There is a global derisking going on ahead of the U.S. elections.
All interest rate plays are selling off.Bonds are discounting a Trump win, stocks a Harris win.Watch for a melt-up in both post-elections.
We are unlikely to see a more than 5% drop in indexes for the rest of 2024 because of massive cash holdings.
US dollar touches a high for the year on rising rates.
Technology stocks have recovered, with (NVDA) at highs.
Energy gets dumped on global oversupply.
Buy stocks and bonds on dips, but now it’s ALL sectors.
THE GLOBAL ECONOMY – SLOWING
CPI comes in warm at 0.3% for September and 2.4% YOY.
Europe cuts interest rates by 25 basis points.
New Zealand cuts interest rates by 50 basis points.
US Retail Sales gained 0.4%, up from the unrevised 0.1% gain in August.
New York Empire State Manufacturing Index Plunges.It could be an election effect.
PPI comes in flat and up 1.8% YOY.
Social Security gets a 2.5% raise in 2025.
STOCKS – FROM STRENTH TO STRENGTH
Hedge Funds pouring into Technology stocks, such as semiconductors and hardware, at the fastest in five months amid the start of the third-quarter earnings season.
S&P500 Value Gain hits $50 trillion since the 1982 bottom.
Morgan Stanley announces blowout earnings, fuelling a 32% profit jump for the third quarter.
ASML plunges 16% on poor earnings.
Tesla gets approval to double Berlin Factory.
Global EV sales up 30% in September.
Delta warns of Presidential Election Travel dip, as fears of violence over the next two weeks keep travellers’ home.
BONDS – ELECTION PLAY
It’s a choice between Harris, who will increase the deficit by $2.5 trillion, or Trump, who will increase by $15 trillion.
Either way, the bond market loses.
Bond yields soar above 4.24% yield, on fears of massive deficit spending by a future Donald Trump presidency.Estimates of his deficits over four years go as high as $15 trillion.
US Budget Deficit tops $1.8 trillion in Fiscal 2024, which ends on October 30.
It’s the highest outside of the Covid era.
Interest on the federal debt exceeded $1 trillion for the first time, and spending grew for the Social Security retirement program, health care, and the military.
The deficit for the year ended Sept. 30 was up 8%, or $138 billion, from the $1,695 trillion recorded in fiscal 2023.
Buy (TLT), (JNK), (NLY), (SLRN), and (REITS) on this dip.
FOREIGN CURRENCIES – DOLLAR PEAK
Dollar hits two-month high on rising US interest rates.
Dollar gets a sudden new lease on life from interest rate spike.
Higher interest rates make the US dollar much more attractive to traders and investors.
This is a short-term rally only and may be the last chance to sell short the US dollar.
The long-term downtrend in the dollar is still intact.
There is no way the dollar can stand up to cuts down to 3.5% by next summer.
Buy (FXA), (FXE), (FXB), (FXC) and (FXY)
ENERGY & COMMODITIES – OIL CRASH
Chronic global oversupply finally overwhelms Middle East threats.
Air conditioning demand will rise by 280% by 2025, thanks to higher temperatures and rising incomes, according to the International Energy Agency.
The Nuclear Boom is on with Amazon Web Services announcing it has signed an agreement to explore the development of a small module nuclear reactor (SMR) as it expands its services into generative AI.
Rio Tino buys Arcadium for $6.7 billion in a bid to become one of the world’s largest lithium producers.
John’s Cameco (CCJ) trade alert went ballistic, up 25% in two weeks.
The nuclear trade is still on, with all plays hitting new highs.
PRECIOUS METALS – NEW HIGHS
Silver breaks out to the upside after a year’s long-range trade.
The white metal is a predictor of a healthy recovery and a solar rebound.
It’s a long overdue catch-up with (GLD).Buy (AGQ) on dips.
Money pours into Gold ETF’s, taking Gold up to new highs at $2,761 an ounce, as hedge funds pour in.
Seasonals for the barbarous relic are now the most positive of the year.
Gold holding up in the face of big interest rate rises shows it only wants to go up.
Escalation of Middle East war is very pro-gold.
Buy (GLD), (SLV), (AGQ), and (WPM) on dips.
REAL ESTATE – GRIND TO A HALT
Election has brought real estate markets to a complete halt.
Inventory is rising, and prices are falling, especially in Florida.
Single-family home builds are ticking up and are at a five-month high in September.
Permits for future construction rose only marginally, an excess supply of new homes on the market and prospective buyers holding out for lower mortgage rates.
