February 2025

AI Tech Letter

(A LARGER LANGUAGE MODEL)

(GOOGL), (META), (MSFT)

While reviewing earnings reports last week at my mountain cabin, I couldn't help but chuckle at the stream of "Google is dead" headlines flooding my inbox.

Having covered technological disruptions since the early days of the personal computer revolution, I've learned that paradigm shifts rarely happen overnight. The reality is far more nuanced.

The bears would have you believe that Google (GOOGL) is about to become the next Yahoo!, destined for the tech graveyard as AI chatbots eat its lunch.

After decades of watching tech giants rise and fall, I've developed a nose for distinguishing between genuine disruption and market hysteria. This feels a lot like the latter.

Let me share something that might surprise you: Google's search business is still growing even as ChatGPT and its AI cousins grab headlines.

We're looking at a $2.25 trillion behemoth with $95.66 billion in cash, trading at a better valuation than its big tech peers. Now THAT's what I call a disconnect between perception and reality.

Here's why the Google-is-dead crowd has it all wrong.

For one, Google isn't sitting on its hands. I've analyzed enough tech transitions to know the difference between a company adapting and one in denial.

After a brief deer-in-headlights moment when ChatGPT launched, they've gone full throttle into AI. The difference? Google can actually afford the AI arms race.

While OpenAI burns through cash faster than a Silicon Valley startup during the dot-com boom, Google generates enough free cash flow from its search business to fund its AI future.

It's like having a money printer to fund your R&D - something I wish every promising tech company had back when I was analyzing startups in the '80s.

But here's the kicker that most people miss: Google has THREE aces up its sleeve that nobody else can match.

First, they have an ecosystem that would make any tech company envious.

Google is on virtually every smartphone worldwide. They've got 8.5 billion daily searches, millions of YouTube uploads, and more data points than there are stars in the Milky Way.

Second, they have data quality that puts everyone else to shame.

While OpenAI is scrambling to buy training data (word is they're running out of public data to train on), Google's got a fresh firehose of high-quality, real-world information flowing in daily.

Third, they have cash flow that won't quit.

With a $95.66 billion war chest and money-printing core business, Google can outspend and outlast virtually any competitor.

Speaking of money, let's talk valuation.

Google's enterprise value sits at $2.18T, but here's what makes it interesting - it's actually cheaper than Microsoft on an EV/EBITDA basis.

The company's been buying back shares like they're going out of style, reducing the share count by 10% in just five years. That's a sneaky 2% annual return right there, before we even talk about price appreciation.

Sure, there are risks. New players like Perplexity are popping up faster than NFT projects in a bull market.

But having witnessed multiple tech cycles, I can tell you that unseating an incumbent with Google's advantages is about as easy as climbing Mount Everest in flip-flops.

Don't get me wrong - Google needs to execute.

Their CAPEX spending shows they're serious, but it's still below Meta (META) and Microsoft (MSFT) as a percentage of revenue. That might need to change.

But with search revenues still growing and AI integration accelerating, Google looks more like a phoenix than a dinosaur.

The bottom line? Google is a buy on dips. The death of search has been greatly exaggerated, and the company's positioning in AI is far stronger than the market realizes.

Where will Google be in five years? Nobody knows for sure, but I've got a strong hunch those AI-powered searches will be making us all look smarter while making Google shareholders richer.

Now, if you'll excuse me, I need to go check if my AI assistant can help analyze these quarterly earnings faster than I can. Some disruptions are worth embracing.

February 26, 2025

Tech Letter

Mad Hedge Technology Letter
February 26, 2025
Fiat Lux

Featured Trade:

(NVIDIA EARNINGS TO SWAY THE NASDAQ)
(NVDA), (META), (BTCUSD)

Nvidia Earnings To Sway The Nasdaq

Tech Letter

It’s been a steep drop for tech stocks the last few days and there is a lot to piece through here.

It was due at some point.

Look, we are at Himalayan highs in the Nasdaq and that doesn’t mean it will be smooth sailing from here.

To find that incremental dollar to push up tech stocks is not as easy as it once was.

We aren’t in the golden years of technology anymore.

The big question is why someone should input that extra dollar when there is a flattening of momentum in the entire tech establishment.

