Mad Hedge Technology Letter
September 29, 2023
Fiat Lux
Featured Trade:
(WHAT TO DO ABOUT MICRON)
(MU), (SAMSUNG), (SK HYNIX), (SOXX)
The chip maker Micron Technology (MU) fell 5% yesterday, but the stock is amazingly up 4% today.
The see-saw moves are a feature of this strategically important stock to the tech ecosystem and not just a symptom of it.
The stock is highly volatile which is emblematic of a stock that needs to constantly navigate around unstable geopolitics.
The stock's latest whipsaw action stems from the company predicting a steeper loss than anticipated in the current quarter, indicating that an industry slowdown is still weighing on the largest US maker of memory
For chip companies (SOXX), Samsung Electronics Co., and SK Hynix Inc., 2023 has been a crushing time after the glory period of the healthcare lockdown years.
September has been a month where we are experiencing weakening fundamentals as the US consumer is truly stretched.
Customers in big US markets for personal computers and smartphones have slashed orders as they cope with lackluster demand and stockpiles of excess parts.
Many are continuing to dive deeper into debt to make ends meet and that trend will not go away as the US middle class shrinks further as they grapple with soaring inflation.
The lack of consumer strength will mean it will take longer for Micron to return to profits.
Prices for Micron’s products are going up, and the rate of the price jump is increasing and we can probably say that about prices in most industries.
Sales have fallen for five straight quarters. In the three months ended in August, Micron’s revenue declined 40% to $4.01 billion.
The forecast suggests sales will begin to grow again in the fiscal first quarter, which runs through November.
Beijing has proved a thorn in Micron’s side.
This negative headwind has already cut into the US company’s revenue in China — the largest market for semiconductors — in what management has previously called a “significant headwind.”
The outlook remains mixed in the short term. In traditional servers — the computers that are still the mainstay of most data centers — demand remains tepid at best.
Both personal computers and smartphones will return to growth next year, with units increasing by a percentage in the low- to mid-single digits.
To cope with the slowdown, Micron and its peers reined in production, severely reducing supply and helping prices bottom out.
Micron will be demonstrably below peak 2022 output for the foreseeable future. The company plans to continue to run factories at less than full capacity well into calendar 2024. Micron also will further reduce spending on new equipment next year.
These are bad signs in the short term, but the strategic importance of MU puts a solid bid under the stock price.
I wholeheartedly expect the industry outlook to brighten considerably by 2025 — especially as artificial intelligence systems demand new types of more expensive memory chips.
Therefore, every big dip is a buying opportunity in Micron because this stock is resilient.
Luckily, big dips are common in MU and readers should be patient to wait for optimal entry points.
This is a good one to buy and hold for the long term.
“It’s OK to have your eggs in one basket as long as you control what happens to that basket.” – Said Owner of X Elon Musk
(MSFT), (GOOGL), (AMZN)
The artificial intelligence (AI) sector, currently valued at a whopping $137 billion, is poised to skyrocket, with projections showing a compound annual growth rate of 37% all the way through 2030.
This technological marvel is making waves across diverse industries, including manufacturing, healthcare, consumer products, and education, to name a few. It’s no wonder tech behemoths are scrambling to secure their foothold in this lucrative sector, innovating relentlessly to cater to the escalating demand for AI services.
While Nvidia (NVDA) has been stealing the limelight in the AI arena this year, the real goldmine might just be investing in the software giants crafting these revolutionary products.
Enter Microsoft (MSFT), a titan in the tech world, meticulously infusing AI enhancements across its renowned software array, including household names like Windows and Office. Given all its efforts over the past months, one thing is clear: Microsoft is on a mission to bring AI to the fingertips of millions, and it’s just getting warmed up.
Before delving into this, it’s time for a reality check.
The truth is, aside from Nvidia, the tech sector, particularly enterprise AI software, hasn’t really felt the AI adrenaline rush. While Microsoft is dreaming big with AI, it’s still a waiting game for investors to see the digits roll in.
By investing $1 billion in OpenAI in 2019 and adding another $10 billion this year, Microsoft has made a bold and strategic move that has firmly established its presence in the AI industry. With a 49% stake in the start-up, the tech titan has secured access to some of the most advanced AI technologies available.
Integrating OpenAI’s AI models into Microsoft’s widely-used services like Word, Excel, Azure, and Bing is just the tip of the iceberg. Microsoft is also on a quest to redefine productivity, with plans to unveil a plethora of AI tools on its subscription-based platform, Microsoft 365, which has already witnessed a 12% operating income growth in fiscal 2023.
