Global Market Comments
November 21, 2023
Fiat Lux
Featured Trade:
(THE NEW OFFSHORE CENTER: AMERICA), (SPY),
(THE CHINA VIEW FROM 30,000 FEET)
(DBC), (DYY), (DBA), (PHO), (FCX)
I have long sat beside the table of McKinsey & Co., the best management consulting company in Asia, hoping to catch some crumbs of wisdom (click here for their home page).
So, I jumped at the chance to have breakfast with Shanghai-based Worldwide Managing Director Dominic Barton when he passed through San Francisco visiting clients.
These are usually sedentary affairs, but Dominic spits out fascinating statistics so fast I had to write furiously to keep up. Sadly, my bacon and eggs grew cold and congealed.
Asia has accounted for 50% of the world's GDP for most of human history. It dipped down to only 10% over the last two centuries but is now on the way back up. That implies that China’s GDP will triple relative to our own from current levels.
A $500 billion infrastructure-oriented stimulus package enabled the Middle Kingdom to recover faster from the Great Recession than the West, and if this didn’t work, they had another $500 billion package sitting on the shelf. But with a GDP of only $19 trillion today, don’t count on China bailing out our $24 trillion economy.
China is trying to free itself from an overdependence on exports by creating a domestic demand-driven economy. The result will be 900 million Asians joining the global middle class who are all going to want cell phones, and PCs, and to live in big cities. They’ll want bandwidth too.
Asia has a huge edge over the West with a very pro-growth demographic pyramid. China needs to spend a further $2 trillion in infrastructure spending.
Some 1,000 years ago, the Silk Road was the world’s major trade route, and today intra-Asian trade exceeds trade with the West.
Climate change is going to become a contentious political issue, with per capita carbon emission at 19 tons in the US, compared to only 4.6 tons in China, but with all of the new growth coming from the latter. Protectionism, pandemics, huge food and water shortages, and rising income inequality are other threats to growth.
To me, this all adds up to buying on the next substantial dip in big core longs in commodities (DBC) and the 2X (DYY), food (DBA), Freeport McMoRan (FCX), and water (PHO).
A quick Egg McMuffin next door filled my other needs.
(AMD), (MSFT), (AMZN), (GOOGL), (NVDA)
Artificial Intelligence (AI) has surged to the forefront of the technology sector this year, with Microsoft (MSFT) setting the stage through a multi-billion-dollar investment in OpenAI, the innovator behind ChatGPT.
This strategic move has not only captured the attention of the tech world but also set off a chain reaction, prompting other tech giants like Amazon (AMZN) and Alphabet (GOOGL) to invest in similar AI ventures, such as Anthropic. These investments have created a palpable excitement among Wall Street and retail investors, heralding a new era in technology.
However, it was Nvidia (NVDA), a titan in the semiconductor arena, that truly set the AI investment world ablaze.
The company's extraordinary performance in data center services and advancements in graphics processor units (GPUs), as showcased in its May earnings report for Q1 of fiscal 2024, resulted in a dramatic 60% surge in its stock value.
In stark contrast, Advanced Micro Devices (AMD), Nvidia's primary competitor, saw a mere 8% increase in stock value over the same timeframe.
This notable disparity, especially amidst the current enthusiasm for chip stocks and AI technologies, suggests a significant shift in investor focus towards Nvidia, seemingly overshadowing AMD.
However, a closer look at AMD's recent third-quarter earnings report tells a different, more nuanced story.
Contrary to being overshadowed, AMD continues to demonstrate robust operations and presents a compelling case for long-term investment.
Delving into the specifics of the report reveals AMD's strategic positioning to challenge Nvidia's dominance. Additionally, analyzing the company's long-term outlook in relation to its current valuation underscores why it might be an opportune time to invest in AMD.
AMD's performance in the third quarter was solid, with total revenue reaching $5.8 billion, marking a 4% increase year-over-year.
The data center business emerged as a significant revenue driver, generating $1.6 billion in sales. Although this figure hasn’t dramatically changed since last year, recent strategic moves by AMD suggest imminent growth in this sector.
About a month ago, AMD acquired Nod.ai, a machine learning startup, continuing its successful streak in mergers and acquisitions.