We need lower interest rates to get more traction.
Weekly Home Mortgages Tank by 17% on the sudden rise in interest rates.
Below, please find subscribers’ Q&A for the October 23 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: What the heck is happening with the iShares 20+ Year Treasury Bond ETF (TLT)? It keeps dropping even though interest rates are dropping. It seems to be an anomaly.
A: It is. What’s happening is that bonds are discounting a Trump win, and Trump has promised economic policies that will increase the national debt by anywhere from $10 to $15 trillion. Bonds don’t like that—you borrow more money through bonds, and the price goes up. Interest rates could go as high as 10% if we run deficits that high (at least the bond market may go that low.) On the other hand, stocks are discounting a Harris win. Stocks went up 60% over the last four years. I did roughly double that. And a Harris win would mean basically four more years of the same. So stocks have been trading at new all-time highs almost every day until this week when the election got so close that the cautious money is running to the sidelines. So what happens if there's a Harris win?Bonds make back the entire 10 points they lost since the Fed cut interest rates. And what happens if Trump wins? Bonds lose another 10 points on top of the 10 points they've already lost. Someone with a proven history of default doesn't exactly inspire confidence in the bond market. So that is what's going on in the bond market.
Q: Will the US dollar continue its run into year-end?
A: No, I have a feeling it’s going to completely reverse in two weeks and, give up all of its gains, and resume a decade-long trend to new lows. So, I think everything reverses after election day. Stocks, bonds, commodities, precious metals—the only thing that doesn't is energy, and that keeps going down because of global oversupply that even a Middle Eastern war can’t support.
Q: Are you expecting a major correction in 2025?
A: I am, actually. We basically postponed all corrections into 2025 and pulled forward all performance in 2024. So, I think we could get at least a 10% correction sometime next year, and that is normal. Usually, we get a couple of them. This year, we only got the one in July/August. So, back to normal next year, which means smaller returns from the stock market. In fact, smaller returns from everything except maybe gold and silver. This is why they're going up so much now.
Q: Are you discounting a huge increase in the deficit under Biden-Harris?
A: No, the huge increase in the deficit is behind us because we had all the pandemic programs to pay for, and if anything, technology inflation should go down because of accelerating technology. We're already seeing that in many industries now, so I don't think there'll be any policy changes under Harris, except for little tweaks here and there. All the big policies will remain the same.
Q: What is a dip?
A: A dip is different for every stock and every asset class. It depends on the recent volatility of the underlying instrument. You know, a dip in something like McDonald's (MCD) or Berkshire Hathaway (BRK/B) might be 5%, and a dip in Nvidia (NVDA) might be 15 or 20%. So, it really depends on the volatility of the underlying stock, and no two volatilities are alike.
Q: What are your top picks on nuclear?
A: Well, we've been in Cameco (CCJ), the Canadian uranium company, since the beginning of the year, and it has doubled. Vistra Corp (VST) is another one, and there are many more names after that.
Q: What are your thoughts on Toyota (TM)?
A: I love Toyota for the long term. The fact that they were late into EVs is now a positive since the EV business is losing money like crazy. They're the ones who really pioneered the hybrid business, and I’ve toured many of their factories in Japan over the years. Great company, but right now, they're being held back by the slow growth of the Japanese economy.
Q: Market timing index says get out. We're heading into the seasonally bullish time of the year. Should we be in or out over the next two months?
A: I would be in as long as you can handle some volatility around the stock market. When the market timing index is at 70, that means any new trades that you initiate have a 30% chance of making money. Now, they can sit at highs sometimes for months, and it actually did that earlier this year. Markets can get overbought and stay overbought for months, and that is a really difficult time to trade. If you're a long-term investor, you just ignore all of this and just stay in all the time.
Q: Silver has broken out; what's next?
A: Silver had had a massive run since the beginning of September—some 30%. We're up to about $31/oz. The obvious target for silver is the last all-time high, which I think we did 40 years ago, and that was at $50/oz. So there's another easy 60% of upside in silver. That's why I put out a LEAPS on the 2x long silver play (AGQ), and people are already making tons of money on that one. I think Silver will be your big performer going forward.
Q: Too late to invest in Chinese stocks?
A: No, it's selling off again. IT Could retest the lows, especially if the government sits on its hands for too long with more stimulus packages.
Q: Is big tech still a good bargain buy?
