March 2025

DEEPSEEK SPOOKED THE MARKET, THIS AI STOCK CASHED THE CHECK

(AVGO), (MSFT), (AMZN), (GOOG), (META), (INTC), (MRVL)

The panicked messages flooded my inbox last week as tech stocks took a nosedive.

One subject line simply read: "BROADCOM - SELL NOW???" Another longtime reader called me at 5:30 AM (clearly forgetting about time zones) asking if the AI bubble had finally burst. His portfolio was bleeding red and he was ready to hit the eject button on everything tech-related.

It's times like these when having decades of market experience comes in handy. I've seen this movie before - different characters, same plot.

While panicked investors were selling, Broadcom delivered Q1'25 earnings that sent shares up by over 8%. Despite Microsoft (MSFT) pulling some data center leases, the recent selling has created a significant buying opportunity for AVGO shares.

The numbers tell the real story here. Broadcom's semiconductor business grew 11% year-over-year, with 50% of the $8.2 billion in semiconductor revenue coming from AI infrastructure.

When half your semiconductor business is driven by the hottest sector in tech, you've positioned yourself exactly where you need to be.

Why such strong AI demand? Sources at Microsoft, Amazon (AMZN), and Google (GOOG) confirm the DeepSeek V3 models have lit a fire under their AI development teams.

This has accelerated the timeline for all major players to improve their AI systems, with hyperscalers now racing to deploy more advanced models.

Broadcom's management isn't sitting idle amid this AI acceleration. They're ramping R&D investments in next-generation accelerators, targeting 2nm AI XPUs with 10,000 teraflops capability.

For context, that's massive computational power that will drive the next wave of AI applications. They're also enabling clusters scaling to 1 million XPUs - the infrastructure backbone needed for training tomorrow's frontier models.

The technical progress is equally impressive.

A senior Broadcom engineer I met last month revealed they've doubled RAID capacity for existing Tomahawk sites and will begin sampling 1.6T bandwidth switches soon.

These advances put Broadcom at the center of the AI infrastructure buildout that every major tech company needs.

All this positions Broadcom for explosive growth.

By FY27, their AI addressable market is projected to reach $60-90 billion. They've already added two more hyperscalers as customers, bringing the total to four.

The company now develops custom AI chips for Alphabet, Microsoft, Amazon, Meta (META), and ByteDance (the parent company of TikTok) - essentially becoming the arms dealer in the AI arms race.

The near-term outlook is equally promising. For Q2'25, Broadcom expects AI revenue to reach $4.4 billion, up 44% from last year. These aren't small percentage gains on tiny revenue bases - we're talking billions in growth from already substantial numbers.

Beyond AI, the picture is more nuanced but still positive overall.

Traditional semiconductors face some growth pressures, though telecom customers should increase spending in Q2'25. Enterprise networking will likely remain flat in the first half of the year due to inventory digestion.

Meanwhile, enterprise software has been a bright spot, growing 47% year-over-year.

Management is successfully converting perpetual licenses to subscription models, with 60% converted so far.

This transformation to recurring revenue improves visibility and stability in the business model - something Wall Street consistently rewards with higher multiples.

Innovation continues across the business.

One notable example is their VMware Private AI Foundation with NVIDIA, already adopted by 39 enterprise customers.

This platform helps companies manage GPU infrastructure for their AI workloads - positioned exactly where enterprise spending is heading as AI moves from experimental to production environments.

Looking at the financials, the picture remains strong. For Q2'25, I'm forecasting $14.9 billion in revenue and $1.59 EPS.

Inventory levels increased to $1.9 billion (56 days on hand) to support the AI production ramp-up.

The company has managed its balance sheet well, paying down $495 million in fixed-rate and $7.6 billion in floating-rate debt, ending with a reasonable 1.64x leverage ratio.

Is there risk? Certainly.

If Microsoft's canceled data center leases truly signal excess compute capacity across the industry, we could see a broader slowdown in XPU investments.