This acquisition, alongside the purchase of Mipsology, a startup specializing in "image inference computation," strategically enhances AMD's data center operations.
These acquisitions, integrating seamlessly with AMD's core services, underscore the company's innovative approach and potential for revitalization in its data-center business.
In addition to the data center business, AMD’s client segment also reported remarkable growth.
For the quarter ending in September, AMD recorded a 42% increase in client revenue year over year, amounting to $1.5 billion.
This surge, primarily driven by a stabilizing PC market, signals a significant comeback. The PC industry, despite facing challenges like a 16% drop in shipments in 2022 and continued decline in 2023, saw AMD’s client segment flourish, mirroring the recovering PC market and increasing chip sales.
Looking to the future, AMD’s management has laid out an optimistic forecast for both the data center and client segments.
The company projects “strong double-digit percentage” growth in these areas. Specifically, the data center business is expected to surpass $2 billion in revenue by 2024, bolstered by rapid advancements in AMD's AI roadmap.
The data center AI market, valued at $30 billion, is expected to grow to $150 billion by 2027. AMD's entry into this market, though later than Nvidia, introduces a formidable contender.
Moreover, it has been preparing to launch a new AI GPU in 2024, poised to directly challenge Nvidia’s market dominance.
Despite Nvidia holding an estimated 90% of the AI chip market, AMD's forthcoming MI300 chips – MI300A and MI300X – are set to disrupt the industry. These chips, designed for data centers and AI machine learning, offer competitive advantages in terms of memory bandwidth and computational power.
The MI300X, in particular, is strategically positioned to challenge Nvidia's H100 GPUs, offering substantial memory bandwidth and being well-suited for large language models in AI machine learning.
Microsoft's collaboration with AMD as an AI chip partner further underscores AMD's potential in this rapidly evolving sector.
Moreover, with the GPU market projected to escalate to a staggering US$190 billion by 2028, AMD's new AI accelerators are anticipated to be key drivers of revenue growth.
While Nvidia has undoubtedly experienced a meteoric rise in the AI market, AMD has emerged as a compelling investment alternative. Given its current undervaluation, I suggest you buy the dip.
Mad Hedge Technology Letter
November 20, 2023
Fiat Lux
Featured Trade:
(MICROSOFT HITS A HOME RUN)
(MSFT), (OPENAI)
After the smoke clears, it is obvious to the naked eye that the winner of the Sam Altman firing is Sam Altman and Microsoft.
Sam Altman is the former OpenAI CEO and the face of AI.
The board at OpenAI just gave away the company to Microsoft.
The event is still reverberating around the world and is a shocker for anyone and everyone involved in technology.
It is similar to if Elon Musk is fired by the board of Tesla.
Something of this magnitude has a lot of unintended consequences and from first glance, it appears that the board of directors overplayed their hand.
The only reason why the board got its way is because of the government structure in place that allows the power of management.
The best NFL teams don’t fire their franchise quarterback or lose them for nothing.
In an ironic twist, OpenAI's biggest investor Microsoft said it is hiring Sam Altman to lead a new advanced artificial-intelligence research team, after his bid to return to OpenAI with the board that fired him declining to agree to the proposed terms of his reinstatement.
OpenAI has been relegated to second-tier status and Altman has been promoted to the big show.
Microsoft Chief Executive Satya Nadella posted on X late Sunday that Altman and Greg Brockman, OpenAI’s president and cofounder who resigned Friday in protest over Altman’s ouster, will lead its team alongside unspecified colleagues.
Altman was blindsided by the firing which shows there was something horribly wrong with the relationship between the board and Altman. It sure smells like a power struggle.
Altman was the key to the company’s close relationship with Microsoft, which became highly dependent on its technology and remains OpenAI’s largest investor with a 49% stake.
Ultimately, Altman’s insistence that the current board resigns was rebuffed.
It would have made no sense for him to go back for anything less than that plus a big salary hike.
Among all the investors, Microsoft might be the most deeply intertwined in the fate of OpenAI, and the startup’s turmoil has been a liability.
Beyond being OpenAI’s largest backer, Microsoft has reoriented its business around the startup’s AI software.
