while at The Baltimore Sun.
Another Sun reporter and I won a major journalism award for our coverage of the hot Maryland optical-networking firm Ciena Corp. CIEN 0.00%↑. And I wrote several columns that warned that the Internet mania was turning into a “bubble.” The Dot-Bomb implosion brutalized companies like Corning. I remember a Morgan Stanley MS 0.00%↑ study that found that – of all that fiber-optic cable that had been stuffed into the ground — 97% of it was “dark” … tech parlance for “unused.”
That overcapacity overhang lasted for years. But as the data explosion continued, as the “Cloud” finally took hold, and as the streaming wars stole viewers from conventional broadcast TV, all those “dark” networks were lit up because of the demand for fiber networks.
That brings us to the present day; and I find myself crossing paths with Corning yet again — thanks to AI.
A “Springboard” to the Future
The Corning I’m talking about today has a market value of $38 billion – fairly small compared with such firms as Microsoft Corp. MSFT 0.00%↑ ($3.2 trillion), Meta Platforms Inc. META 0.00%↑ ($1.44 trillion) or Nvidia Corp. NVDA 0.00%↑ ($3.05 trillion). Heck, even AI-newbie Palantir Technologies Inc. PLTR 0.00%↑ — a stock we like a lot — rings in at an even bigger $83 billion.
Over the trailing 12 months, Corning’s revenue has been $12.39 billion and its net income is $437 million. And the numbers have been a bit erratic over the past few years.
The “Corning of today” operates in several key markets:
Optical Communications: Providing fiber optic solutions for telecommunications and data centers.
Display Technologies: Producing the LCD glass “substrates” needed for TVs, PCs, mobile devices, vehicles and high-tech gear.
Environmental Technologies: Producing ceramic substrates and filters for emissions control in vehicles.
Specialty Materials: Offering advanced glass solutions for mobile devices.
And it’s two of those businesses — its “core” optical-communications and display-technologies units — that’s got my attention right now.
Corning just unveiled “Project Springboard” — a plan to use AI to add $3 billion in annualized sales by 2026. And execs want the company to achieve a 20% operation margin by the end of that year.
Here at SPC, we’re big believers in the power of AI: It’s one of our top storylines.
Precedence Research says the global AI market will surge from an estimated $454.1 billion in 2022 to a projected $2.5 trillion by 2032, with a compound-annual-growth-rate (CAGR) burst of 19% from 2023 forward.
Market Growth Reports also says the worldwide AI market will grow from about $67.4 billion in 2022 to $501.8 billion by 2026 — a sizzling CAGR of 39.7% during much the same time frame Corning is looking at for its Project Springboard.
That piggybacks onto the bigger storylines we’re following … including:
Connected devices and (as it’s now called) the “Internet of Things” (IoT).
The “Ecosystem Economy” — where turnkey “platforms” make technology easier to use by making it “invisible.”
And the “Data Explosion” — which has spawned a decade-long, exponential explosion in the data that needs to be stored, organized and managed. Supercharging that data’s importance are such innovations like driverless vehicles, drones (aerial and seagoing), cryptocurrencies, digital payments, e-commerce, drug discovery and personalized medicine, cybersecurity and cyberwarfare, virtual working and virtual learning — and scads of other key pieces of our modern digital lives.
All of this will be supercharged by AI.
Take data. The “data universe” will grow more than tenfold from 2020 to 2030, when it’ll reach 660 zettabytes, says UBS Wealth Management.
That’s the equivalent of every person in the world having 610 iPhones — each with 128 gigabytes of storage.
All that data has to be processed, labeled, indexed and stored for easy retrieval — kind of like the Big Data version of the “Dewey System” some of you folks may have grown up with.
And that means we’re going to see a data center construction boom.
Research and Markets said demand for data centers will be 12.4% annually on a global basis from 2023 to 2030. Here in the U.S. market, that yearly growth rate will be even higher — averaging 14.2% a year.
A more recent analysis — by Citigroup Inc. C 0.00%↑ – is even more upbeat: Citi analysts expect the data-center market to zoom along at a l7% yearly clip between now and 2030 — one reason the banking giant has labeled data centers as a “Super Sector.”
