Wednesday, 14 October 2020

Alibaba and Tencent are Going After this Small Cap Semiconductor Company

Spectra7 Microsystems Inc. (SPVNF) (SEV.V)
Beginning Price: $0.03
Target Price: $0.30
Upside Potential: 900%
Market Cap: $19 million
Shares Outstanding: 590 million


When companies such as Facebook, Google or Amazon are setting up new data centers, their hardware suppliers usually originate in China. Cost is a big factor and China's prices can't be beat for semiconductor or optical equipment. However, one North American based company has reversed that flow, having become a supplier of Chinese tech giants Alibaba and Tencent. That got a whole lot more serious after a white paper was released by Alibaba called "High-speed Copper Cable Technology for Next Generation Data Centers". As a result, this microcap semiconductor company called Spectra7 Microsystems Inc. (SPVNF) (SEV.V) saw its stock price explode on Tuesday. Wednesday's slight pullback represents an excellent entry point as we expect the run to continue. We are up to 921 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel as well as follow our Small Caps, Big Gains blog where we put up our Canadian picks. You can also follow us on Twitter @StockTradePicks which has over 4,600 followers.

Spectra7's SPVNF listing on the OTC tripled to $0.035 on over a million shares traded on Tuesday, before pulling back around 10% to $0.03. Its Canadian symbol SEV led the way in volume as over 20 million shares traded on Tuesday as the stock increased 150% before settling down 10% to $0.045 on 7 million shares traded on Wednesday. We believe that this run is just getting started as Wednesday's slight pullback is nothing more than profit takers who held some cheap paper. The real story is a fundamental one. Tech giants Alibaba and Tencent need Spectra7's technology to power the Active Copper Cables in their data centers. 

Tuesday's press release:


(TSX-V:SEV) Spectra7 Microsystems Inc. ("Spectra7" or the "Company"), a leading provider of high-performance analog semiconductor products for broadband connectivity markets, today announced that Alibaba made public a new white paper "High-speed Copper Cable Technology for Next Generation Data Centers" that includes details on the use of Active Copper Cables using Spectra7 technology for future deployments. The white paper was compiled by Alibaba, Tencent, Luxshare Precision, Zhejiang Zhaolong Interconnection and others. The announcement was made at China’s Open Data Center Committee (ODCC) conference held in September in Beijing.

The ODCC Networking Group, led by project manager Chen Liang, Senior Technical Expert at Alibaba, authored the white paper. The paper details Active Copper Cables using Spectra7 technology as a critical interconnect solution at 56Gbps PAM4 rates for extending the reach of high-speed copper cables for next generation data centers.

"We are excited that China’s tier one operators continue adopting Spectra7 technology in their plans for future hyperscale data centers," said Spectra7 CEO Raouf Halim. "We believe China’s massive hyperscale deployments will continue to be a significant part of our rapidly growing data center business in 2021 and onward."

ODCC is co-sponsored by Alibaba, Baidu, Tencent, China Telecom, China Mobile, CAICT (the China Academy of Information and Communications Technology) and Intel. ODCC is an industry non-profit organization, voluntarily formed by enterprises and institutions related to the data center market.

The Chinese demand for Spectra7's products despite it being a small company in North America is an indication of the robustness of the technology. Alibaba and Tencent aren't the only ones that are impressed. Luxshare Precision, a multi-billion dollar cable and connector system manufacturer in China, had the following to say about Spectra7's technology recently:

"Spectra7 has created a compelling solution to address the dramatically increasing power and cost of data center interconnects. We are seeing significant interest from our largest customers for 800Gbps ACCs," said Jinhua Chen, Enterprise GM at Luxshare-ICT.

Spectra7 is clearly on the radar of the Chinese tech giants as they build out more data centers. Even after this run, the stock has paltry market cap of less than $20 million US. We believe that Spectra7 can grow into a $200 million market cap in the near future based on news of follow up orders or potentially a bidding war from the Chinese tech giants. 

Disclosure: We are long SPVNF

What's next for microcap stocks? TradeMiner identifies seasonal trends and market cycles, the Penny Stock Prophet and Microcap Millionaires finds the next big small cap plays in various industries while Addicted to Profits makes trades from a Canadian perspective.

There are also some good books available on microcap stocks and day trading such as:

Mastering Microcaps: Strategies, Trends, and Stock Selection (Bloomberg Professional Library)

The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks

Microcap Magic: Why The Biggest Returns Are In Stocks You've Never Heard Of

How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology

How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology

A Beginner's Guide to Day Trading Online (2nd edition)

Stock Investing for Beginners: Marijuana Stocks


Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:

The dividend stock report from dividendstocksonline.com

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