The first takeaway is that this is great for Microsoft’s stock because of the boost it will deliver to its AI business.
MSFT shares would have sold off by 10% if Altman left completely.
MSFT now has the best of breed working directly for them after becoming frustrated by the lack of insight into OpenAI.
A lack of a board seat made the transparency even blurrier.
Opportunistically, expect a mass exodus of OpenAI’s best to join Microsoft’s new AI division.
Most of the employees are already demanding for the board to resign and this situation is on the verge of erupting into a toxic mess.
Poaching is the oldest game in town and MSFT will aggressively look to add to its staff. OpenAI will be a shell of its former self soon because MSFT has the resources to pull it off. Everyone jumping ship will be granted a massive pay rise and restricted stock.
Even if MSFT needs to write down its initial AI investment into OpenAI, it pales in comparison to the potential and bottom-line boost that Altman could muster for the Washington company.
Free agents of this caliber don’t usually jump ship for free and this is a major coup for Microsoft, Altman, and anyone else that follows him to MSFT.
Half the value of OpenAI is wrapped up in Altman himself.
He is now tasked to bring what he did from OpenAI and then develop it, and this time around he has unlimited resources to deploy.
This is another win for the Magnificent 7.
I am highly bullish on MSFT.
MSFT HITS A HOME RUN WITH ALTMAN
“In our business, things look like a failure until they're not.” – Said Microsoft CEO Satya Nadella
(THE COUNTRY ATTRACTING TALENTED TECH WORKERS)
November 20, 2023
Hello everyone and welcome to Thanksgiving Week.
Trades
This is a reminder to please take money off the table if you have a healthy profit.
In McDonald's, you are at maximum profit in both positions.
McDonalds (MCD)
250/260 Dec. 2023 vertical bull call spread
250/270 Dec. 2023 vertical bull call spread
Digital Ocean (DOCN)
25/27.50 January 19, 2024, vertical bull call spread
27.50/30.00 January 19, 2024, vertical bull call spread
Palo Alto Networks (PANW)
250/260 December 15, 2023, vertical bull call spread
260/270 June 21, 2024, vertical bull call spread
Market Update:
S&P 500
The U.S. stock market is rallying to new highs. From an Elliott Wave perspective, it is charging towards its 5th Wave, which lies at about 4,700 – 4,800. After the market reaches Wave 5, we may be in for a healthy correction between December 2023 and April 2024.
Gold
Gold’s Daily Chart shows a developing 5-month Inverse Head & Shoulders continuation pattern. A sustained break above $2,009 resistance will yield an Upside Target of $2,210 over the coming weeks/months.
Brent Crude Oil
There is a downside risk here. There is a classical Head & Shoulders pattern on the Daily Chart. The downside target could be around $70.00.
Bitcoin
The uptrend is in progress. Resistance is found just above $43,000. Profits should be taken between $37,000 and $40,000.
Click here for the October 31 monthly Zoom recording. Apologies for the delay in sending this out.
November Zoom meeting will be next week.
Canada is looking attractive for talented tech workers.
There is a shift going on now, and I’m not talking about our transition to AI. I’m talking about the great exodus of talented and skilled people, particularly in technology jobs, who are moving out of the U.S. to Canada.
As of last month, the Canadian government says more than 6,000 U.S. H-1B visa holders have arrived in Canada so far this year. That’s after massive layoffs left high-skilled foreign H-1B holders in limbo in the U.S.
U.S. Senator, Sheldon Whitehouse has argued that “if two million more immigrants came to the U.S. each year, we could reverse our predicted population and productivity decline.”
Canada has launched a new initiative to attract skilled workers, as well as digital nomads, and skilled American workers.
Why is the U.S. losing these workers?
How did a country with the biggest tech companies lose thousands of workers to Canada?
The bureaucratic visa process pushes workers into Canada. It is not straightforward, and there are queues and queues.
The H1-B is a non-immigrant work visa that allows U.S. employers to hire foreign workers in specialty occupations.
They must have an area of expertise, a Bachelor of Arts, or equivalent. Many of these visa holders work as teachers or in technology.
Since its creation in 1990 Congress has limited the number of H-1B visas each year.