A: I would take “bargain” out of that. The rule on tech investing is you're always buying expensive stuff because the future always has a spectacular outlook. So, tech investing is all about buying something expensive that gets more expensive. This is exactly what tech stocks have been doing for the last 50 years, so it's not exactly a new concept. I know tons of people who never touched Nvidia (NVDA) or Tesla (TSLA) because it was too expensive. (NVDA) was too expensive when it was $2, and now it's even more expensive at $140 or, in Tesla's case, $260.
Q: Will Tesla (TSLA) go up or down tonight?
A: I have no idea. Anybody else who says they have an idea is lying. You go to timeframes that short, and you are subjecting yourself to random chance; even the weather could affect your position by tomorrow.
Q: How uncomfortable is the stem cell extraction?
A: Extremely uncomfortable. If they say it won't hurt a bit, don't believe them for a second. They take this giant needle hammer it into your backbone to get your spinal fluid (and I count the hammer blows.)Last time, I think I got up to 50 before I couldn't take the pain anymore, and they extracted the spinal fluid to get the stem cells. So, for those who don't tolerate pain very well, this is absolutely not for you.
Q: Why is Intel (INTC) stock doing so badly this year?
A: Low-end products, no new products, poor manager. Whenever a salesman takes over a technology company, you want to run a mile. That's what happened at Intel because they have no idea how the technology works.
Q: Should I sell my Philip Morris (PM) stock? It's just had a huge run-up.
A: No. For dividend holders, this is the dream come true. They pay a 4.1% dividend. This was a pure dividend play ever since the tobacco settlement was done 40 years ago. Then they bought a Swedish company that has these things called tobacco pouches, and that has been a runaway bestseller. So, all of a sudden, the earnings at Philip Morris are exploding. The dividend is safe. I think Philip could go a lot higher, so buy PM on dips. And I will dig into this story and try to get some more information out of it. I love high growth high dividend plays.
Q: What's the best play for silver?
A: I'm doing the ProShares Ultra Silver (AGQ), which is a 2x long silver and has gone from $30 to $50 since the beginning of September. If you want to sleep at night (of course, I don't need to), then you just buy the iShares Silver Trust (SLV), which is a 1x long silver play and that owns physical silver. I think it's held in a bank vault in London.
Q: Time to sell Copper (FCX)?
A: Short term, yes, as China weakens. Long-term, hang on because we are coming into a global copper shortage, and that'll take the price of copper up to $100 or (FCX) up to $100. So yes, love (FCX) for the long term. Short term, it has a China drag.
Q: Will inflation come back in 2025?
A: No, it won't. Technology is accelerating so fast, and AI is accelerating so fast it's going to cut costs at a tremendous rate. And that's why you're seeing these big tech companies laying off people hundreds at a time; it's because the low-end jobs have already been replaced by AI. There is a lot more of that to come. I'm not worried about inflation at all.
Q: Do you disagree with Tudor Jones on inflation?
A: Yes, I disagree with him heartily. Tudor Jones is talking his own book, which means he doesn't want to get a tax increase with a Harris administration. So he's doing everything he can to talk up Trump, and that isn't helping me with my investment strategy whatsoever. By the way, Tudor Jones is often wrong, you know; he made most of his money 30 years ago. And before that, it was when he was working for George Soros. So, yes, I agree with the man from Memphis. He’s in the asset protection business. You’re in the wealth creation business, a completely different kettle of fish.
Q: Do you hold the ProShares Ultra Silver (AGQ) overnight?
A: I've been holding my (AG for four months, and the cost of carry-on that is actually quite low because silver doesn't pay any dividend or interest. There really isn't much of a contango in the precious metals anyway—it's not like oil or natural gas. It’s a 3X plays that you really shouldn’t hold overnight.
Q: Where is biotech headed?
A: Up for the long term, sideways for the short term. That's because, after the election, risk on will go crazy. We could have a melt-up in stocks, and when that happens, people don't want to buy “flight to safety” sectors like Biotechs and healthcare; they want to buy more Nvidia. Basically, that's what happens. More Nvidia (NVDA), more Meta (META), and more Apple (APPL). They want to buy all the Mag7 winners. Well, let's call them the Mag7 survivors, which are still going up after a ballistic year.
Q: Any suggestions on where to park cash for five to six years?
A: 90-day T-Bills are yielding 4.75%. That would be a safe place to put it. And you might even peel off a little bit of that—maybe 10% — and put that into a junk fund, which is yielding 6%. You're still getting a lot of money for cash—but not for much longer. The golden age of the 90-day T-bill is about to end.
Q: BlackRock (BLK) keeps growing, trillions after trillions. Why is the stock so great at building value?