But that’s not all. Microsoft’s cloud service, Azure, is making waves in the business sector, standing as the second-largest cloud market share holder after Amazon Web Services (AMZN). It’s the gateway for companies to access ChatGPT, and Microsoft is solidifying its AI stronghold, showing no signs of hitting the brakes.
Come November 1, Microsoft 365 Copilot will be launched for enterprise customers at $30 per month. J.P. Morgan analysts predict a 12- to 36-month adoption ramp period as enterprises meticulously test before full-scale adoption.
This AI functionality of Copilot would mean corporations shelling out millions more, with an employee costing $782 annually to include Copilot, compared to $432 for Office 365 alone.
Microsoft is also delving into generative AI functions within Bing Search. Still, with only an 8% increase in Search revenues for the July quarter, it seems Google, owned by Alphabet (GOOG, GOOGL), remains the search sovereign.
In terms of revenue, Microsoft reported $56.2 billion for FQ4, marking an 8% increase. So to truly make a splash, AI Copilot needs to rake in billions annually.
Although it sounds impossible, this goal is actually reachable. Even if only a measly 10% of Office customers embrace the new feature, Microsoft could already rake in $14 billion in sales boost, with a potential $100 billion of incremental revenue by 2027.
While tech stocks are often seen as volatile, Microsoft stands out as a symbol of reliability, with a sales footprint exceeding $200 billion in its most recent fiscal year, deriving from diverse revenue streams. The company has managed to keep overall sales on an upward trajectory, with a recent quarter revenue up by 8% and operating income at $24.3 billion, accounting for over 43% of sales.
Its alliance with OpenAI also ensures that it remains a formidable player in the AI arena, with its expansive market share in cloud computing amplifying its prospects. The integration of AI in Microsoft 365's Office suite could be a game-changer, potentially skyrocketing earnings. The potential upside from AI products makes Microsoft a compelling consideration for investors, especially given the current market weakness.
In a nutshell, Microsoft’s strategic moves in AI and its unwavering dominance in productivity services make it a noteworthy contender in the ongoing AI revolution. For investors, it’s time to keep a keen eye on this tech leader. After all, the AI wave is undeniably here, and Microsoft is riding it with finesse.
(THE GLOBAL FINANCIAL SYSTEM COULD BE REVOLUTIONIZED WITHIN THE NEXT DECADE)
September 29, 2023
Hello everyone,
In the NYSE investors make upwards of 1 billion trades per day. Many of those trades appear to happen in milliseconds, except when you investigate further, that’s not the reality.
Trades on Wall Street take days to settle and lots of people to make them happen. Take market makers, for example. They are the middlemen handling all those trades on Wall Street and the top 5% of market makers handle nearly 30% of all trades. The fact is these intermediaries help with volatility, but they create a gap between buyers and sellers in the markets and there are a lot of gaps in the financial system (which are beyond our control.)
Have you ever noticed how long some bank transfers take?
Some of the big banks think they may have a solution. JP Morgan, Citibank, and Goldman Sachs want to push the financial system into the next generation, and to do that they need to borrow a tool from crypto – blockchain. Presently all large-scale global financial infrastructure is highly warehoused or functions through different silos. In other words, money moves on one set of rails, assets move on a different set of rails. They operate independently and information cannot be shared because of system limitations.
But being able to move money 24/7 365 is what we are moving towards.
These banks believe it could become a 5 trillion-dollar industry. In other words, we could see 5 trillion in combined tokenized asset-trading volume by 2030.
Why do these big banks think blockchain can turbo-charge the financial system?
Wall Street still operates in T+2. Trade + two days. That’s how long it takes for the standard securities settlement – for cash and assets to change hands. So, for instance, if you sell some stock on Tuesday, the cash won’t hit your bank until Friday.
Electronic trading and modern payment processing have accelerated the global financial system to move assets much faster. You don’t have to be an investment banker to feel the lag in the financial system. ACH transfers, credit card refunds, all kinds of money that move in our economy take time to go from one person to another. Part of the slowness is how many steps and people are involved. On Wall Street, for example, brokers help set up a transaction and they can charge a commission. Then market makers connect brokers to the assets they are trying to buy or sell. They charge a fee too on the difference or spread of the asking price of an asset and what someone is willing to pay. Very large transactions will need to go through even more steps for security and fraud prevention.
Some big banks are hoping that tokenization on blockchains can streamline the process of trading assets and maybe make it cheaper. It would revolutionize and rewrite financial market infrastructure.
To understand how tokenization works, we need to talk about ownership in the digital era. Right now, it’s hard to transfer ownership of real-world items over the web.