The current cap is 65,000.
An additional 20,000 visas are available for graduates of an American university.
Because the visa is sponsored by an employer, employees who lose their jobs will only have 60 days to find a new job or face deportation.
In the 2024 draw, of the 258 thousand people who applied only 188 thousand were selected for the final random draw.
So, only 25% received a visa and thousands were turned away.
Once an applicant receives a visa, they face several restrictions. They do not have the same rights as a citizen and a person with a Green Card.
The spouse of a holder of a visa cannot apply for work without applying for employment authorization.
A 9 million backlog for American visas deepens the labor crunch.
71% of people on H-1B visas are born in India. The highly educated foreign national is at the mercy of the U.S. employer.
Big tech companies account for a lot of H-1B visa approvals. These include Amazon, Google, Apple, and Meta. They had 60,000 applicants in the last two years, but most of these companies laid off workers last year leaving H-1B visa holders in limbo.
On June 27, 2023, Canada stepped in. Sean Fraser, Minister of Immigration announced a new program. On July 16, visa applications for a pilot program became available, allowing up to 10,000 H-1B visa holders to apply for a three-year work permit in Canada.
The program reached 10,000 on the first day.
Canada is boosting its tech talent at the expense of the U.S.
Canada’s tech market has grown 15.7% since 2020. This growth has outpaced the U.S. tech market which grew at 11.4%.
Toronto and Vancouver rank inside the 10 top tech cities in the U.S. and Canada.
Canada is also home to Shopify, and Dell, Intel, Microsoft, and Amazon all have a presence in Canada.
Unlike the H-1B visa, people do not need to have a job lined up before moving to Canada. And unlike the U.S. system, visa selection in Canada is not based on where the applicant comes from.
There is a shortage of qualified labor everywhere. More people choose to go to Canada, Europe, and Australia rather than the U.S.
If the U.S. wants to attract and keep talented workers, it must streamline and reform the visa program.
Global Market Comments
November 20, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WEEK THAT WAS)
(SPY), (TLT), (JNK), (NLY) (BA), (UUP),
(TLT), (FCX), (GLD), (GDX), (GOLD)
In the long history of stock markets, last week will be viewed as one of the pivotal ones of the 21st century. That was when investors flipped from anticipating the end of interest rate rises to the beginning of interest rate cuts.
That is a big deal.
I have been anticipating this for months, putting all my chips on the most interest rate-sensitive sectors: US Treasury bonds (TLT), Junk bonds (JNK), REITS (NLY), and big tech. The payoff has been huge, with some followers calling me up daily with literal tears of joy. They have just made the most money in their lives.
November has been the best month of the year, up 10% from the October low, and it's only half over.
And here is the good news. We are not only in the first inning of a new bull market for all risk assets but also the first pitch of the first at-bat of the first inning. 2024 should be one of the easiest trading years in a decade. This could go on for a decade.
This is how things will play out.
After the hottest quarter of GDP growth in three years at 4.9% in Q3, the economy is slowing. Virtually every business sector is seeing sales weaken, especially real estate and EVs.
That sets up a sharp drop in the inflation rate from the current 3.2% to the Fed’s target of 2%. Get a few months of that and the Fed starts cutting interest rates from the current 5.25%-5.5%. Fed futures are currently indicating a 40% probability that will happen in March.
We could be at 4.0% overnight interest rates by the end of 2024 and 3.0% by the end of 2025 when they stabilize. Stocks and bonds will eat this up.
Better hope that the Fed stays data dependent as promised, because coming data is weak, even if it doesn’t arrive for months. We only need one weak quarter to kill off inflation, and that quarter began on October 1.
Priority One is for the Fed to de-invert the yield curve or get short-term interest rates below long rates. For encouragement, the Fed should look at the most rapidly shrinking money supply in history, which I have been glued to.
There has been no monetary growth for two years, and zero bank deposit growth for three years. The Fed's balance sheet has plunged by $1.5 trillion in 18 months. Fed quantitative tightening continues at $120 billion a month. This is unprecedented in economic history.
The biggest risk to markets is that Powell delays cutting rates as much as he delayed raising rates two years ago. This is a very slow-moving, backward-looking Fed.