A.I. is the big two-letter acronym that everyone is focused on so it is not a surprise that profits are being taken leading up to Nvidia’s earnings.

Nvidia isn’t as ironclad as it used to be and that worries me.

Nvidia is carrying the market on its back like it has been doing for the past year and market breadth has remarkably narrowed.

If there was no Nvidia, we would be looking at a demonstrably lower stock market than this expensive stock market we are trading right now.

Remember that I urged readers to pile into tech stocks after that mid-January Deepseek selloff and that was the perfect elixir to profits.

Now, where do we find that indicator or signal to go green?

It’s a tough one and we must be patient.

All I have left in the portfolio is a bull call spread in Meta that has been taken out to the woodshed and beaten like the proverbial red-headed stepchild.

Then we look at other signs of liquidity and alternative barometers and Bitcoin has to scare you.

The quicksand drop to $85,000 per coin questions whether the bull market in tech stocks is still alive or kicking.

At the very minimum, the kicking is getting weaker and weaker each following earnings season.

But investors can hold on to hope for a few more hours. After the bell today, the world turns to fourth-quarter earnings for the linchpin of AI euphoria, Nvidia (NVDA).

This two-plus-year bull market has weathered several multi-month periods when Nvidia's stock price sputtered. But the company's stock hasn't contributed to the bull market since last June, as its share price has effectively gone nowhere in that time.

Over the last 10 years (40 reports), buying Nvidia stock just before the earnings announcement has yielded a median return of 3% to 4% on the one-day, one-week, and one-month time frames. Holding for three months has yielded nearly 18%.

The disparity highlights the volatile earnings reactions that might net bullish results but can also cause significant discomfort in the near term.

But for the entire Nvidia obsession, investors are right to question how much AI is still a picks-and-shovels or even an energy trade (as it morphed into in 2024).

If I had to nail down a date, investors expect the 2^nd half of 2025 to calculate what exactly future cash flow will look like and if the infrastructure investment in AI is really worth the hassle.

A great deal of capital was asked to front AI and we are creeping towards that day where AI will need to sink or swim.

As it stands, the AI overlords like OpenAI helmed by Sam Altman, still puts on a happy face like nothing will fail to surpass expectation. It is easier to put on a good face when someone is worth billions upon billions.

In the short, we are preparing for a buying opportunity in the best and brightest.

February 26, 2025 - Quote of the Day

Tech Letter

“In order to have your voice be heard in Washington, you have to make some little contribution.” – Said Elon Musk

February 26, 2025

Jacque's Post

(THE CHANGING LANDSCAPE OF THE MARKET)

February 26, 2025

Hello everyone

Tesla stock is plunging.

Why?

Worldwide criticism for his role in the U.S. DOGE service cancelling contracts and slashing staff in the U.S. government. And the way he has gone about this - slash and burn approach – has raised the ire of the population. Furthermore, his activity on X has been disturbing to say the least. Championing polarizing far-right world figures has raised some eyebrows, and that’s putting it mildly.

Leading up to Germany’s election last Sunday, Musk magnified the far-right, anti-immigrant Alternative for Germany party on X, post about the party and its leader more than 70 times to his 218 million followers.

Musk has also published opinion columns praising the party, and has spoken at party rallies, where he reportedly told Germans to move beyond “past guilt” over Nazi history.

The country’s conservative Christian Democrats won Sunday’s election.

But are Musk’s ideas and actions the only reason for Tesla’s slide?

We can actually point to a confluence of factors. There is rising competition in the electric vehicle market, and we are also seeing a slowdown in the rate at which electric vehicle sales are rising.

Chinese automaker SAIC Motor sold 22, 994 cars last month in the E.U., U.K, and EFTA, compared with Tesla’s 9,945.

Will the decline in Tesla be permanent? It is too early to tell, but Musk’s political involvement and his blatant association with the far right is unlikely to be considered a positive for Tesla.

Has Musk damaged the Tesla brand?

Maybe.

Some of his Tesla employees and investors have indicated that the company would be better off if Musk resigned.

David Bailey, a business economics professor at the University of Birmingham in the United Kingdom, said Musk is now seen by some consumers as “toxic.”

