Industry Catalyst Gives Desktop Metal Enormous Potential

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Editor’s note: “Industry Catalyst Gives Desktop Metal Enormous Potential” was previously published in November 2022. It has since been updated to include the most relevant information available.

When it comes to 3D printing leader Desktop Metal (DM), it’s all about the Fourth Industrial Revolution. That is, the company has been at the epicenter of a seismic shift in how factories and manufacturing plants across the globe operate.

And today we learned that Stratasys (SSYS), which manufactures 3D printers and software, is set to acquire DM in an all-stock deal valued at $1.8 billion.

Indeed, according to TipRanks, “The combined company is expected to generate $1.1 billion in terms of revenues by 2025, ‘with significant upside potential in a total addressable market of more than $100 billion by 2032,’ while the adjusted EBITDA margin is likely to be between 10% and 12% in 2025.”

And this acquisition is primed to occur in the midst of a powerful industrial shift, the likes of which only happen about once a century.

When they do, they unlock significant economic value. And the companies at their center go from niche afterthought one year to titan of industry the next.

The Fourth Industrial Revolution will sweep across the globe over the next few years. And DM stock is poised to rocket as a result. That’s why we think it makes an incredible buyout target.

But… Fourth Industrial Revolution? 3D printing? Desktop Metal? How does it all fit together?

Let’s take a deeper look.

The Fourth Industrial Revolution

Technology isn’t stagnant. It’s ever-evolving.

Throughout history, we’ve seen that when technology evolves particularly fast, the world undergoes a mass transformation. Historians call them “Industrial Revolutions.”

The First Industrial Revolution happened about 260 years ago in the late 1700s. Humans learned how to harness the power of steam to begin mechanizing the world.

About a century later, the Second Industrial Revolution began. Humans learned about electricity, gas and oil. And they leveraged this newfound knowledge to unlock a novel era of transportation and mass production.

Then, another century thereafter, the Third Industrial Revolution began. And digital machines like computers, cellphones, and TVs emerged, forever changing how the world operates.

Each time one of these Industrial Revolutions happens, the world changes — forever. Old technologies fall by the wayside, and new ones become ubiquitous and help define a better, more efficient future.

Right now, we are in the midst of a Fourth Industrial Revolution.

It’s a world-changing shift toward automated, hyper-connected, hyper-efficient and – in some cases – decentralized factories. And it’s all being enabled by breakthrough advancements in Big Data, IoT, cloud computing, and robotics.

We are going from a few big, human-powered factories today, to many smaller, AI-driven factories tomorrow.

Much like previous Industrial Revolutions, this shift toward Industry 4.0 will spark enormous disruption across the world’s supply chain.

And where there’s disruption, there’s opportunity. This opportunity is what makes DM stock such an attractive buyout target.

The Rising Importance of 3D Printing

But before we dive into DM stock, we need to first discuss the important role that 3D printing will play in the Fourth Industrial Revolution.

Back in 2013, 3D printing (or “additive manufacturing,” as industry insiders like to call it; “AM” for short) was a novel concept. Many futurists predicted it would take over the world as everyone turned their homes into “mini-factories.”

Of course, that didn’t happen.

The reality is that additive manufacturing is a complex, costly, laborious, and time-consuming process. And most consumers have no use for it in their homes.

But over the past few years, additive manufacturing has emerged as a core technology of Industry 4.0.

Since their 2013 debut, industrial AM machines have made huge advancements in cost, speed, and ability. They are now capable of quickly and cost-effectively mass-producing metal end-use parts on the factory floor.

These advancements have come at the same time that Industry 4.0 has raised the standard for customization and automation in the world’s supply chains – two things which AM is particularly good at…

The result? Increasingly more manufacturers across the globe will revamp their assembly lines over the next few years to include metal AM machines for mass-producing specialty and custom parts.

Insiders are calling this the emergence of the Additive Manufacturing 2.0 era. And it’s expected to grow the AM market by more than 1,000%, from $12 billion today to nearly $150 billion by the end of the decade.

The Industrial AM Leader

At the forefront of this breakthrough in industrial AM is Desktop Metal.

In short, Desktop Metal makes advanced metal AM machines for use across manufacturing supply chains, all the way from rapid prototyping to mass-scale, factory-floor production.

For various reasons, the company represents the market’s best play on the industrial AM boom.

To start, the company has the right roots.

Desktop Metal was founded in late 2015 by a bunch of genius MIT professors and well-respected 3D industry veterans. Indeed, it’s the brain-child of some of the most capable people in this space. Kleiner Perkins – the venture capital firm that backed Amazon (AMZN) and Google in their early days – is also one of Desktop Metal’s earliest and largest investors.

Thanks to this confluence of unrivaled talent, Desktop Metal has created and patented a breakthrough technological process in industrial AM called “single-pass jetting.”

The nuts and bolts here are complex. (At a high level, AM machines build objects layer by layer. And while most printers have to go over a single layer multiple times before it’s finished, Desktop’s printers only have to do a “single pass.”)

But the result is simple: Desktop Metal’s printers are the fastest in the industry – by a long shot.

Desktop Metal’s Industrial Prowess

And faster means lower costs. One DM printer can print as many end-use products in one day as three or four traditional 3D printers.

In addition, Desktop Metal has secured a global distribution network of over 200 partners across 65 countries. And it created a SaaS offering to complement its printers (thereby setting up a highly profitable, recurring software business model on top of its hardware AM business).

Talented team. Experienced backers. Breakthrough technology. Best economics. Global distribution. Compelling business model.

From head to toe, Desktop Metal is the best-in-breed player in a market that’s set to soar by more than 1,000% over the next decade.

Desktop Metal Stock Is a Big Winner

Sound like a recipe for big gains?

It is.

My numbers indicate that Desktop Metal has visibility to grow from about $183 million in revenues today to well over $5 billion in revenues by 2030 as AM machines start to become commonplace across the world’s assembly lines.

Operating margins should scale to north of 35%. That’s because Desktop Metal’s single-jet passing tech should give the company tremendous pricing power. And its complementary software business is exceptionally high-margin and will comprise a bigger and bigger piece of the revenue pie over time.

Combining those two assumptions, I see Desktop Metal netting profits just north of $2 billion by 2030. Based on a 20X multiple, that implies a long-term valuation target of $40 billion.

At its current price, the company is worth about $577 million.

Thus, Desktop Metal stock has some major upside potential over the next decade.

Bottom Line for Desktop Metal Stock

Desktop Metal stock is a solid bet on the increased usage of industrial AM machines on factory floors. Its talented team, breakthrough technology, strong economics, global distribution network, and compelling business model make it highly attractive as a buyout target.

And prescient investors could rake in some nice profits as a result.

P.S. Speaking of multi-bagger gains, I like to say that where there’s disruption, there’s opportunity. And there’s a massive opportunity happening right before our eyes.

Remember how Jeff Bezos looked at the state of the retail market and created Amazon.com in response? Yes, this opportunity is that huge.

As you know, I don’t make stock picks on a whim. I spend countless hours analyzing them, creating models, and measuring their long-term potential.

So believe me when I tell you that there’s a stock out there that could very well become “the next Amazon.”

And the current market environment is offering an incredible buying opportunity.

Take advantage ahead of monster future gains.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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