If you have a ten-year view of the markets, as I do, this is all meaningless. You need to buy stocks right now. If the Fed does play hardball and rigidly holds to the 2% target it risks causing a recession.
If you see any reasons to shoot down my bull case please, please email me. I’d love to hear them.
It’s not that stocks are expensive. 2024 S&P 500 (SPY) earnings are now 18X. If you take out the Magnificent Seven, they are at 15X earnings, close to the 2008 crash low. Small cap stocks are at a bargain basement 12X earnings and are already priced for recession.
So a strong case for a new decade-long bull market is there. All you have to do is believe it. To see how this will play out look at the chart below as tech stocks are now extremely overbought short term. We no longer have the luxury of waiting for big dips. Small ones will have to do.
So far in November, we are up a breathtaking +12.59%. My 2023 year-to-date performance is still at an eye-popping +78.76%. The S&P 500 (SPY) is up +18.42% so far in 2023. My trailing one-year return reached +85.42% versus +20% for the S&P 500.
That brings my 15-year total return to +675.95%. My average annualized return ballooned to +48.57%, another new high, some 2.52 times the S&P 500 over the same period.
Some 60 of my 65 trades this year have been profitable.
CPI Comes in Flat at 3.2%, much weaker than expected. This is a game-changer. The first Fed rate cut has been moved up to May. Stocks and bonds loved it, taking ten-year US Treasury yield down to a six-week low at 4.44%. Shelter prices, which make up about a third of the overall CPI index, climbed 0.3%, half the prior month’s pace. Taking profits on my long in (TLT).
Fed to Cut Interest Rates as Early as March, or so says the futures market, which gives this a 40% probability. The (TLT) should top $100 and stocks will rocket, especially the interest sensitives. The most recent indications on the CME Group’s FedWatch gauge point to a full percentage point of interest rate cuts by the end of 2024.
Weekly Jobless Claims Hit Three Month High, up 13,000 to 231,000, as the US economy backs off from the superheated Q3. The path for a lower inflation rate is opening up. Do I hear 2%.
PPI Fell by 0.5% in October, a much bigger than expected drop, a three-year low. Inflation is fading fast. YOY came in at 1.3%. Stocks loved the news. 2024 is shaping up to be a great year for risk after two miserable ones.
Government Shutdown Delayed Until 2024, with the passage of a temporary spending bill by the House. It looks like there is a new coalition of the middle of both parties, as the bill passed with 339 votes, topping a two-thirds majority. The Johnson bill would fund some parts of the government through Jan. 19 and others through Feb. 2, setting up the possibility of yet another shutdown deadline on Groundhog Day.
The US Dollar (UUP) Takes a hit as the falling interest rate scenario starts to unfold. Even the Japanese yen rose. This could be a new decade-long trade. Currencies with falling interest rates are always the weakest.
Goldman Sachs Goes Bullish on Gold. The investment bank expects the S&P GSCI, a commodities markets index, to deliver a 21% return over the next 12 months as the broader economic environment improves, OPEC moves to support crude prices as refining is tight and with energy and gold acting as hedges against supply shocks. Buy (GLD), (GDX), and (GOLD) on dips.
Copper Bull Predicts 80% Gain in the Coming Decade, to $15,000 per metric tonne, up from $8,277 says Trafigura’s Kotas Bintas, the world’s largest metal trader. Exploding demand from EV makers is the reason, set to hit 20 million vehicles a year. Electrification of global energy sources is another. Buy (FCX) on dips.
Boeing Lands Monster Order, some $52 billion from Emirates Airlines for 90 new 777x’s and five 787’s. The stock rose 5% on the news. A giant China order is also lurking in the wings. Buy (BA) on dips.
Moody’s Rating Service Downgrades the US, citing deteriorating fiscal conditions and worsening chaos in Washington. However, it maintained its AAA Rating. Oh, and the government shut down on Friday. Buy (TLT) on the dip. Where else are investors going to go for quality?
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, November 20, no data of note were published.
On Tuesday, November 21 at 11:00 AM EST, the Minutes from the previous Fed meeting are released.
