• Should our smartphones be “quantum resistant”?
  • Apple’s not the only company impacted by COVID-19
  • What Trump’s second term means for technology stocks

Dear Reader,

Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.

If you have a question you’d like answered next week, be sure you submit it right here.

Can a quantum computer hack an iPhone?

Hi, Jeff. This is a follow-up question on when to purchase a 5G phone. I have bought my last Android phone; I am an Apple girl from here on out. You’ve spoken a lot on the security risks that are coming with the new quantum computing power that is on the rise. I’m guessing our 256-bit encryption will shortly be very obsolete. Do you know if Apple is working behind the scenes on new encryption tech to protect our data? If so, can you share it? Thanks for being a total rock star.

– Kelly K.

Thanks for writing in, Kelly. And thank you for being a reader. Happy to have you on board.

For readers who missed it, in a recent mailbag edition, we discussed the best time to buy a 5G-enabled phone.

My advice was to hold off for now and to purchase a newer model this fall when the new 5G-enabled iPhone is released. Some current models also use modems that won’t be able to make full use of the 5G networks when they are fully built out.

And I have a strong preference for Apple iPhones. As a company, Apple places a heavy emphasis on user privacy and security. Android’s operating system (OS), on the other hand, actively collects user data and uses it to target us with ads. For a recap, readers can go here.

But to your question, Kelly, could a quantum computer hack the encryption on a device like an iPhone?

Your guess is spot on. The 256-bit encryption used on all our phones will be obsolete – or not secure – in the near future.

I have no idea if Apple is working on a new form of encryption, but that is less relevant.

Why? Because if Apple designed something specific, it could only be used by Apple iPhones. That means there would be issues if, for example, an Apple iPhone user wanted to send an email to a friend with an Android OS device.

The 256-bit public key encryption is a standard that is pretty much used by everyone. Because it is a standard, consumers can use this secure technology seamlessly. It all happens in the background.

The National Institute of Standards and Technology (NIST) in the U.S. has been actively working on a new standard for quantum-resistant public key cryptography.

To NIST’s credit, it started this process back in 2016, well in advance of the moment of quantum supremacy we reached last September.

And there are academic institutions, corporations, nonprofit research organizations, and many others contributing to this process of figuring out what the next form of public key cryptography will be.

I’m on record saying that we will see the first 256-qubit quantum computer in 2020. So time is short.

That doesn’t mean that these 256-qubit quantum computers will be everywhere – they won’t be – but it does mean that the world needs to develop a quantum-resistant standard much sooner than expected.

And as a final note, I had the opportunity to experiment with IBM’s quantum computer during a professional training course at MIT earlier this month. I was actually able to write and run some very basic programs on the cloud-based quantum computer.

I’m devoted to keeping readers up to date on this trend, whatever it takes. I’ll be spending much more time this year with MIT because the developments in quantum computing are happening so quickly.

Expect to hear more about quantum computing in the months and years ahead.

What COVID-19 means for Apple’s suppliers…

Hi Jeff, Thanks for your great advice so far. I am in the green thanks to you, and I carefully study every word in The Bleeding Edge… I know that you are long and strong on [one of your recommendations].

While it and AAPL dodged a bullet on the tariffs and have gotten another break on the reversal by the Pentagon regarding shipments from foreign locations to Huawei, the coronavirus may be putting an economic malaise on the entire country. It goes without saying that China is a critical component of the global economy and especially so regarding matters of technology.

How do you see this playing out for those of us looking to add to our positions? Thanks to you, I am already 50% up and grateful while looking to add more.

– Jim S.

Hi, Jim. I’m happy to hear you’re profiting from my research products.

And you’re doing the right thing by reading The Bleeding Edge. That’s the best way for my subscribers to stay up on the latest technology trends driving many of our investment recommendations. It is my outlet for keeping in touch with my readers daily.

Out of respect for paid-up readers to my large-cap research service, The Near Future Report, I’ve omitted the name of the specific company in question. But suffice to say, the company supplies an essential component that will be used in Apple’s 5G iPhone. (For readers who’d like to join me in The Near Future Report – and see my No. 1 5G stock for 2020 – go here.)

And as I’ve been covering extensively in these pages, COVID-19 (the Wuhan coronavirus) is already having a material impact on technology companies.

