Mad Hedge Technology Letter
March 23, 2022
Fiat Lux
Featured Trade:
(NVDA STRENGTHENING INTO THE FUTURE)
(NVDA)
The growing meaning of the metaverse to Nvidia (NVDA) is something that could strengthen the long-term trajectory for a company that I have loved for years.
It’s really the best of breed in terms of artificial intelligence if you look at it through the lens of a semiconductor.
Nvidia shares have rebounded quickly from the earlier dip and the 19% uptick is something that many investors have come to expect.
The stock is extremely resilient, and investors expect incessant dip-buying.
Nvidia’s strategic importance at the cutting edge of multiple industries makes it hard to discard this company.
Yesterday they had an investor call to showcase their newest product – Omniverse.
NVIDIA Omniverse is an easily extensible, open platform built for virtual collaboration and real-time physically accurate simulation. Creators, designers, researchers, and engineers can connect major design tools, assets, and projects to collaborate and iterate in a shared virtual space.
This product will nudge NVDA headfirst into the omniverse so much so that accelerating revenue projections are already starting to reflect the outperformance of omniverse.
This division is just another notch in the belt for Nvidia who presides over many successful initiatives from gaming, data centers, crypto mining, AI, autonomous vehicles — they all offer significant growth potential for this company.
NVDA could be described as the jack of all trades, master of all.
Let me remind you that regarding the metaverse revenue of the expected growth to Nvidia’s existing market segments, the company could reach $140 billion in annual sales by 2040.
What Is the Metaverse?
The meaning and term “metaverse” has been liberally bandied around lately.
Despite what some companies might want you to believe, it’s not a single entity or platform.
It’s more of a shift toward interacting digitally instead of purely physically. This can include virtual reality (VR), or a mix between digital and physical in the form of augmented reality (AR).
There will be dedicated spaces such as games and virtual worlds, and a digital economy is springing up to serve these communities.
Interoperable digital worlds is the core of metaverse and it will become real very quickly.
When that happens, expect Nvidia to be one of the biggest winners of metaverse economics.
Think of the metaverse today as the early days of the internet to get a visualization of how it is primed to explode in capabilities and importance.
Nvidia’s technology will be an important cog in the metaverse’s future development. The metaverse requires massive server infrastructure to host virtual worlds. Nvidia has leveraged the parallel processing capabilities of its GPUs to become a leader in GPU-accelerated data center solutions. The company’s data center revenue was up 71% year over year in its latest earnings report.
AI will be in high demand for an interactive metaverse experience — another strong point for NVDA.
Making the most of a PC-based metaverse will require the installation of high-powered graphics cards.
The creators who design metaverse experiences and populate them with virtual goods will also need high-powered GPUs and software tools.
Therefore, it makes sense that NVDA is rolling out the omniverse platform to facilitate the construction of the metaverse.
Investors should look forward to NVDA allocating the incremental resource to the metaverse in order to corner the market for its technology.
This is very much one of those situations where if NVDA is a critical element to the start-up phase, they won’t be kicked out of the next phase of development.
Readers should be adding this stock on any tech sell-off, it’s rare that NVDA is on discount.
“I fear the day when the technology overlaps with our humanity. The world will only have a generation of idiots.” – Said German-born Theoretical Physicist Albert Einstein
Global Market Comments
March 23, 2022
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(WHY WARREN BUFFET HATES GOLD),
(GLD), (GDX), (ABX), (GOLD)
Those in the investment business are well used to the Armageddon crowd. These are the guys who are perennially predicting the collapse of the dollar, the default of the US government, hyperinflation, and the end of the world.
Maybe after 11 years of rising, stocks are finally expensive on a relative basis?
Their perennial recommendations are to keep all your assets in gold and silver, store at least a year’s worth of canned food, and keep your untraceable guns well-oiled and supplied with ammo, preferably in high capacity magazines.
If you followed their advice, you lost your shirt.
I have broken many of these wayward acolytes of their money-losing habits. But not all of them. There seems to be an endless supply emanating from the hinterlands.