A: Because you get a hockey stick effect on the earnings. As the stock market goes up, which it always does over time, their fees go up. Plus, their own marketing brings in new money. So, you have multiple sources of income rising at a rapid pace. I'm kicking myself for not buying the stock earlier this year.
Q: How does any antitrust action by the government affect stock prices?
A: Short-term, it caps them. Long term, it doubles them because when you break up these big companies, the individual pieces are always worth a lot more than the whole. We saw that with AT&T (T), where you're able to sell the individual seven pieces for really high premiums. So, that's why I'm never worried about antitrust.
Q: Do dividend stocks provide little upward appreciation since they're paying investors already?
A: To some extent, that's true because low-growth companies like formerly Philip Morris (PM) and Altria (MO) had to pay high dividends to get people to buy their stock because the industries were not growing. AT&T is another classic example of that—high dividend, no growth. But that does set you up for when a no-growth company can become a high-growth company, and then the stocks double practically overnight. And that's what's happening with Philip Morris.
Q: Are you buying physical gold (GLD) and silver (SLV)?
A: I bought some in the 1970s when it was $34/oz for gold, and the US went off the gold standard, and I still have them. It's sitting in a safe deposit box in a bank I will not mention. The trouble with physical gold is high transaction costs—it costs you about 10% or more to buy and sell. It can be easily stolen—people who keep them hidden at home or have safes at home regularly get robbed. And what if the house burns down? You really can't insure gold holdings accept with very high premiums. So, I've always been happy buying the gold ETFs. The tracking error is very small unless you get into the two Xs and three Xs. Gold coins are good for giving kids as graduation presents—stuff like that. I still have my gold coins for my graduation a million years ago (and that was a really great investment! $34 up to, you know, $2,700.)
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
After decades of watching healthcare stocks, I've learned one immutable truth - demographics always win. And right now, demographics are handing UnitedHealth Group (UNH) the keys to the kingdom.
The numbers tell an impressive story. UnitedHealth just reported Q3 2024 revenue of $100.82 billion, up 9.2% year-over-year. That's a billion dollars above what Wall Street expected, even after weathering a nasty cyberattack on their Change Healthcare unit in February.
Let's put this in perspective. By 2031, America's national health expenditure will hit $7.17 trillion - more than the GDP of Japan and Germany combined. This isn't just another growth story.
Besides, having managed hedge fund money through multiple market cycles, I’d like to think that I know the difference between lucky timing and structural advantage. From the looks of how things are going, UnitedHealth has engineered themselves the latter.
The company's UnitedHealthcare segment tells only part of the story, bringing in $74.85 billion in Q3, up 7.2% from last year.
Their Medicare Advantage enrollment grew from 7.65 million to 7.81 million people, while their U.S. commercial health plans expanded from 27.25 million to 29.73 million members.
Yes, they took a hit on their global numbers after selling their Brazilian business - dropping from 5.48 million to 1.34 million customers. But sometimes the best deals are the ones you don't do.
The real story here is Optum and its aggressive push into value-based care.
While competitors are still figuring out how to merge technology with healthcare delivery, UnitedHealth has already built a fortress. Their $13 billion acquisition of Change Healthcare wasn't just about processing claims - it was about owning the healthcare data highway.
Optum's revenue jumped 12.5% to $63.79 billion, with their pharmacy division surging 18.5% to $34.21 billion. They processed 410 million prescriptions in Q3 alone - that's 30 million more than last year.
What Wall Street is missing is UnitedHealth's positioning for the post-COVID healthcare landscape. They're not just riding the telehealth wave - they're reshaping it.
Their OptumRx digital platform now handles 80% of all prescription transactions, while their virtual care visits have grown tenfold since 2019.
In fact, the regulatory environment plays into their hands.
While smaller players struggle with Medicare Advantage rate adjustments and value-based care requirements, UnitedHealth's scale and technology infrastructure turn these challenges into opportunities.
Their compliance systems and data analytics capabilities give them a moat that gets wider every quarter.
Wall Street expects Q4 revenue between $100.48 billion and $104.14 billion. Their P/S ratio of 1.41x looks rich compared to Humana (HUM) at 0.29x and Elevance Health (ELV) at 0.57x. But in this market, scale and execution command a premium.
Looking ahead, I see UnitedHealth hitting $552 billion in revenue by 2028. The catalysts are clear: aging demographics, rising chronic disease management post-COVID, and the unstoppable march toward value-based care.