Palantir has collapsed after a huge rally.

Palantir had a very strong rally in 2024 that stretched in early February 2025. But after that momentous climb, the stock has crashed down to earth, losing 30% in less than two weeks.

At its peak on February 18, Palantir shares had surged 65% in 2025 alone, with a 23% single-day jump following the company’s blockbuster earnings report on February 3. However, a confluence of events changed the mood. News that the company’s chief executive sold $1 billion worth of stock and warnings about cutbacks in government spending (on which the firm heavily relies), sent shares sharply lower.

After its big decline the stock is trading in fairly valued territory, however it would be advisable to tread with caution around Palantir, as the stock could continue to be subject to wide swings as investors continue to assess the market for Palantir’s analytical software products.

Palantir may find a floor around $73 before its volatility retreats.

QI CORNER

SOMETHING TO THINK ABOUT

Cheers

Jacquie

February 26, 2025

Diary, Newsletter, Summary

Global Market Comments
February 26, 2025
Fiat Lux

Featured Trade:

(THE LEAGUE OF EXTRAORDINARY TRADERS)

The League of Extraordinary Traders

Diary, Newsletter

I never cease to be impressed with the readers of this newsletter.

I was reminded of this once again in Salt Lake City, Utah a few weeks ago.

Readers seem to fall into three categories.

1) Entrepreneurs whose businesses become so successful that they are throwing off plenty of excess cash to invest. This led them to an online search (they are also technically very savvy) that brought them to my Mad Hedge Fund Trader.

One of my guests runs a manufacturing business that builds drones. In five years, his one-time hobby grew from gross revenues from $400,000 a year to $40 million, and with big military contracts coming he says the best has yet to come.

Ten years ago, the Federal Aviation Administration predicted that there would be 1,500 drones in the air by 2020. Today, there are millions.

Interestingly, he says he is now besieged by constant foreign takeover offers. These are from European and Asian firms that have gone ex-growth and are desperately searching for new profit streams at any cost. So far, he has rebuffed all comers. More than a few friends have sold their companies to Germans lately.

2) Financial advisors who have been following my long-term macro and trading advice and who have also become very successful. Rampant cutting in their world means dumping expensive research analysts. Winning financial advisors always have new clients and cash coming which they need to know how to invest. All of my clients seem to have this problem.

3) Young men and women in their twenties and thirties who dropped out of the mainstream economy and taught themselves to become professional full-time traders. They keep begging me to go back into Bitcoin research, which I abandoned three years ago as too theft-prone.

Perhaps several hundred earn a full-time living just off of my own Trade Alerts alone. This business took a quantum leap with my introduction of the Mad Hedge Technology Letter.

My first-hand observation of the current inflation rate is that it is taking off again, and it is not just eggs at $10 a dozen….if you can find them.

Airplanes going anywhere are all full and ticket prices are soaring, while service is shrinking. The airports are packed. The cost of overnight parking in San Francisco has risen by 100% to $50 a day. The free electric charging stations, of which there are now over 50, are always full.

Mt favorite Pendleton store in Monterey, CA no longer has sales. It’s full price for everything all the time now. People have plenty of money to spend.

Stores are stocking more expensive, higher margin profits, and offering imaginative displays.

Placing your goods on top of worn-out industrial heavy machines is a popular new marketing approach. I spend more time analyzing the machines than the goods for sale.

The irony is rich.

Restaurants are more expensive too, always are full, and are also making the grab for higher margins. They now offer food that is gluten-free, locally grown, and “artisanal.” There are only five items on the menu at twice the prices and many restaurants no longer open for lunch.

When I ordered a steak, I was informed that it was hormone and preservative-free. I asked if I could have one WITH hormones and preservatives, as they put hair on my chest and preserve me as well.

No wonder everyone thinks I’m Mad.

Yet there is evidence too of the failed America, the people who got left behind. At one stoplight, I encountered a family of four holding a big sign in the freezing weather “We need money.”

They had recently been evicted from their home. All had serious health problems and were morbidly obese. They looked legit. Maybe it was a healthcare-induced bankruptcy?

I asked no questions, made no judgments, and gave them $20. They reacted like they had won the lottery.

The country clearly is not perfect.