The “Oracle of Omaha” Warren Buffet often goes to great lengths to explain why he despises the yellow metal.
The sage doesn't really care about the gold, whatever the price. He sees it primarily as a bet on fear. I imagine he feels the same about Bitcoin, the modern tulips of our age.
If investors are more afraid in a year than they are today, then you make money on gold. If they aren't, then you lose money.
The only problem now is that fear ain’t working.
If you took all the gold in the world, it would form a cube 67 feet on all sides, worth $5 trillion. For that same amount of money, you could own other assets with far greater productive earning power, including:
*All the farmland in the US, about 1 billion acres, which is worth $2.5 trillion.
*Two Apple’s (AAPL), the largest capitalized company in the world at $3 trillion.
Instead of producing any income or dividends, gold just sits there and shines, making you feel like King Midas.
I don't know. With the stock market at an all-time high, and oil trading at $70.49/barrel, a bet on fear looks pretty good to me right now.
I'm still sticking with my long-term forecast of the old inflation-adjusted high of $2,300/ounce. But it might be very long term.
It is just a matter of time before emerging market central bank buying pushes it up there. And who knows? Fear might make a comeback too.
Mad Hedge Biotech and Healthcare Letter
March 22, 2022
Fiat Lux
Featured Trade:
(THE 800-POUND GORILLA IN THE GENE-SEQUENCING SECTOR)
(ILMN), (A), (TMO), (MRK), (RHHBY)
I’m a huge fan of the "razor and blades" business strategy, where the pricing and marketing model is designed to generate recurring, dependable income by ensuring that a customer is locked in onto a product or service for a long time.
The COVID-19 pandemic underscored the significance of DNA sequencing in improving and monitoring global health.
Thanks to DNA sequencing, we were able to identify the novel coronavirus and eventually developed vaccines and PCR-based tests. This also played a crucial role in detecting new strains and even transmission tracking.
To date, the top name in the DNA sequencing community is Illumina (ILMN).
In terms of competitors, the closest to Illumina’s dominance are Agilent Technologies (A) and Thermo Fisher Scientific (TMO). However, neither have developed their platforms enough to be directly comparable to Illumina.
Illumina has a notable installed base comprising approximately 20,000 machines owned by roughly 7,300 clients.
With the rising popularity of DNA sequencing, the demand for the company’s installation base is estimated to continue growing and along with it is the sale of consumables.
This is where the razor and blades business model comes in.
The consumables form a major part of Illumina’s strategy, with the instruments serving as “razors” and consumables as “blades.”
The cost of instruments can fall within the range of $20,000 to $1 million and are essential elements of expanding the company’s portfolio and locking in clients into long-term commitments.
Consumables typically represent 50% or more of the revenue of any DNA sequencing company. For Illumina, the number climbs to 80%.
Considering that the consumables also need repairs, this segment is expected to continue generating profits in services and contracts.
Evidently, 80% recurring revenue is highly indicative of a rock-solid business.
While the business model isn’t unique to Illumina, the company has attracted attention in Wall Street due to its exponential growth over the past years.
In the last five years, Illumina has practically doubled its revenue. During the COVID-induced economic slowdown, the company quickly recovered from a brief slump and accelerated its revenue growth at an even faster pace.
In the fourth quarter report for 2021, Illumina reported about $1.9 billion in revenue or an impressive 25% increase year-over-year.
As for 2022, the company is conservatively anticipating a 14% to 16% growth in its revenue.
Another step towards securing dominance in this field is Illumina’s decision to launch the TruSight Oncology Comprehensive test in Europe.
This is basically a cancer test that uses a single tissue sample to test for a broad range of tumor genes and biomarkers.
The goal is to create a “tumor profile” of patients with rare conditions to find a matching treatment option via precision technology. This doesn’t only cover available cancer therapies in the market but also clinical trials.
While this test focuses on the oncology sector, Illumina and its competitors are presumably working on more sophisticated genetic profile-based diagnostic tools for other conditions.
Although this has yet to be launched on a larger scale, Illumina is reported to seek collaborations with leading oncology treatment providers like Merck (MRK), Bayer (BAYN), and Roche (RHHBY).
