Global Market Comments
June 4, 2024
Fiat Lux
Featured Trade:
(The Mad June traders & Investors Summit is ON!)
(THE BIGGEST “TELL” IN THE MARKET RIGHT NOW),
(GOOGL), (FRC), (PINS), (WORK), (UBER),
(ADSK), (WDAY), (SNE), (NVDA), (MSFT)
The Fed has stopped raising interest rates, inflation is falling, and tech stocks are on fire!
What should you do about it?
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I am constantly looking for “tells” in the market, little nuggets of information that no one else notices, but give me a huge trading advantage.
Well, there is a big one out there right now. The bottom feeders are pouring into San Francisco commercial real estate, taking advantage of valuations that sometimes reach negative numbers. Owners are walking away from buildings, mailing in the keys, and going into default rather than keeping up mortgage payments. What’s worse is refinancing at today’s lofty rates. That’s what you would expect with a 36% vacancy rate.
The message for you traders is loud and clear. You should be picking up the highest quality technology growth stocks on every substantial dip, such as Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), and NVIDIA (NVDA). For they all know some things that you don’t. Their businesses are about to triple, if not quadruple over the coming decade thanks to AI. For every abandoned building out there are 200 new AI start-ups taking advantage of today’s bargain basement rates, and ALL of them use the services of the five companies above.
Technology stocks, which now account for an eye-popping 30% of stock market capitalization, will make up more than half of the market within ten years, much of that through stock price appreciation. And they are all racing to lock up the office space with which to do that….now.
San Francisco office rents reached a record pre-pandemic as the continued growth of tech — now turbocharged by nearly $100 billion in new capital raised in a series of initial public offerings — met a severe space crunch.
Asking rents rose to a staggering $84.16 per square foot annually for the newest and highest quality offices in the central business district, and citywide asking rents for such spaces, known as Class A, were up over 9% from the prior year. The citywide office vacancy rate was 5.5% in June, down from 7.4% a year ago.
In addition, local Bay Area home prices could get a turbocharger by the fall, when interest rates are expected to start falling.
San Francisco companies that have gone public continue to grow by leaps and bounds. Pinterest (PINS), Slack (WORK), and Uber (UBER) also signed office leases this year, with room for thousands of new employees.
Tech companies Autodesk (ADSK) and Glassdoor also signed deals at 50 Beale St. in the spring. In a sign of the city’s rapidly changing economy, old-line construction firm Bechtel and Blue Shield, the legacy health insurer, are both moving out of 50 Beale St. Sensor maker Samsara, software firm Workday (WDAY), and Sony’s (SNE) PlayStation video game division also expanded.
Globally, San Francisco has the seventh-highest rents in prime buildings. It’s still behind financial powerhouses Hong Kong, London, New York, Beijing, Tokyo, and New Delhi (San Francisco’s average office rents beat out New York.)
Only a handful of new office projects are being built, and future supply is further constrained by San Francisco’s Proposition M, which limits the amount of office space that can be approved each year. That is creating a steadily worsening structural shortage. Only two large office projects are under construction without tenant commitments.
Suddenly, it’s Not Crowded in San Francisco
"Technology has outrun the ability of the market to handle it. When the next bear market comes, there could be a messy affair," said my friend and client Leon Cooperman of hedge fund Omega Advisors.
Computex 2024: In a move that surprised industry observers and delighted investors, Nvidia Corporation, the world leader in artificial intelligence (AI) technology, unveiled its next-generation AI chip architecture, Rubin, at the Computex 2024 tech conference in Taipei. This announcement came mere months after the launch of its predecessor, Blackwell, signaling a rapid acceleration in AI development and Nvidia's determination to maintain its dominance in this fast-evolving field.
Rubin: A Leap Forward in AI Acceleration
Rubin, named after the renowned computer scientist Vera Rubin, represents a significant leap forward in AI acceleration. While Nvidia has yet to release detailed specifications, Jensen Huang, Nvidia's CEO, emphasized that Rubin will be the successor to Blackwell and incorporate a new Arm-based CPU called Vera. Additionally, Rubin will include advanced networking capabilities through NVLink 6, CX9 SuperNIC, and the X1600 converged InfiniBand/Ethernet switch.
Rubin is expected to be available in 2026, solidifying Nvidia's commitment to a one-year release cycle for new AI chip technology. This accelerated pace reflects the increasing demand for faster, more efficient AI accelerators and Nvidia's ambition to stay ahead of the competition.
Why Rubin Matters
The introduction of Rubin is a significant development for several reasons:
- Accelerated AI Innovation: Rubin promises to deliver unprecedented performance and efficiency for AI workloads. This could lead to accelerated innovation in various fields, including natural language processing, computer vision, autonomous vehicles, and drug discovery.
- Industry Leadership: By maintaining a one-year release cadence, Nvidia demonstrates its commitment to staying at the forefront of AI technology. This could further solidify its position as the leading provider of AI accelerators.
- Economic Impact: The advancements enabled by Rubin could have far-reaching economic implications. Improved AI capabilities could lead to new products, services, and industries, creating jobs and driving economic growth.
