Mad Hedge Technology Letter
July 5, 2024
Fiat Lux
Featured Trade:
(EXPENSIVE ENERGY A BIG WORRY FOR THE FUTURE OF AI)
(AI)
One of the forgotten risks of AI is the energy capacity situation in the United States.
Many people forget that AI will require immense energy with a hoard of energy-guzzling data centers to facilitate the next tech revolution.
Many consumers have come to realize how the cost of energy has skyrocketed lately and no doubt the interest rates cut next year might turbocharge commodity prices around the globe.
There is an increasingly real chance that Silicon Valley might not be able to afford AI simply because the costs of energy will deem the AI concept unworthy.
Green energy hasn’t developed as fast as many experts once thought and the United States is still very much dependent on fossil fuels to facilitate tech and business in general.
A pressing question that is popping up is whether the United States can deliver the energy capacity that AI chips demand.
The question is hard to dissect because the situation is always changing.
Numbers need to make sense just like how builders build when they think they can sell their houses and apartment for a profit to the end buyer.
The military conflict in Eastern Europe has forced German manufacturing to deindustrialize because producing without that cheap Russian energy is loss-worthy. AI could follow a similar pattern.
The data grid will become strained but by how much is the next most important matter.
A ChatGPT query, on average, requires almost 10 times as much electricity to process as a Google search does.
The rise of generative AI coincides with a heightening of other factors increasing energy demand, from the electrification of transportation and infrastructure to the on-shoring of US manufacturing. Adding yet another acute demand: AI systems need power all the time.
Critics of AI fanaticism point to potential wastefulness and this could end up morphing into a government regulatory quagmire like so many industries that are overburdened by government agency overreach.
If in the case, the energy demands spiral out of control with everyone going the AI route with every country building AI data centers, the exploding costs will mean that tech won’t be able to profit from AI as quick as it wants.
Many analysts are already raising the flag as to whether all these billions poured into AI investments will really pan out or not. AI isn’t free to produce but shares of it are priced as such.
Much of this hot money is migrating into companies that haven’t proven anything or never even turned a profit, look at OpenAI, it started out as a non-profit.
The issue I have is that generative AI is priced to have zero pushback of its revenue trajectory and I do believe that is wrong.
When there is a pullback, it will be deep and sharp even if not long.
I believe that would be a healthy event for AI because the stock shares of AI have gone parabolic when there isn’t much meaningful follow-through to the underlying business models.
On top of that, generative AI is programmed to be ultra-left-leaning on the social spectrum which could cause conflict down the road.
In short, ride up the momentum until the wave crashes, but watch out for the canary in the coal mine which will bring attention to a deep dip in AI shares.
(AUSTRALIA DOES DEAL WITH AMAZON TO MOVE TOP-SECRET INTELLIGENCE TO THE CLOUD)
July 5, 2024
Hello everyone,
Hope you all had a great July 4th.
We have the Jobs Report today. Slowing payroll gains are expected.
Data is showing a slowing economy. It takes some time before the high interest rates are felt throughout the economy. Talk of interest rate cuts is now back on the table in the second half of the year. The earliest possible time is probably September.
By the end of this decade, a “top-secret” cloud service will be built for Australia’s intelligence agencies to share information with one another, as part of a $2bn deal with US technology giant Amazon.
The investment is expected to generate about 2,000 jobs and ensure Australia “maintains” pace with the world’s leading defense forces while it increases its interoperability with US agencies.
Three data centers will be built in Australia to house the country’s most secretive and valuable intelligence, the locations of which will remain secret.
The Australian Signals Directorate’s director general, Rachel Noble, said partnering with a private company meant intelligence agencies would have access to “the best staff the private sector has to offer in terms of technology capabilities, services, and tools”.
The developments in artificial technology will be able to help collect and sift through massive amounts of data. The cloud would also support the country’s “Redspice” intelligence program, which aims to counter the growing risk of cyber-attacks.
Noble also argues that “modern defense forces and …modern conflict is more reliant upon information technology, upon computing infrastructure than ever before.”
PORTFOLIO UPDATE
If you own any of the following, I suggest you:
Exit out of:
Ovid Therapeutics (OVID) $0.7517
Biomea Fusion (BMEA) $4.35
Rocket Pharmaceuticals (RCKT) $20.03
Big Pharma is dominating at the present time.
Take some profits on
CrowdStrike (CRWD) $387.18 as at close 07/03/24
I recommended (CRWD) on January 6 this year when the stock was trading at $280.
Long term this is a great stock.
In the short term, you may want to pyramid out a % of your holdings.
Lock in some profits.
You could consider between 5%-20%.
NEWS UPDATES
UK Elections - a landslide victory to the Labour Party. Keir Starmer is the new leader of Britain.
QI CORNER
The UK is expected to lose 9,500 millionaires this year, only second to China with 15,200. This is an interesting and telling reversal in fortune, since historically, the UK has drawn wealth from Europe, Africa, Asia, and the Middle East. If this trend continues over the next two decades, what could be the long-term consequences?