Their Q3 non-GAAP EPS of $7.15 beat estimates by 12 cents. By 2028, I expect EPS to reach $44, with their P/E ratio dropping from 22.75x to 12.99x.
Their balance sheet remains rock solid - net debt/EBITDA ratio below 1.5x, with investment-grade ratings from S&P Global (SPGI), Fitch, and Moody's (MCO).
UnitedHealth also keeps growing its dividend by double digits, maintains a predictable business model, and outperforms competitors like CVS Health (CVS) and Humana on ROE.
Admittedly, they slightly lowered their 2024 adjusted EPS guidance, spooking some traders. But in my experience, Wall Street's short-term panic creates long-term opportunities.
So, what’s the play here? I suggest you build a position in UnitedHealth now while the stock has pulled back. Scale in gradually if you're concerned about timing, but don't miss this opportunity.
Remember, in the end, this isn't just about healthcare - it's about owning a piece of America's unstoppable demographic destiny. And that's a trend even a skeptic like me can believe in.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-10-24 12:00:262024-10-24 12:20:18A Healthcare Stock That Owns Tomorrow
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
https://www.madhedgefundtrader.com/wp-content/uploads/2016/02/Alert-e1457452190575.jpg135150april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-10-24 10:24:152024-10-24 10:24:15Trade Alert - (TSLA) October 24, 2024 - TAKE PROFITS - SELL
Tesla's vision for the future of transportation extends far beyond electric vehicles. Elon Musk has long touted the development of a fully autonomous Robotaxi service, a concept that could revolutionize ride-hailing and personal transportation as we know it. While the road to realizing this ambitious goal has been paved with delays and technological hurdles, recent developments suggest that Tesla's Robotaxi aspirations are gaining momentum.
This article delves into the intricacies of Tesla's Robotaxi program, exploring its technology, potential impact, challenges, and the broader context of the autonomous vehicle landscape.
The Vision: A Fleet of Self-Driving Taxis
Imagine hailing a ride and having a driverless vehicle arrive at your doorstep, ready to whisk you away to your destination. This is the essence of Tesla's Robotaxi vision. The company aims to deploy a fleet of fully autonomous electric vehicles that can operate without human intervention, providing on-demand transportation services to passengers.
This concept is not entirely new. Companies like Waymo and Cruise have been testing and deploying Robotaxi services in select cities with varying degrees of success. However, Tesla's approach differs in its ambition and integration with its existing electric vehicle ecosystem.
The Technology: Full Self-Driving and Beyond
At the heart of Tesla's Robotaxi program lies its Full Self-Driving (FSD) technology. FSD is a suite of advanced driver-assistance systems that enables Tesla vehicles to navigate roads, respond to traffic signals, and perform complex maneuvers with minimal human input. While FSD is still under development and requires driver supervision, it represents a crucial step towards achieving full autonomy.
Tesla's Robotaxi fleet will likely leverage an even more advanced version of FSD, potentially incorporating cutting-edge AI, sensor technology, and real-time data processing capabilities. The company has hinted at the development of a dedicated "Robotaxi" model, possibly based on the Cybertruck platform, that would be optimized for autonomous operation and passenger comfort.
Potential Impact: Reshaping Transportation and Beyond
The successful deployment of Tesla's Robotaxi service could have far-reaching implications for the transportation industry and society at large. Here are some potential impacts:
Revolutionizing Ride-Hailing: Robotaxis could disrupt the ride-hailing industry by offering cheaper, more efficient, and potentially safer rides compared to traditional human-driven services.
Reducing Traffic Congestion: Autonomous vehicles are expected to optimize traffic flow and reduce congestion by communicating with each other and infrastructure, leading to smoother and more efficient commutes.
Increasing Accessibility: Robotaxis could provide affordable and convenient transportation options for individuals who cannot drive, such as the elderly or people with disabilities.
Transforming Urban Planning: The widespread adoption of Robotaxi could influence urban planning and development, potentially reducing the need for parking spaces and promoting more pedestrian-friendly environments.
Creating New Economic Opportunities: The Robotaxi industry could generate new jobs in areas such as software development, maintenance, and fleet management.
Challenges and Concerns: Navigating the Road to Autonomy
While the potential benefits of Tesla's Robotaxi program are significant, several challenges and concerns need to be addressed before widespread adoption can occur:
Technological Hurdles: Achieving full autonomy is a complex technological challenge that requires overcoming obstacles such as unpredictable human behavior, adverse weather conditions, and ensuring the safety and reliability of the system.