The AI Chip Arms Race
Nvidia's rapid release cycle highlights the intensifying competition in the AI chip market. Rivals such as AMD and Intel are working tirelessly to catch up, but Nvidia's consistent innovation and market dominance pose a significant challenge.
The introduction of Rubin could further widen the gap between Nvidia and its competitors, solidifying its position as the go-to provider for high-performance AI accelerators. This could, in turn, attract more investment and talent, creating a virtuous cycle of growth and innovation.
Implications for the Future
The announcement of Rubin has generated considerable excitement within the tech industry and beyond. It has raised expectations for a new wave of AI-powered applications and services that could transform our lives and work.
From personalized medicine to intelligent transportation systems, the potential applications of Rubin-accelerated AI are vast. As this technology matures, we can expect to see AI integrated into an even wider range of products and services, making them smarter, more efficient, and more user-friendly.
Challenges and Opportunities
While the potential of Rubin is undeniable, its development and deployment also present significant challenges. These include:
- Technical Complexity: Developing and manufacturing high-performance AI chips is a complex and costly endeavor. Nvidia must continue to invest heavily in research and development to maintain its technological edge.
- Ethical Considerations: The increasing power and pervasiveness of AI raise important ethical concerns, including issues related to bias, privacy, and job displacement. Nvidia and other AI leaders must work to address these concerns proactively.
- Regulatory Landscape: The regulatory landscape for AI is still evolving. Nvidia must navigate this changing environment while ensuring that its technology is used responsibly and ethically.
Despite these challenges, the opportunities presented by Rubin are immense. By accelerating AI innovation, Nvidia could play a pivotal role in shaping the future of technology and society.
Conclusion
The announcement of Rubin is a testament to Nvidia's unwavering commitment to AI innovation. By consistently pushing the boundaries of what's possible, Nvidia is not only advancing its own business but also paving the way for a future where AI plays an even more significant role in our lives.
While the road ahead is not without its challenges, the potential rewards are too great to ignore. With Rubin, Nvidia is poised to lead the AI revolution, ushering in a new era of technological advancements that could transform our world.
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 Technology Letter
June 3, 2024
Fiat Lux
Featured Trade:
(RAISING SUBCRIPTION PRICES MEANS PROFITS FOR SPOTIFY)
(SPOT), (NFLX)
Spotify (SPOT) is raising prices and the underlying stock is up 4% this morning.
Shareholders are happy and there is more to come from this European giant.
Much of the same pricing behavior has been experienced in products like Netflix whom are incentivized to raise prices to get that extra juice out of its stock.
Why not raise prices when customers are happy to pay for it?
Remember, this only works when a company is part of a duopoly, monopoly, or something of that nature where they have a firm grip on pricing power.
Consumers are willing to shell out that little extra bit for Spotify because the competition is so much worse.
This has been going on for quite a while and tech was famous for the “freemium” model built on free services.
After building a significant audience and hooking the audience for free, a subscription-based model was rolled out to monetize the customer base.
Spotify is looking to extract a little more from the premium customer.
The price of Premium Individual will pay more so that SPOT can continue to invest in and innovate the product offerings and features then levy another major price hike.
That’s the game in tech land and we roll with the punches.
The company offers an advertising-supported free service with limited features and a subscription-based paid service that gives access to all its functionality, with premium subscribers accounting for most of its revenue.
The streaming giant could drive further growth by offering tailored subscription plans based on consumer preferences in verticals such as music, audiobooks, and podcasts.
The company's quarterly gross profit topped $1.08 billion for the first time in April after it reined in marketing spending.
Its premium subscribers rose by 14% to 239 million and it forecast monthly active users at 631 million for the second quarter.
The company offers an advertising-supported free service with limited features and a subscription-based paid service that gives access to all its functionality, with premium subscribers accounting for most of its revenue.
I believe the streaming giant could drive further growth by offering tailored subscription plans based on consumer preferences in verticals such as music, audiobooks, and podcasts.
Since we are in the last stage of the economic cycle, expect tech companies to pull out all the bells and whistles to charge extra for the software, hardware, and other tech.
Being that we are late cycle, there is an incredible push for that last incremental dollar before the economy goes into recession and I do believe that tech companies will behave in a somewhat mercantile way to get what they want.
Tech companies, especially the bigger ones, have a massive incentive to stave off a recession for one extra quarter so that much of the management can cash out at all-time high stock prices with vested shares.
Tech will eventually experience a steep pullback in shares and the longer that is staved off, the better for everyone because who knows what the next iteration of tech will look like.
It could become more corporate which would mean higher prices for the consumers and higher shares prices for stocks like SPOT.
Remember that the only thing in tech that is certain is change and that is what we will see. It’s sooner than you think and right around the corner for many tech companies.
In the meantime, expect higher product prices for streaming and software products like Spotify, Netflix, and other lookalikes that will lift corresponding share prices.
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
Global Market Comments
June 3, 2024
Fiat Lux
Featured Trade:
(The Mad June traders & Investors Summit is ON!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE MALLARD MARKET and ME AND 23 AND ME),
(AAPL), (GOOGL), (AMZN), (TSLA), (MSFT), (META), (AVGO), (LRCX), (SMCI), (NVR), (BKNG), (LLY), (NFLX), (VIX), (COPX), (T), (NVDA), (LEN), (KBH)