We all know that you can buy a car through an online marketplace, but the title that proves your ownership of this car only arrives in the mail a few weeks later. Inefficient in the modern world, wouldn’t you say? In the hope of bringing ownership online, developers are creating tokens that represent real-world items. You can do this with any kind of asset: stocks, bonds, a token that could represent ownership of a building or a car. Banks backing this believe that it may create new investments altogether and that’s why they are putting their money behind it. For example, JPMorgan has Onyx, a blockchain platform they launched in 2020. In the short time since then, it’s handled 700 billion in short-term loans through its private blockchain. JPMorgan describes it as a “killer app” for the future of finance. Larry Fink, the CEO of BlackRock called digital asset innovation and tokenization the next generation for markets.
A blockchain is basically a database of all the transactions. There are many copies of the database which helps to keep it secure. Each block is cryptographically signed so that any tampering is immediately evident. Additionally, you have a consensus mechanism to control how you update that database.
If technology provides you with the capability to use one rail line to transfer value, assets, and information, a lot of the inefficiencies and friction that exist in the regular financial infrastructure start to disappear.
Blockchains are meant to be transparent, cutting down the need for intermediaries that could charge fees or the need for extra due diligence. Proponents say it could enable P2P transactions across many parts of the economy.
In addition, this technology would allow for brand new forms of ownership, like splitting, fractionalizing ownership of property through real estate tokens, or tokenized deposits in bank accounts to allow for quick transfer of money between people using P2P transactions.
The IMF said in February that tokenising stocks and bonds could cut trading costs but requires the money paying for those assets to be tokenised as well, which would lead banks to make tokenised cheque accounts for faster payments.
The global financial system is one of the most regulated systems in the world and making any changes will be slow going. There will be a gradual movement forward in small steps.
Citibank has recently introduced Citi Token Services, which is a new blockchain-based service that will transform how institutional clients deposit and trade assets. In the evolving world of blockchains, and smart contracts, Citibank has enhanced its products and services, including digital money, trade, securities, custody, asset servicing, and collateral mobility.
Quick market update:
Thank you to all those people who attended my monthly meeting on Wednesday evening. I hope you got something out of it.
I have been studying chart patterns today, so I am providing here an update on the Nasdaq and S&P. By no means is this move confirmed yet, but it is a possibility and so I wanted to make you aware.
We know that the U.S. stock market has sold off this week, and I have to say it has absorbed higher yields and a strong U.S. dollar very well, and with market sentiment moving from bullish to bearish, an upside movement is not out of the question. You can see above a flag pattern is clearly visible, and from an Elliott Wave perspective, it is possible to interpret the completion of a 4th Wave correction, which could see an advance onto a Wave 5 high for the year and a run at the 4,819 peak of January 2022. (See chart below). The market has a lot to prove before we take any rally seriously. A close above 4,345 would certainly help to bring some credibility to a rally as it would invalidate the classical charting Head and Shoulders pattern which “over-hangs” the market.
Joining three points at the base of this flag pattern on the weekly Nasdaq chart may indicate that we have the possibility of a rally ahead of us, and we could see a move towards 16,000 in the next weeks/months. But, as I said above, the market has “all to prove” for this bullish scenario.
Wishing you all a wonderful weekend.
Cheers,
Jacquie
Global Market Comments
September 29, 2023
Fiat Lux
Featured Trade:
(I HAVE A NEW OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE),
(TESTIMONIAL),
(RIGHT SIZING YOUR TRADING)
Our latest performance run for the ages has delivered unintended consequences once again.
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I seem to have a recurring problem.
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No surprise with my eye-popping 2023 performance now at an eye-popping +46.38%.
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The goal is to provide high net worth individuals with the extra degree of assistance they may require in managing diversified portfolios. Tax, political, and economic issues will all be covered.
It is also the ideal service for the small and medium-sized hedge fund that lacks the resources to support their own in-house global strategist full time.
The service includes the following:
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To subscribe to Mad Hedge Fund Trader Concierge Service, please email Filomena at customer support at support@madhedgefundtrader.com. Please put “Concierge Candidate” in the subject line.
I look forward to hearing from you.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Biotech and Healthcare Letter
September 28, 2023
Fiat Lux
Featured Trade:
(TIPPING THE SCALES)
(NVO), (LLY), (PODD), (TNDM), (DXCM), (RMD), (INSP), (MDGL), (ISRG), (AKRO), (ETNB)
The pharmaceutical world is buzzing, and it’s all thanks to the groundbreaking obesity drugs from Novo Nordisk (NVO) and Eli Lilly (LLY). In my previous newsletter, I delved into the massive potential of these new treatments, and it sparked a flurry of discussions. So, this time, I want to peel back the layers and explore how these advancements affect other companies within the same market.