Cheers,
Jacquie
Global Market Comments
July 5, 2024
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS)
(TLT)
The meteoric rise of artificial intelligence (AI) has captivated investors worldwide, with promises of transformative technologies and unprecedented growth potential. However, leading tech giants Nvidia, Microsoft, and Meta have recently sounded alarms, cautioning investors about the inherent financial risks associated with AI ventures. This article delves into the concerns raised by these industry leaders, examining recent news and developments that underscore the precarious nature of AI investments.
Nvidia's Cautionary Tale: Supply Chain Constraints and Geopolitical Tensions
Nvidia, a leading provider of AI-powering graphics processing units (GPUs), has experienced remarkable success in recent years, fueled by the growing demand for AI applications. However, the company's CEO, Jensen Huang, has openly acknowledged the challenges posed by supply chain constraints and geopolitical tensions.
In a recent earnings call, Huang warned that the ongoing global chip shortage could hinder Nvidia's ability to meet the surging demand for its GPUs. This shortage, exacerbated by the COVID-19 pandemic and geopolitical conflicts, has led to increased production costs and potential delays in product deliveries. Such disruptions could significantly impact Nvidia's revenue growth and profitability, posing a risk for investors who have bet heavily on the company's continued success.
Furthermore, Nvidia's reliance on Taiwan Semiconductor Manufacturing Company (TSMC) for chip production has raised concerns about geopolitical risks. The escalating tensions between China and Taiwan, coupled with China's ambitions to become a global leader in AI, could disrupt Nvidia's supply chain and jeopardize its market position.
Microsoft's Regulatory Hurdles and Ethical Concerns
Microsoft, a major player in the AI landscape with its Azure cloud platform and AI-powered tools, has also voiced concerns about the regulatory and ethical challenges facing the AI industry.
In a recent blog post, Microsoft President Brad Smith emphasized the need for responsible AI development and deployment. He highlighted the potential risks associated with biased algorithms, privacy violations, and the unintended consequences of AI applications. Smith called for greater collaboration between governments, industry leaders, and researchers to establish clear ethical guidelines and regulatory frameworks for AI.
Microsoft's concerns are echoed by recent news reports highlighting the potential misuse of AI technologies. For instance, the use of facial recognition software by law enforcement agencies has raised concerns about racial bias and privacy infringement. Additionally, the proliferation of deepfake technology has sparked fears about misinformation and manipulation. These ethical and regulatory challenges could lead to increased scrutiny and potential restrictions on AI development, impacting the financial prospects of companies like Microsoft.
Meta's Misinformation Woes and Algorithm Accountability
Meta, formerly known as Facebook, has faced intense criticism over its role in the spread of misinformation and the impact of its algorithms on user behavior. The company's AI-powered news feed and content recommendation systems have been accused of amplifying divisive content and contributing to the polarization of public discourse.
In response to these concerns, Meta CEO Mark Zuckerberg has announced a series of initiatives aimed at tackling misinformation and promoting transparency in its algorithms. However, the company's efforts have been met with skepticism by some critics, who argue that Meta's business model, which relies on targeted advertising, is inherently incompatible with responsible AI development.
The ongoing controversy surrounding Meta's role in misinformation and the potential regulatory backlash could have significant financial implications for the company. Investors are increasingly concerned about the reputational risks associated with Meta's AI practices, which could lead to decreased user engagement, regulatory fines, and ultimately, a decline in shareholder value.
The Way Forward: Balancing Innovation with Responsibility
The warnings issued by Nvidia, Microsoft, and Meta serve as a stark reminder that AI is not a panacea for all business challenges. While AI holds immense potential for innovation and growth, it also poses significant financial risks that investors must carefully consider.
To mitigate these risks, companies must prioritize responsible AI development, ensuring that their algorithms are transparent, unbiased, and accountable. They must also engage in open dialogue with policymakers and regulators to establish clear ethical guidelines and regulatory frameworks for AI.
Investors, in turn, must conduct thorough due diligence before investing in AI-related ventures. They should carefully assess a company's approach to AI ethics, its risk mitigation strategies, and its ability to navigate the evolving regulatory landscape. By investing in companies that prioritize responsible AI development, investors can contribute to a future where AI serves as a force for good, rather than a source of financial instability and societal harm.
In conclusion, the cautionary tales of Nvidia, Microsoft, and Meta underscore the importance of balancing innovation with responsibility in the AI domain. By acknowledging the inherent risks and proactively addressing the ethical and regulatory challenges, companies can pave the way for a sustainable and prosperous AI future. Investors, on the other hand, must exercise prudence and discernment when evaluating AI-related investments, recognizing that the path to AI-driven profits is fraught with potential pitfalls.
Mad Hedge Technology Letter
July 3, 2024
Fiat Lux
Featured Trade:
(SHOULD I INVEST IN AI CHIPS OR AI SERVERS?)
(SMCI), (NVDA), (DELL)
The AI server market is booming and so are the AI chip markets.
