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Big Merger Highlights 3-D Printing's Potential

12 July 2013 in Trading Ideas

If you’re still a little fuzzy on what 3-D printing is – or about its potential as an investment opportunity – look no further than the news last month that industry leader Stratasys plunked down more than $400 million to acquire a four-year-old startup that expects to generate only $50 million in revenue this year.1

Stratasys said that it expects the new combination will allow it to accelerate its adoption of 3-D printing – technology that lets companies produce objects like toy planes or jet-engine parts – as well as expand its use over multiple industries.

As Michael Hickens noted on WSJ.com after the deal’s announcement, the merger illustrates how quickly the technology is gaining traction among companies and consumers.2 For example, Ford has said 3-D printing has allowed it to save a month of production line time to make certain motor-engine parts, and NASA has said it will ship a 3-D printer to the International Space Station, allowing astronauts to make their own replacement parts rather than waiting for the next rocket from Earth.

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The technology’s future also looks promising. A recent Deloitte Insights article pointed out that while the 3-D printing market currently makes up only about 0.02% of global manufacturing output, a recent poll of industry experts estimated the market opportunity exceeds $21 billion – with some estimates as high as $170 billion.3

Of course, this sort of potential hasn’t been lost on investors, many of whom have been bidding up the prices of 3-D printing stocks. Since late February, Stratasys has seen its shares climb nearly 47%.

That stock also has a 13.6% weighting in our 3D Printing motif, a portfolio of eight stocks of companies that could benefit from future growth in the technology. The motif is up 10.1% in the past month, and has gained 12.3% since its inception in January 2013. During those same timeframes, the S&P 500 is up 3.9% and 14.9%, respectively.

3d printing However, other investors seem to believe that the rise in many 3-D printing stocks has gotten ahead of itself. The 24/7 Wall St. blog noted recently that short interest in many of the sector’s bigger names continues to rise. As of June 28, the short interest in 3D Systems shares (which have a 16% weighting in the 3D Printing motif) rose 7% — nearly 29% of the company’s stock is sold short.4

This could suggest that investors interested in a longer-term investing opportunity in 3-D printing should be prepared for near-term volatility.

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1Spencer E. Ante, “3-D Printing Leader Stratasys to Buy Makerbot,” WSJ.com, June 19, 2013.

2Michael Hickens, “The Morning Download: Acquisition Highlights Disruptive Potential of 3-D Printing,” WSJ.com, June 20, 2013.

3Deloitte Insights, “3D Printing: Data, Data, Everywhere,” WSJ.com, June 25, 2013.

4Paul Ausick, “Short Interest in 3D Printing Stocks Still Rising, 24/7WallSt.com, July 11, 2013, http://247wallst.com/technology-3/2013/07/11/short-interest-in-3d-printing-stocks-still-rising/.