After all, their emergence creates a paradoxical narrative, a dance of shadows and lumens. These drugs, renowned as the modern panacea for the obesity crisis, have catapulted the companies behind them into unprecedented valuations, making them luminaries in a market awash with investors hungry for the next big thing.
The enthusiasm surrounding these drugs is not unfounded; they are pivotal in treating type 2 diabetes and are seen as the desperately needed solution to the widespread obesity crisis. The groundbreaking medications introduced by Novo Nordisk and Lilly are enabling individuals to lose approximately 15% to 20% of their body weight, with Wall Street anticipating the combined annual sales of these revolutionary drugs to surpass $40 billion by the close of this decade.
However, the shadows of GLP-1s cast a contrasting pallor on companies that burgeoned in tandem with America’s expanding waistlines.
Firms like Insulet (PODD) and Tandem Diabetes Care (TNDM) are witnessing a decline of 40% and 50% in their values this year, respectively.
Similarly, DexCom (DXCM), the frontrunner in glucose monitoring, has experienced a 16% dip, and ResMed (RMD), the stalwart in CPAP machines treating sleep apnea, has seen its stock plummet by 30%. Inspire Medical Systems (INSP) and Madrigal Pharmaceuticals (MDGL) have also encountered significant drops in their shares.
These companies, once the darlings of the medical stock market due to their escalating sales growth, are now facing the brunt of a shifting investor focus. This is because the investment community is envisioning a future with a reduced prevalence of diabetes and sleep apnea and is consequently retracting their stakes in these stocks, leaving companies and investors navigating through a sea of uncertainties.
By early spring, the potential impact of widespread GLP-1 usage became the focal point of strategic discussions at numerous hedge funds. That led to a shift as some started withdrawing from stocks like DexCom and Madrigal, subsequently opting to short-sell these shares. The broader market tuned in this summer.
A case in point is Intuitive Surgical (ISRG), a leader in surgical robotics, which noted during its earnings call that a preference for trying GLP-1s was leading to a deferment in weight-loss surgeries. Although these procedures constitute a minor segment of robotic surgeries, they have been instrumental in driving Intuitive’s growth.
GLP-1s have also affected the demand for insulin injections. Recently, endocrinologists have suggested that GLP-1s could potentially delay the transition to insulin for a significant portion of Type 2 patients. This revelation triggered a recalibration of sales forecasts and stock price targets, with Insulet experiencing a downgrade in both target price and rating.
Meanwhile, the growth prospects of glucose monitor manufacturer DexCom in the Type 2 market remain positive. The integration of glucose monitors with GLP-1s is anticipated to become a prevalent trend among diabetic patients. Despite a temporary rally in DexCom stock, the lingering question remains whether the expanding use of GLP-1s will eventually reduce the demand for glucose monitoring.
Vendors of sleep apnea devices, such as ResMed and Inspire Medical, are also conveying to investors the minimal impact of GLP-1s on their markets. However, the debate continues on the intrinsic link between obesity and sleep apnea and the potential repercussions of GLP-1s on the entire sleep apnea spectrum. As market dynamics continue to shift and the ripple effects of GLP-1s become the focal point of discussions, more and more questions about the future landscape of obesity-associated medtechs arise.
The positive developments in GLP-1s have also cast a shadow over another sector: liver medications.
In June, revelations about Lilly's investigational drug, retatrutide, sent ripples through the sector. The drug not only facilitated a 24% weight reduction in subjects but also significantly diminished fat levels in their livers. This development impacted the stock values of companies like Madrigal Pharmaceuticals, Akero Therapeutics (AKRO), and 89bio (ETNB), pioneers in crafting remedies for the fatty liver condition known as NASH. While it remains to be seen how much these stocks will fall, it’s evident that their decline has already started.
The market is a tumultuous sea of uncertainties, with companies and investors meticulously navigating the evolving dynamics. For the astute investor, the key is to learn how to strike a balance between the old and the new.
The allure of GLP-1s might lead to a reevaluation of the medtech sector’s prospects, but companies like Insulet, ResMed, and Inspire still hold resilience in a GLP-1-dominated landscape.
Ultimately, it’s about understanding the intricate push and pull of shadows and light. The wise investor doesn’t just follow the light; they also understand the shadows, learning to see the opportunities lurking within.
So, delve deep, recalibrate your strategies, and remember, the paradox is not a roadblock; it’s a guidepost to new horizons in pharmaceutical innovation.
Global Market Comments
September 28, 2023
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(THE MAD HEDGE DICTIONARY OF TRADING SLANG),
(TESTIMONIAL)