I’ll talk about 2 prestigious companies right in the mix of things.
For long-term portfolios, it’s essential to not miss out on these supercharge growth companies.
I just don’t think that average investors will be able to make up the performance if they miss the boat of these 2 companies. The law of large numbers will just put you too far behind.
All the hot new money is going into AI which adds to the momentum of the share price trajectories.
Even the old money, after not being convinced by Bitcoin, is starting to come around to AI partly because most of the companies involved in AI are publicly listed companies on the New York Stock Exchange.
It makes it a lot easier when the source of exponential growth isn’t on some alternative exchange in some alternate currency in some backwater jurisdiction.
With a few clicks and moving a few dollars here and there, investors can be part of the AI future whether it be in AI chips or AI servers like the companies I am about to talk about.
What up with Nvidia?
Nvidia (NVDA) dominates an impressive 94% of the AI chip market. It’s basically a monopoly or close to it.
Revenue is rising a stunning 262% year over year.
Even more interesting, emerging growth avenues in the nascent AI market indicate that Nvidia could end up doing even better than that.
For instance, governments are also betting the ranch on AI and this stable source of revenue will highly likely grow substantially for the foreseeable future.
Nvidia's customer base is diversifying beyond the major cloud infrastructure providers that have been deploying its chips in large numbers to train and deploy AI models.
Spending on AI chips is expected to grow more than 10-fold over the next decade, generating $341 billion in revenue in 2033 compared to $23 billion last year.
Nvidia should remain the Tom Brady of AI stocks as the race to develop AI applications by companies and governments alike has created a secular growth opportunity.
What about Super Micro Computer?
Supermicro's future prospects are attached to some extent with that of Nvidia’s.
Data center operators require server rack solutions of the type that Supermicro sells to mount the processors sold by Nvidia and other chipmakers.
Revenue jumped 200% year over year and Supermicro isn't all that far behind Nvidia when it comes to how AI has supercharged its fortunes.
I expect its top line to nearly double over the next couple of years.
Demand for AI servers is expected to expand at a compound annual rate of 25% through 2029.
Supermicro is growing at a faster pace than the AI server market right now. As it turns out, its growth is faster than that of more established companies such as Dell.
How to invest?
Supermicro is cheaper than Nvidia and Nvidia’s run-up to a more than $3 trillion market valuation has got to scare some people with sticker shock.
People with a time advantage of more than a few years should invest in Super Micro, whereas investors looking for that quick sugar high should buy the dips in Nvidia.
In short, anyone under the age of 40 and many years in front of them should invest long-term in Super Micro at a market cap of $50 billion. With Nvidia, I could easily see its market cap climbing to $4 trillion soon, but a wicked pullback would mean its market cap going from $4 to $3 trillion.
Either way, these are two tech firms with great prospects in the current and future.
“Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.” – Said Former US President Ronald Reagan
(GENERATIVE AI WILL BE A $100 BILLION DOLLAR + ANNUAL BOOST TO THE AUSTRALIAN ECONOMY BY 2030)
July 3, 2024
Hello everyone,
AI will generate profits in the trillions globally over the coming years. But the sector will need a skilled workforce to see industries transformed.
There are already 33,000 workers in Australia that work directly in AI or use AI as part of their main job, according to CEO Damian Kassabgi, at Tech Council of Australia. Kassabgi believes that number is expected to grow by 200,000 by 2030.
In 2014, there were 800 jobs related to AI.
Overall, Australia needs to train and educate an entire new AI specialist workforce to meet the current and future operational needs of the industry. Schools, universities, technical colleges, and private training providers will all play a role in developing these skills. The training imperative relates to young and old workers at all stages of learning. This will require a mix of strategies catering to the unique needs of individuals.
We are in the early stages of the AI boom. Through innovation, companies will become more productive and more efficient by virtue of AI tools.
The potential growth in the area is so great that analysts and experts believe AI could contribute $115 billion annually to Australia’s economy.
These three areas are where AI investment will be focused in Australia.
The revolutionary AI boom will require lots of power.
Companies that will power this sector are a buy-and-hold.
Eaton Corp. (ETN)
I first recommended Eaton Corp. on April 22, 2024. The price then was $303.02.
Artificial Intelligence requires vast amounts of data processing to function – and data processing requires electricity. The power management company Eaton (ETN) is set to benefit from heightened demand for the setup and upgrade of electrical grids as more data centers are required. Eaton is well-positioned thanks to its scale, size, equipment, and inventory. Shares of the U.S. power management company have been a little rocky over recent days but remain up nearly 30% year-to-date and 54.4% in the last 12 months. Of 25 analysts covering the stock, 17 give it a buy or overweight rating, according to FactSet data. They give it an upside potential of around 11%.
QI CORNER
Something to think about
Cheers,
Jacquie
Global Market Comments
July 3, 2024
Fiat Lux
Featured Trade:
(MY OLD PAL, LEONARDO FIBONACCI),
(TESTIMONIAL)