On Wednesday, November 22 at 8:30 AM, the Durable Goods are published.
On Thursday, November 23 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, November 24 at 2:30 PM the November S&P Flash PMI’s are published and the Baker Hughes Rig Count is printed.
As for me, I was invited to breakfast last week at the Incline Village Hyatt Hotel and was told to expect someone special, but they couldn’t tell me who for security reasons.
I was nursing a strong black coffee when a bulky figure with white hair wearing a Hawaiian shirt and thermal vest sat down at the table. It was Mike Love, lead singer of the Beach Boys.
During the 1950s, Mike’s dad was a regular visitor to Lake Tahoe, bringing his family up to camp on the then-vacant beaches. My family couldn’t have been far away.
When Mike made his fortune with one of the top rock groups of the 1960s, the natural thing to do was to buy an estate high up the mountain in Incline Village, Nevada with a great lake view. Like me, Mike fell for crystal-clear lake views in summer and spectacular snow-covered mountain vistas in winter. Local real estate agents refer to it as a “poor man’s Aspen.”
Mike ended up raising a family here, his kids eventually growing up and heading out to start their music groups. One was Wilson Phillips, made up of two of Mike’s daughters and the daughter of John Phillips of the Mamas and the Papas, who I taught how to swim at summer camp one year.
But Mike stayed. He loved the lake too much to leave so he made Incline his base for a touring schedule that ran up to a punishing 200 gigs a year.
Mike’s residence was something of a Tahoe insider’s secret. Those who knew where he lived kept the closely guarded secret. We have plenty of celebrities here, Larry Ellison, Mike Milliken, and Peoplesoft’s David Duffield, but Mike is the one everyone loves.
Mike, now 82, is not your typical rock star and I have known many. He is humble, self-effacing, and an alright guy. He avoided drugs and smoking to preserve his voice. He is a health fanatic. He has also been fighting a lifelong battle with depression which kept him off the touring circuit for years at a time and led to contemplations of suicide.
The Beach Boys formed in Hawthorne, California, a beachside suburb of Los Angeles in 1961. The group's original lineup consisted of brothers Brian, Dennis, and Carl Wilson, their cousin Mike Love, and friend Al Jardine. They were the original garage band. Together they created one of the greatest vocal harmonies of all time.
In 1963, the band enjoyed their first national hit with “Surfin USA”, beginning a string of top ten singles that reflected a southern California youth culture of surfing, cars, and teenage romance dubbed the “California sound.”
Those included "I Get Around", "Fun, Fun, Fun", "Help Me Rhonda", "Good Vibrations" and "Don't Worry Baby, which I’m sure you remember well. If you don’t, look them up on iTunes. Their 1966 album “Pet Sounds” was considered one of the most innovative ever produced.
I remember it like it was yesterday. They were one of the few groups that could stand up to the Beatles, who they became friends with. The Beach Boys were regulars on my car’s AM radio.
Buzz kill: the Beach Boys didn’t know how to surf.
All of the early Beach Boys songs were inspired by the Southern California beaches, but only half the country had beaches. So a new manager encouraged them to sing about cars, extending the life of the group by another decade. That is how we got “Little Deuce Coup,” and “409.” After all, the entire country owned cars.
The Beach Boys would eventually sell 100 million records second only to the Beatles. They were also one of the first groups to wrest production control away from the studios, a revolution for the industry that opened doors for generations of successive musicians.
In the late 1960s, the group took a religious bent, traveling to India to study under the celebrity guru Maharishi Mahesh Yogi. Mike has since been practicing transcendental meditation, and it probably saved his life.
By the 1970s, the California sound faded and was eventually killed off by disco. Their last album together was Endless Summer in 1974.
There are only three original Beach Boys left, and Mike Love alone is still touring. In 1983, Dennis Wilson drowned in a boating accident which is thought to be drug-related. In 1998, Carl Wilson died of lung and brain cancer after years of heavy smoking.
Mike was pleased that I recalled his 1980 London concert at Wembley Stadium. I had front-row seats; unaware that I would meet Mike 43 years later. In 1988, Mike was inducted into the Rock and Roll Hall of Fame.
