Years ago, I bought shares of 3D Systems (DDD -0.86%). My investment did not pan out. I should have seen the warning signs. While it was easy to see the potential upside in a radical shift in manufacturing (an "important and emerging industry"), I was unable to find a top dog and first-mover company.
I felt the strongest pure-play was 3D, and their plant was nearby, so I made a small investment in the company. After several years, I took the loss and gave up on it.
Now I believe I have identified the top dog and first mover in additive manufacturing. I'm excited about Velo3D (VLD -2.29%). Here's why I think that additive manufacturing is about to soar far higher, and why Velo3D will lead the way.
Image source: Getty Images.
What is additive manufacturing?
3D manufacturing has been renamed additive manufacturing, or AM. The idea is that you are manufacturing something from nothing ("adding"), as opposed to subtractive manufacturing, where you create something by chipping away at a block of metal, plastic, or other material. Companies like Stratasys (SSYS -0.20%) with its MakerBot competed with 3D Systems in the public markets. And while noise was made, the stocks underperformed.
These stocks focused on the little-guy manufacturers, the entrepreneurs with garage space who want to create things. And that might still pan out, of course. But I gave up on that idea.
What's exciting me now is the use of AM in the high end, with the creation of very expensive parts for large-cap companies. For instance, rocket engines. It would be amazing if an aerospace company could simply print out a rocket engine. Imagine the money that could be saved, and how much faster the manufacturing process would be. AM promises to be faster and cheaper than traditional manufacturing.
So now we have companies that are competing in that segment as well, like Desktop Metal (DM -2.34%), Markforged (MKFG), and the soon-to-be-top-dog (I hope), Velo3D. All three of these stocks have had a very rocky 2022.
But Velo3D is seeing amazing revenue growth and has a super-bright future. And there's a reason for that.
What was the problem with early AM?
There are two major problems with the 3D printing companies up to now. The first major problem that manufacturing companies saw was that after the part was designed, it would break down over time, also known as breakage. So if you wanted to 3D print a new part, you had to add supports to the part so that you could avoid part failure.
The other problem with the 3D printers is that you often had to redesign the part so the machine could create it. You have a part, you want to 3D print it because that's cheaper, and now you have to spend time redesigning the part for the machine. That's not cheap (or quick). So the manufacturing industry has been a little annoyed with these 3D printing companies that say they're going to change the world. It hasn't happened yet.
Velo3D came up with a solution to both of those problems: a 3D laser printer that does not have any breakage. And you can use your existing designs to print the part. That was the company's sales pitch to Elon Musk. And Musk, who is very open-minded, decided to try the machine out.
After testing, the head of additive manufacturing at SpaceX opined that the technology is five years ahead of everybody else. Musk was so excited that he tried to buy the company last year.
The founder/CEO, Benny Buller, did not want to sell. He founded this company, and it's his life dream. But Musk wanted to buy all the machines he had -- and the future machines, too. So SpaceX became a strategic investor. The company bought a bunch of the printers and preordered advance copies of the next generation of the printers (bigger ones). SpaceX wants to go to Mars, and they have to build rockets. They would love to laser-print as much as they can to save costs.
I am bullish on 3D printers, particularly if the machines work as advertised
I am not an engineer, so I cannot really judge the technology. But right now, demand is through the roof, even in this negative and ugly market. (While coming off a tiny base, sales are up 160% from a year ago). So Velo3D is one of my more bullish ideas.
My family started buying Velo3D stock in July and August, adding small positions over a couple of months. This is only a move for the risk-tolerant, as Velo3D isn't profitable and the company is still burning a lot of cash. The company finished Q2 with $142 million in cash, after burning through $44 million in three months.
If 3D manufacturing pans out, this is a massive opportunity over the next 20 to 30 years (and far longer than that, actually). And the CEO says his company will take market share from rivals and climb out into top dog status. I believe him, and I trust Musk's engineering judgment. So my money is here.