But the capital expenditure guidance from all major hyperscalers suggests this is isolated, not systemic.

Valuation remains attractive despite the growth story.

AVGO shares currently trade at a significant discount to peers like Marvell Technology (MRVL) in the custom ASIC market.

In fact, Broadcom CEO Hock Tan explicitly stated they're "too busy" with AI and VMware to consider an Intel (INTC) purchase - a signal of management's focus on organic growth opportunities rather than distracting acquisitions.

Looking at the broader market context, the last two years delivered remarkable gains with minimal pullbacks. We're now experiencing that needed pullback, which could continue for 3-6 months.

After that, I expect markets to finish 2025 in positive territory, with AI leaders like Broadcom leading the charge.

My response to those panicked emails was simple: use this opportunity to build a position in AVGO.

When a company dominates its space with 50% of revenue coming from the fastest growing segment in tech, you don't sell - you buy more.

And yes, in case you're wondering, I own the stock. I've been adding on every dip.

March 12, 2025

Tech Letter

Mad Hedge Technology Letter
March 12, 2025
Fiat Lux

Featured Trade:

(SHOULD I CARE ABOUT ORACLE?)
(ORCL), (AAPL), (META), (AMZN)

Should I Care About Oracle?

Tech Letter

If readers want to know if the Oracle AI story is dead or not, then listen here.

The story is still alive, so don’t give up on a good thing.

Oracle is getting swept up with the wider macroeconomic scare that has been triggered by geopolitics.

The fear porn has reached fever pitch and is causing tech stocks to detour from their usual self.

The question now is if the sabre-rattling will result in the economic recession we have been waiting 6 years for.

The flood of government money for at least 4 of those years carried spending habits even if those jobs were unproductive or fraudulent.

As it relates to Oracle’s business model, there is no recession in the sub-sector they are in, but I believe they chose to tank the earnings result since all equities were getting dragged down.

The truth is that Oracle’s business is experiencing great growth in the cloud, and AI demand is accelerating sales growth.

The macroeconomic volatility gave Oracle’s management the perfect excuse to guide down since a high forecast would have resulted in a selloff anyway.

Oracle's leadership encouraged investors to focus on the potential for its cloud business to benefit from enterprise AI spending.

A growing backlog for cloud services is giving the company clear visibility for beating growth metrics.

Meanwhile, sales of Oracle's closely watched cloud-infrastructure business increased 49%, compared with 52% growth for the segment in Oracle's November-ended quarter. Oracle's guidance for the May-ending quarter of 9% revenue growth missed previous forecasts of 9.5% growth.

Oracle's cloud infrastructure business is racing to build out computing capacity for AI startups and other users of the cloud. The Oracle Cloud Infrastructure business rents computing power to other companies, competing against much larger hyperscalers Amazon.com (AMZN), Microsoft (MSFT), and Alphabet's (GOOGL) Google.

Chairman and Chief Technology Officer Larry Ellison said that Oracle is on track to double its data-center capacity during the calendar year. The company now expects capital expenditures to grow to $16 billion for its May-ending fiscal 2025, roughly doubling from a year earlier.

Ellison appeared at the White House in late January with President Donald Trump, OpenAI leader Sam Altman, and SoftBank Chief Executive Masayoshi Son to announce an AI infrastructure effort costing $100 billion called Stargate.

While tight data center capacity has demanded some patience from investors, I believe that we move past some of the capacity constraints in the second half of this calendar year.

The deep selloff from $190 per share to $140 has to hurt.

It was just only a short time ago when Oracle was a deadbeat tech stock left behind by the likes of Apple and Facebook.

They have reinvented themselves as an AI infrastructure company, and that has done wonders for their stock.

When they were down in the dumps, ORCL stock was trading below $50, so we are a far cry from that.

Once the tech market gets its mojo back, ORCL will definitely return back in form to that buy the dip stock that did so well in 2023 and 2024.

Just bide your time until we can jump back into ORCL.