Mike was very annoyed by the pandemic shutdown in 2020 because it prompted the cancelation of over 200 concerts worldwide. He still thinks Covid was fake. He doesn’t need to work as his royalties from 60 years of work are worth a fortune. He tours simply for the love of it.
Mike is now touring with a reconstituted Beach Boys. For their tour schedule, please click here. On November 17, 2023, Love released a special double album entitled “Unleash the Love” featuring 13 previously unreleased songs and 14 Beach Boys classics.
It was a pleasant way to spend a morning recalling the 1960s. It’s a miracle we both survived. It’s all proof that if you live long enough, you meet everyone.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
(MU), (NVDA), (AAPL)
In the ever-evolving world of investing, where uncertainty often clouds the horizon, one truth remains constant: foresight is king.
The late Apple (AAPL) co-founder Steve Jobs, a maestro of innovation, often echoed hockey legend Wayne Gretzky's sentiment: "I skate to where the puck is going, not where it has been."
This philosophy is particularly pertinent as we navigate through the tumultuous currents of the stock market, which has recently been rocked by a once-in-a-century pandemic, a tech crash, and a surge in interest rates.
As we stand on the verge of a new year, it's crucial for investors to peer into the future, identifying stocks poised to ride the wave of economic shifts.
Enter Micron Technologies (MU), a leader in the semiconductor industry, whose trajectory in 2024 appears particularly promising.
While the semiconductor sector has been a mixed bag – exemplified by Nvidia's (NVDA) staggering 194% surge masking underlying weaknesses – Micron's journey offers a compelling narrative.
As a leading producer of memory (DRAM) and storage (NAND) chips, integral to devices from smartphones to data centers, Micron's fortunes reflect the sector's pulse.
The past year's consumer spending cutbacks, a byproduct of inflation and rising interest rates, led to an inventory glut, severely impacting Micron's pricing power and resulting in a 49% revenue drop to $15.5 billion in fiscal 2023.
However, the tides are turning.
Micron recently hinted that the worst may be over, with both inventory and pricing hitting rock bottom. This sets the stage for a rebound, underscored by a projected 10% sequential revenue growth in the first quarter of fiscal 2024.
Moreover, the company is strategically positioned to capitalize on the burgeoning field of artificial intelligence (AI).
Despite a soft demand for traditional data center server products, the company has seen a surge in AI-related hardware demand.
Its new D5 DRAM chip, offering double the bandwidth of its predecessor, is a game-changer, enabling faster processing of large data sets – a critical factor in AI development.
AI's insatiable appetite for memory and storage means that newer, more powerful chips command higher prices, potentially buoying Micron's financials.
Micron's robust product portfolio, featuring high-capacity memory modules like HBM3E and DDR5, sets it apart in the AI world.
With their complex technology requirements, AI training servers offer higher profitability than traditional servers. Micron's offerings are not just meeting this demand; they are defining it.
But AI isn't the only frontier where Micron is making strides.
The advent of self-driving cars marks a revolution in automotive technology, with vehicles increasingly reliant on digital memory. As a leader in this domain, Micron is experiencing rapid growth, with automakers requiring more sophisticated memory chips for advanced driver-assist systems (ADAS) and autonomous capabilities.
Micron's foresight in this sector positions it as a key player in what could be its most significant growth driver in the coming years. Beyond vehicles, the cloud computing boom – essential for AI software training and vehicle fleet management – further amplifies the demand for Micron's memory solutions.
And I’m not talking about incremental improvements. I’m seeing a paradigm shift in technology, where Micron's innovations align perfectly with market needs.
To sum up, Micron's narrative is one of resilience and strategic positioning. Despite operating in a highly cyclical semiconductor industry, the company has demonstrated strong fundamentals, including consistent sales growth and shareholder value through dividends and buybacks.
The current market position of Micron's stock, 28% below its all-time high, presents an intriguing entry point for investors. As we look ahead, the company embodies the essence of skating to where the puck is going.
So, Micron offers a compelling opportunity for investors looking for a long-term stock to add to their portfolios, particularly in AI and electric vehicles. In a world where foresight is king, Micron is not just a participant; it's a leader, charting a course through uncharted waters of technological innovation.