Regulatory Uncertainty: The regulatory landscape for autonomous vehicles is still evolving, and clear guidelines and standards need to be established to ensure public safety and address liability issues.
Public Acceptance: Overcoming public apprehension and building trust in autonomous technology is crucial for the success of Robotaxi services.
Ethical Considerations: Questions surrounding job displacement, data privacy, and the ethical implications of AI decision-making need to be carefully considered and addressed.
Cybersecurity Risks: Ensuring the cybersecurity of autonomous vehicles is paramount to prevent hacking and malicious attacks that could compromise safety and functionality.
The Road Ahead: A Gradual Rollout and Continuous Development
Tesla's Robotaxi program is still in its early stages, and a full-scale rollout is not expected in the immediate future. The company is likely to adopt a gradual approach, starting with limited deployments in controlled environments and progressively expanding its service area as technology matures and regulations evolve.
Continuous development and refinement of FSD technology will be crucial for the success of Tesla's Robotaxi ambitions. The company will need to address the challenges and concerns outlined above while ensuring the safety, reliability, and affordability of its service.
Conclusion: A Transformative Vision with a Long Road Ahead
Tesla's Robotaxi program represents a bold vision for the future of transportation, one that could reshape our cities, redefine personal mobility, and create new economic opportunities. While the road to full autonomy is paved with challenges, Tesla's relentless pursuit of innovation and its growing expertise in AI and electric vehicle technology position it as a key player in the race to deploy Robotaxi services.
As technology advances and regulations evolve, the prospect of hailing a driverless Tesla taxi may become a reality sooner than we think. The journey towards this transformative vision promises to be exciting, challenging, and ultimately, a defining moment in the evolution of transportation.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Douglas Davenporthttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDouglas Davenport2024-10-23 17:08:472024-10-23 17:08:47Tesla's vision for the future of transportation extends far beyond electric vehicles
The hottest part of the tech industry is the build-out of the AI infrastructure.
Millions of data centers are needed equipped with high-speed chips to facilitate the miracle that is artificial intelligence.
One of the leading companies right in the heat of the battle is Taiwan Semiconductor Manufacturing (TSM).
Why is TSM so important?
Nvidia (NVDA) outsources the manufacturing of its chip designs; TSM is the one doing the building, and that will mean a highly strategic position in AI moving forward.
TSM's other customers include several tech heavyweights like Advanced Micro Devices and Apple.
TSM has carved out a solid advantage in producing leading-edge logic chips used in advanced computing technologies such as AI and 5G mobile networks.
TSM is the world leader in manufacturing these specialized semiconductor chips, with an estimated 90% share of this market.
A key factor in TSM's market dominance is customer demand for chips using its three-nanometer (nm) semiconductor manufacturing process. Referred to as 3nm, this technology creates chips with greater microprocessor speed, lower energy consumption, and exceptional computational power without increasing chip size.
This 3nm tech looks like a game-changer for TSM. The process produces better chips than its older 7nm technology, which was once responsible for over a third of the company's revenue a mere three years ago. Just last year, TSM's 3nm-related revenue was a tiny 6% of third-quarter sales. But the rapid rise of AI drove 3nm income to reach 20% of quarter three revenue this year.
As 3nm-manufactured chips become more widely adopted, TSM's market share in this sector is expected to grow. This is because TSM's 3nm process generates higher yields and power efficiencies compared to those made by such competitors as Samsung.
TSM's 3nm strengths position the firm for revenue growth in the coming years. The market for the technology is forecast to skyrocket from $1.4 billion in 2023 to $26.5 billion by 2032.
With its 3nm process taking off, TSM experienced strong sales in the third quarter as revenue rose 36% year over year to $23.5 billion.
TSM's long-term sales potential looks to get a boost from the expansion of its chip fabrication facilities. Because leading-edge logic chips are needed for advanced computing, the U.S. government is incentivizing TSM to build semiconductor factories in the United States.
The underlying stock has delivered a 92% performance in the first 10 months of the year.
They certainly didn’t get left behind by the success of Nvidia, and I believe as we move forward, their strategic importance to the industry will grow and fortify.
I don’t believe that there is any slowdown in the pipeline coming any time soon.
The rhetoric from the AI chip management has been bragging about the over-demand and undersupply of chips.
This has created a massive surge in the profits for AI chip firms.
In the short term, the only negative that comes to mind would be that chip firms could be the victim of their own success reflected in overheated stock price trends.
We are due for a pullback, and that would certainly constitute as a buy-the-dip moment.
We have not seen the best of TSM yet, the best is yet to come.
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