Illumina has invested in seven new startups to further expand its pipeline: 4SR Biosciences; B4X; Cache DNA; CRISP-HR Therapeutics; NonExomics; Purpose Health; and Rethink Bio.
These focus on breakthrough therapies, DNA storage, mental wellness, sustainable food, and diagnostics.
Illumina has invested in 68 startups to date. This is a brilliant scheme to continue company growth and pipeline expansion for decades.
The DNA sequencing market was valued at $6.243 million in 2017 and is projected to hit $25.470 million by 2025.
Illumina’s remarkable execution of the razor and blades model, strong profit margins, and proactive profitability initiatives catapulted it to the top of the DNA sequencing sector.
Needless to say, Illumina is the 800-pound gorilla in the gene-sequencing sector—a dominance that is expected to go on for years.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Mad Hedge Bitcoin Letter
March 22, 2022
Fiat Lux
Featured Trade:
(GOLDMAN INCHES INTO CRYPTO)
(BTC), (GS), (OTC)
When it rains, it pours.
That will be the transformational effect if institutional money finally comes on board the crypto train.
They are still poking around the edges and sniffing it to see if it is something they really want to get into.
Don’t forget that many of these institutions are beholden by a rigid set of regulations that they must adhere to and joining the wild west of crypto is for some, a step too far.
There is no doubt in my mind that the industry of money is barreling towards a digitized and decentralized version of it and many of these institutions don’t want to be left behind.
It’s bad enough they didn’t participate in the meteoric rise of Bitcoin (BTC) from almost zero to above $60,000 almost as if a portfolio manager missed a 10-year bull market.
But inroads are being made nonetheless and one of the preeminent investment banks, Goldman Sachs, took a giant leap forward toward the possible wide adoption of bitcoin among institutional investors, such as hedge and pension funds.
A step that will comfort some big investors, many of whom are still on the fence to invest in cryptocurrencies and in particular in bitcoin, the first digital currency in terms of market share.
Goldman Sachs (GS) executed its first over-the-counter (OTC) crypto options trade.
The firm traded a bitcoin-linked instrument called a non-deliverable bitcoin option (NDO), which is a derivative tied to bitcoin’s price that pays out in cash.
Options are used by crypto investors to hedge risks or boost yields, and over-the-counter transactions are larger trades negotiated privately.
This transaction gets GS closer to the crypto industry with regards to having skin in the game.
At the very least, they recognize there is something there and a major revenue opportunity if they do this the right way.
This marks the first OTC crypto transaction by a major bank in the U.S., and as GS continues expanding its cryptocurrency offerings, demonstrating the continued maturation and adoption of digital assets by banking institutions.
Is Bitcoin legit?
This move is an important step in the development of the crypto market for large investors because OTCs mean that Goldman Sachs will act as a principal in the transaction.
Goldman Sachs' involvement also sends a signal to mainstream investors that cryptocurrency-related assets have matured.
We are pleased to continue to strengthen our relationship with Goldman and expect the transaction to open the door for other banks considering OTC as a conduit for trading digital assets.
The concern that offering financial services related to cryptocurrencies might increase that burden of regulation is substantial.
But the change is also a cultural switch.
Legacy banks cringe that there is still too much uncertainty surrounding the regulation of the crypto industry.
However, there have been notable changes in recent months.
Famous investors like Ray Dalio and Bill Gross have thrown their support behind cryptocurrencies, a sign that the lines are moving at hedge funds, which bodes well for bitcoin.
GS is also offering exchange-listed options and futures trading in bitcoin and ethereum.
This is the first step of a bigger pivot to crypto as GS and other banks plan to build businesses out of it.
It is yet to be determined whether they push aggressively into it, but my hunch is that they move incrementally reflecting the extreme uncertainty of the rules of the road.
Intent is one thing, and it is true that development will take time to materialize, but a development of digital currencies doesn’t take place in one day.
Either way, this is another victory in the long-term prospects of Bitcoin and crypto.