March 12, 2025 - Quote of the Day

Tech Letter

“The key to making things affordable is design and technology improvements, as well as scale.” – Said Elon Musk

March 12, 2025

Jacque's Post

(THE POSSIBILITY OF A U.S. RECESSION IS NOW BEING ACKNOWLEDGED)

March 12, 2025

Hello everyone

The shift is on from bull to bear as the “R” word becomes a discussion topic.

After a few months of me warning everyone about an impending down move/bear market, going against the grain of most professional analysts and all the “talking heads”, Ed Yardeni now comes out and says it is “possible a bear market has already started.”

As recently as February, he said the U.S. economy could go a decade without a recession. In January, he said investors are in a “roaring 2020” market.

The shift in his view comes after the whiplash of back-and-forth changes in trade policy from President Donald Trump, and early signs of economic weakness, and highlighted concerns of a recession, itself defined as two consecutive quarters of economic contraction.

Yardeni points out that Trump is testing the limits of the economy and the markets. His administration’s rapid-fire policy initiatives have been testing every limit imaginable, and so far, there has been a good measure of resiliency, but recession fears are definitely rising.

Trump has gone ahead and done it.

He has introduced 25% tariffs on Australian aluminium and steel. Our Prime Minister described the move as “unfriendly and unjustified” and an “act of economic self-harm.” Europe, also, did not escape similar tariffs. But Europe plans to retaliate with tariffs on U.S. goods.

Australia will not retaliate. But there could be implications down the track. Interestingly, economists say the tariffs have more “bark than bite.”

Trump’s tariffs could take the U.S. on a dangerous journey with unforeseen implications.

Ray Dalio has commented that a severe U.S. supply-demand problem could lead to ‘shocking developments.’ He is focused on the debt issue and believes we could see unexpected developments in terms of how it’s going to be dealt with.

Where to hide and protect your portfolio while Trump wages a tariff trade war.

Within the fixed income market, you can find a source of stability with U.S. Treasury Inflation-Protected Securities (TIPS), which should outperform in both high-inflation and recession environments.

TIPS are sold by the U.S. Treasury with 5-, 10-, and 30-year terms. Unlike traditional government bonds, the principals on TIPS – the amount the government agrees to pay back to the bond holder – can move higher or lower over the maturity term of these instruments. At the end of the term, if the principal is higher than the original agreed rate, the holder gets the increased amount. If the principal is equal to or lower than the original rate, the TIPS holder is paid the original agreed principal.

Corporate credit markets are also an option.

Brian Mangwiro, managing director of global sovereign debt and currencies at Barings, has suggested Investors can focus on sectors less exposed to tariffs such as financials, construction, and defence, and avoid those in the line of fire such as autos and potentially technology.

By now, you should have insurance in place, such as (SDS) or (SH) to cover what you wish to keep in your portfolio.

MY CORNER OF THE WORLD IN PHOTOS AFTER CYCLONE ALFRED

Powerlines down across roads in multiple areas across Brisbane, Gold Coast, and Sunshine Coast and as far inland as Toowoomba (a two-hour drive from the Gold Coast).

This has been a common sight in every neighbourhood across the Gold Coast. Some people also lost their roofs.

A huge cliff has formed right along the coastline after Cyclone Alfred battered the coast and eroded our beautiful beaches. Millions of cubic metres of sand have been gauged from 500km of coastline.

QI CORNER

SOMETHING TO THINK ABOUT

Cheers

Jacquie

March 11, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 11, 2025
Fiat Lux

Featured Trade:

(WHEN INSIDERS GO SHOPPING, PAY ATTENTION)

(MRNA), (MRK)

When Insiders Go Shopping, Pay Attention

Biotech Letter

In 1815, Nathan Rothschild made his legendary fortune buying British securities when they were deeply discounted after Waterloo. “Buy when there's blood in the streets,” he allegedly said. That kind of contrarian wisdom has made fortunes across centuries.