Earlier this week, Apple reduced sales expectations for the first quarter as a direct result of COVID-19. The company will not hit the revenue guidance – between $63 billion and $67 billion – that it projected back in January.

Specifically, Apple announced that it is “experienc[ing] a slower return to normal conditions than anticipated.”

And this news is certainly having an impact on companies that draw a significant portion of their revenue from Apple. As an example, Cirrus (CRUS), Broadcom (AVGO), and NXP Semiconductors (NXP) are all down between 2% and 4% since Apple’s announcement.

Yet the negative impact on both Apple’s and its suppliers’ share prices just hasn’t been as significant as it could have been. In fact, it has been remarkably small, even considering revised earnings estimates that all industries seem to be releasing daily now.

The U.S. equity markets have been remarkably robust. What does give me optimism is that the number of COVID-19 cases is no longer growing exponentially. The growth has slowed significantly. If this trend continues, we can expect the markets to remain strong this year.

If we see exponential growth in COVID-19 in other key manufacturing markets in Asia, then that will be a different story.

And as you pointed out, Jim, we’re already up more than 50% with this one position. Even with the slowdown from this virus, we’re still on the verge of the largest smartphone replacement cycle in history. Consumers will upgrade in droves in order to get access to a 5G-enabled phone later this year.

Jim, as you probably know, I can’t give personalized investment advice. I simply provide research. How much an investor allocates to each position is a very personal choice.

But what I will say is that I’ll always notify readers if our long-term thesis on a position has changed. That isn’t the case here.

Welcome to the American golden age…

Jeff, we are currently in a very long bull market. A recession is possible in the next year or two, especially after the election… How will a recession affect your strategy? Should we get out and wait for your signal to buy back in?

I believe many subscribers will have this in the back of their minds. It would be good for all if you address it so we can plan accordingly. Thank you. And thank you for what you are doing. Few knowledgeable people explain stuff to others.

– Giulio P.

Thanks for the question, Giulio. This is a common concern among readers. The feeling is that the current bull market in U.S. stocks is “long in the tooth” and that we’re therefore overdue for a market crash and a recession.

Yes, eventually there will be another economic recession and a downturn for U.S. stocks. But I don’t believe that time is soon.

While I’m constantly monitoring events like COVID-19, which may impact short-term revenue for some U.S. companies, my longer-term projection for the economy and the U.S. stock market is much higher.

And if my view ever changes on that, I will definitely adjust my strategy for my investment research products. Consumption trends do change in recessions.

But the great thing about investing in technology is that if a tech company has a fantastic product or service that helps companies and consumers save money and become more efficient, that product always sells well… even in a recession.

Giulio, it’s interesting that you suggest that a slowdown might occur after the November elections. I have the complete opposite view.

I believe the economic policies pursued by the current presidential administration have helped usher in a time of great economic prosperity.

Broadly, the policies I’m referring to are…

  1. Lowering corporate and middle-income taxes

  2. Rolling back regulation to bolster new business creation

  3. Reinvesting in American manufacturing

  4. Renegotiating unfair trade practices between America and its trading partners

To be clear, this is not a political statement. I’m simply presenting my analysis.

And based on what I’m seeing, the current policies pursued by the Trump administration have been a great boon to the U.S. economy and the stock market. And I believe this will only continue after the November elections.

The president will have even more support to continue the policies that have made this economic boom possible.

Late last year, I predicted that the president would win reelection by an even wider margin than he did in 2016. I also predict that Republicans will retain the Senate and win the House.

After consolidating power in the Legislative and the Executive Branches, the White House will be free to continue to pursue policies that benefit the American economy.

Specifically, I predict the president will make one important move as soon as he’s sworn in for a second term. And this action could ignite a handful of technology stocks.

Couple that with the exponential growth we’re witnessing with technologies like artificial intelligence… 5G… and genetic editing, and I believe we’re on the cusp of a truly prosperous era in American history. I’ve referred to this as the new “American golden age.”

I know some readers might be skeptical. But I recently put together a video presentation with all my findings. I’ll show you the one move that I predict the president will take during his second term – and the impact it will have on technology markets – right here.

That’s all the time we have this week. If you’d like me to answer a question, be sure you submit it here. I’ll do my best to tackle it next week.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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