February 25, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 25, 2025
Fiat Lux

Featured Trade:

(WALL STREET'S MYOPIA IS YOUR OPPORTUNITY)

(REGN), (RHHBY), (AMGN), (AZN), (ABBV), (LLY)

Wallstreet's Myopia Is Your Opportunity

Biotech Letter

While preparing my presentation for this week's Online Traders Conference, I came across a pattern that made me stop cold. You see, I've been gathering examples of how institutional investors quietly accumulate positions while retail traders are looking the other way.

And there it was, right in front of me - Regeneron Pharmaceuticals (REGN), displaying exactly the kind of setup I'll be warning traders about starting February 24.

You see, while everyone's been obsessing over the latest AI darlings, Regeneron has been quietly crushing it. Their Q4 revenue hit $3.79 billion, up 10.5% year-on-year.

But here's where it gets interesting - they beat consensus estimates by $43 million, and that's with their flagship eye drug Eylea taking a hit.

Speaking of Eylea, let's address the elephant in the room. Its sales dropped 11% to $1.19 billion, thanks to Roche's (RHHBY) Vabysmo muscling into their territory and Amgen's (AMGN) biosimilar crashing the party.

Four more biosimilars are waiting in the wings, held back only by patent disputes. Normally, this would send investors running for the hills.

But here's what the panic-sellers are missing.

Despite Eylea's challenges, Regeneron's non-GAAP EPS still climbed to $12.07, beating analyst expectations by 88 cents.

In fact, they've been playing jump rope with analyst estimates, leaping over them in 10 of the last 12 quarters. Yet their stock price has been doing its best impression of a sleeping cat - just lying there, barely moving.

As someone who's spent decades watching market cycles, I recognize this pattern.

We're in what technical analysts call an “accumulation phase.” While retail investors yawn and look elsewhere, institutional money is quietly building positions.

It's like watching a spring being compressed - boring until it isn't.

But here's what really got my attention: Regeneron just joined the dividend club. Starting March 20, they're paying $0.88 per quarter. Sure, the yield won't make income investors swoon, but that's not the point.

It reminds me of how AstraZeneca (AZN) played it - first, dominate growing markets, then gradually turn on the dividend spigot to attract the steady-money crowd.

They're also backing up the dividend with a $3 billion share buyback program.

With $9 billion in cash and short-term investments, they've got more dry powder than a Revolutionary War armory.

In Q4 alone, Regeneron spent $1.23 billion buying back shares - up 64.1% from last year.

And here's where it gets even more interesting. Their oncology franchise, led by Libtayo, is looking like a dark horse winner. Libtayo sales jumped 50.4% year-over-year to $367 million.

While that might not sound earth-shattering compared to cancer drug heavyweights like Merck's (MRK) Keytruda, Libtayo just pulled off something remarkable.

In their Phase 3 C-POST trial for high-risk skin cancer patients, Libtayo reduced death and disease recurrence risk by 68% compared to placebo.

Even better? Merck's competing trial for Keytruda in the same indication fell flat on its face. In this business, that's like watching your main competitor trip at the Olympic finals.

Looking ahead to 2029, I'm seeing revenue hitting $20.4 billion - think high single-digit growth each year. That would bring their price-to-sales ratio down from 5.12x to 3.53x.

Their non-GAAP EPS should hit $76.5, implying double-digit growth most years. With the stock currently trading at just 14.76x earnings - below most peers like AbbVie (19.06x) and Eli Lilly (64.96x).

On top of these, 2025 is packed with potential catalysts - clinical trial results and FDA decisions that could light a fire under the stock.

Analysts' average target is $929.37, suggesting about 38% upside. But in my experience, when you combine strong fundamentals, multiple growth drivers, and a market that's sleeping on the story, those targets often end up looking conservative.

Remember, the market loves nothing more than a comeback story.

With Regeneron, we might just be watching one unfold in slow motion. The question is: will you be holding shares when the spring finally releases?

For those who want to learn more about spotting these kinds of opportunities, I'll be diving deeper into institutional accumulation patterns at the Online Traders Conference running February 24 through March 1.

But don't wait for my presentation to take a serious look at Regeneron - the smart money isn't.