Two centuries later, I find myself applying this timeless principle to Moderna (MRNA). The biotech darling has shed over 90% of its value since the pandemic peak, plummeting from $400+ to under $30. And now, insiders are quietly loading up.

The shift in insider activity at Moderna has been striking. Over the past year, insiders unloaded more than 602,000 shares, with the heaviest selling in 2024 when the stock was trading above $120.

One director alone offloaded 202,832 shares in a single transaction, pocketing $30 million. But as Moderna’s share price took a nosedive, insider selling slowed to a trickle. By the time the stock fell below $100, most trades involved fewer than 1,000 shares.

Then, on March 3, the narrative took a dramatic turn: two insiders — including CEO Stéphane Bancel — scooped up nearly 200,000 shares, investing about $6 million. Bancel accounted for $5 million of that sum.

This move is telling. Bancel already controls over 21 million shares. You don’t drop another $5 million into a stock unless you believe you're buying Manhattan for beads and trinkets. The contrast is stark: when prices were high, executives couldn’t sell fast enough. Now, they’re buying.

The timing of these insider purchases is even more intriguing. Moderna had just slashed its 2025 revenue target by $1 billion, bringing guidance down to $2.5 to $3.5 billion. Yet, insiders chose that precise moment to buy, signaling confidence that sales will bottom out this year.

The company's drug pipeline isn't barren, either. Ten drugs are expected to receive FDA approvals by 2027, including a skin cancer vaccine developed with Merck (MRK) slated for a 2027 launch, pending Phase 3 data.

These ten anticipated drugs collectively target a market exceeding $30 billion, with analysts projecting Moderna's revenue to climb to $3.3 billion in 2027 and $4.77 billion by 2028.

On their Q4 '24 earnings call, President Stephen Hoge underscored the cancer vaccine’s potential: "As for INT, obviously, we're all looking forward to the melanoma -- adjuvant melanoma Phase 3 readout. As you know, and as I mentioned, there are additional Phase 3s as well as two randomized Phase 2s, including bladder cancer, renal cell carcinoma, which, depending on the rate of approval of events, could have readouts that we would be updating on as well in the coming years."

Still, the road ahead isn’t without challenges. Moderna expects to burn up to $3.5 billion in cash during 2025, reducing its cash position to $6 billion. Estimated cash costs for 2025 stand at $5.5 billion, projected to decline to $5 billion in 2026.

To reach breakeven by 2028, the company needs to generate $6+ billion in sales at 80% gross margins or implement further cost-cutting measures.

Despite these financial hurdles, Moderna's market cap is a mere $14 billion — practically pocket change for a company with multiple promising vaccine candidates.

There's undeniable risk in buying Moderna at these levels, but historically, the most profitable investments come before the financials improve. The company has effectively announced that its numbers will likely deteriorate further before rebounding — and yet, insiders are still buying.

Speaking of gathering valuable insights from industry leaders, I’ve been preparing for our Mad Hedge Traders & Investors Summit on March 11-13.

After decades in the markets, I’ve learned there’s something uniquely valuable about getting multiple perspectives in one place. It reminds me of my time in Tokyo during the '70s, where real opportunities often emerged from late-night conversations between veteran traders.

Even in today’s volatile environment, the wisdom of those who’ve navigated every market cycle remains invaluable.

In the end, Moderna presents a textbook contrarian opportunity. The stock is deeply out of favor, yet insider buying suggests a potential shift in sentiment as shares hover around $30.

The real question isn’t whether Moderna will recover but whether investors have the stomach to buy when others are still heading for the exits.

As for me, I’m keeping Moderna firmly on my watchlist, right next to my dog-eared copy of "Extraordinary Popular Delusions and the Madness of Crowds."

Some things never change.

Trade Alert - (IBKR) March 11, 2025 - STOP LOSS - SELL

Trade Alert

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

March 11, 2025

Diary, Newsletter, Summary

Global Market Comments
March 11, 2025
Fiat Lux

Featured Trade:

(The Mad Hedge March traders & Investors Summit is ON!)