But those numbers could actually be low. Even very low.
Just this week, super-consultant Bain & Co. said we’re looking at “unprecedented levels” of investment — especially in such “infrastructure” elements as data centers — to deliver on AI’s promise.
“If large data centers currently cost between $1 billion and $4 billion, costs for data centers five years from now could be between $10 billion and $25 billion,” Bain said in its annual technology report, released yesterday (Wednesday).
Corning sees that — sees all of that — and intends to capitalize.
A Simple (and Powerful) Blueprint
Corning recently unveiled a “one-two punch” strategy for Project Springboard.
It’s simple. And it’s powerful.
Part I: Driving its Displays: We’ve become “screen addicts” — heck, my phone even tells me how much my “screen time” has gone up or down each week. Some of that screen time is (in reality) wasted time … burned up on “clickbait” … stupid videos or social-media posts … or on those “reading rabbit holes” we all fall into, where one story leads to another … and another – and so on. But screen time can be important, too, since “displays” are a “digital viewport” into the operation of high-dollar, highly technical and absolutely critical systems — like cybersecurity “moats,” corporate databases, billion-dollar trading systems, aerial “early-warning” systems … and the list goes on. With a mix of new products and price increases, Corning believes its display business can post net income as high as $950 million next year — with a net income margin of 25%.
Part II: The “Network Effect:” Here Corning intends to capitalize on its core strength in fiber-optic “systems” — the cable and the hardware that brings its data-transmitting abilities to life.
One reason I like this plan is that Corning’s objectives may actually be conservative. In fact, Corning CFO Ed Schlesinger recently told investors that “our second-quarter results and third-quarter guidance put us well ahead of our ‘Springboard’ plan run rate.”
In the third quarter alone, Corning is expecting sales of $3.7 billion and earnings of 50 cents to 54 cents a share.
Sustainability — being able to do it next quarter, next year and the year after that — is the key. But the ramp-ups we’re seeing in forecasts for AI in general and data centers specifically bodes well — as long as Corning executes on its plan.
A Secret I Learned
This brings us back to where we started – and my inspiration for headlining this as, in essence, an “undiscovered AI stock.” It’s true that the savviest big-money pros know this – and that other institutional players are catching on. But the retail crowd has yet to have this epiphany.
And that gives you the chance to be ahead of the crowd.
Take Corning’s earnings forecasts.
Right now, the company’s projected average annual earnings growth for the next five years is 13.93%.
That could be low.
Indeed, I think we’re about to see something known as a “Wall Street Upgrade Cycle.” And from my experience as a reporter, I can tell you how it’s going to work.
Call it an “investing secret” that I’m happy to share with you guys …
The “sell-side” guys – the analysts who issue the “Buy/Hold/Sell” ratings on the stocks they cover — are seeing the same stories and data you and I are looking at here. They’ll think about it. They’ll see that something “interesting” is at play here. And they’ll make some of these moves:
They will boost (“upgrade”) their ratings on Corning shares.
They’ll boost (“upgrade”) their forecasts for revenue and earnings.
And they’ll boost (“upgrade”) their “price target” for GLW – usually in a time frame of a year to 18 months.
But that’s just the first part of the “Upgrade Cycle.” Call it the “cause.”
But then there’s the “effect” — the impact it has, and the changes it brings about.
Once these developments leak out — and make headlines — investors will make moves to catch up … in a “ripple-effect” fashion.
The investment pros usually move first. And as those “ripples” move outward … the “Upgrade Cycle” shares move higher — a little at first, and then more as more folks catch on.
(We’ve seen higher-powered examples of that with companies like Nvidia or Palantir over the past year. I’m not saying it’ll be that strong with Corning … but you get the idea.)
There is risk here.
The company’s financial performance was erratic earlier in the decade. And second-quarter results were mixed: Revenue rose while profits fell. However, those results both beat estimates (which had been boosted earlier in the quarter) — but apparently not enough on the profit side.
That makes Corning a candidate for our “Accumulate” strategy.
Consider establishing a foundational position here. And add to it as you get more cash — or on pullbacks not triggered by a change in the company’s prospects.
See you next time;
