Mad Hedge Technology Letter
March 28, 2025
Fiat Lux
Featured Trade:
(AN UP AND COMING SOCIAL MEDIA PLATFORM)
(RDDT), (GOOGL)
Social media stock Reddit (RDDT) has fallen dramatically from February and is one of those companies readers need to mark down as one to buy at a discount.
Even though the stock has more than halved, this platform is one that has made major inroads into the cultural and social fabric of English language discussion.
It is true in the short-term, it is facing tough comparisons to the bigger giants like Facebook, Instagram, and Snap.
There is clear evidence that the boost to traffic and visibility from Google’s (GOOGL) changes is hitting a ceiling, with a risk that we are entering a period of diminishing returns.
Reddit's daily active user growth will slow to 19% in 2025.
Google’s expanded relationship could turn on a dime and that looks like the likely outcome here.
Google’s search algorithm is not adding as many Reddit subscribers as it used to.
Reddit is not a behemoth, but everybody in Silicon knows this company.
The mid-term problem for Reddit boils down to the lack of profitability.
When you consider that the weakness in Reddit has coincided with a brutal macro-induced selloff, then Reddit is starting to crawl back into an attractive zone for long-term buy-and-hold investors.
When this tariff chaos starts to calm down, I do believe Reddit stock will turn sharply higher.
At its February peak, Reddit’s stock had risen over 500% from the $34 initial public offering price last March. Some of the enthusiasm was due to a series of deals in which Reddit was paid to allow its content to be used for training artificial intelligence models. More recently, though, there have been questions about the long-term growth prospects for the artificial intelligence industry.
Remember that Reddit is in the early stages of executing on a robust, multi-year user and monetization growth opportunity.
There is also the potential to add many other non-English language markets.
Reddit’s shares are extremely volatile and have had 66 moves greater than 5% over the last year.
There is also the critical issue of investors not knowing the company well enough because Reddit’s brand is still way too small.
The diminutive stature of Reddit’s brand footprint has translated into less marketing interest.
Smaller companies are susceptible to the whims of Google Search and Amazon e-commerce.
These types of bigger companies can stifle growth by becoming too reliant on search results making Reddit.com harder to find.
Surely, investors wouldn’t believe it is realistic if the stock continued its rise peaking at $230 per share.
The comedown has been remarkable, but to be honest, many other tech stocks have been beaten up pretty good too lately.
Reddit needs to fall another $20 and then I would say that is a great entry point into an upstart social media stock.
In the meantime, the global trade fights continue to hog center stage.
Pessimism continues to grow in the US, but we still haven’t hit a recession.
“If something's important enough, you should try. Even if - the probable outcome is failure.” – Said Elon Musk
Mad Hedge Technology Letter
March 26, 2025
Fiat Lux
Featured Trade:
(TECH FIRMS COULD BE OVERSPENDING)
(BABA), (MSFT)
I get it that there is a massive AI craze sweeping the tech industry and that these are the shovels to the potential gold rush in which could induce a revenue waterfall.
There have been many promises and like the fate of many promises – they aren’t kept.
Personally, I have not been convinced yet that this AI revolution will turn into some transformative movement.
Then there is the issue of whether humans will just revolt against AI once they begin to understand we are essentially training software to replace human interaction.
Talking to software engineers, the avalanche of firings in Silicon Valley has woken up their cohort.
Coders thought for a long time they were immune from firings and the gift that kept giving would continue unabated.
Now, software engineers are being terminated at record levels, and management has decided to pour money into building AI data centers.
Even China is getting in on the act.
Alibaba (BABA) itself — which in February declared it was going all-in on AI — plans to invest more than 380 billion yuan ($52 billion) over the next three years. Server farms are springing up from India to Malaysia.
Critics have also pointed out the persistent dearth of practical, real-world applications for AI.
Alibaba is mounting a comeback in 2025 thanks in part to the recent popularity of its Qwen-based AI platform, which it envisions boosting Alibaba’s core commerce business as well as cloud services.
American tech companies have already spent close to half a trillion dollars on AI data centers and there hasn’t been much revenue follow-through parallel to it.
Co-founder of Alibaba Joseph C. Tsai has said that American companies are overspending on AI data centers and less money can be spent than what is necessary to get the same result.
He said, “I’m still astounded by the type of numbers that are being thrown around in the United States about investing into AI.”
The latest news comes from Microsoft (MSFT).
They have quit new data center projects in the US and Europe that had been set to consume 2 gigawatts of electricity.
Microsoft’s retrenchment in the last six months included lease cancellations and deferrals.
Microsoft has said it will spend about $80 billion building out AI data centers this year, and that the pace of growth should begin to slow after that.
If investors don’t see anything meaningful in revenue possibilities soon, people will start to think this is beginning to feel like the Chinese ghost city problem.
China is usually not the type to overspend, and watching their development of AI for a fraction of the price is fascinating.
What does this all mean?
After a brutal correction in tech stocks in February, it could mean another leg down for tech stocks.
If it proves to be true in the short-term, tech stocks won’t deserve the premium they are fetching if they are in fact overspending on AI data centers.
Then throw into the blender that the government is fighting about trade, and there is a severe limit on what we can do in the short-term.
Mad Hedge Technology Letter
March 24, 2025
Fiat Lux
Featured Trade:
(23ANDME GETS DUMPED)
(ME)
Tech is full of ideas swept into the dustbin of history, and 23andMe is just another blatant example of it.
Mr. Market decides the fate of these public companies and nobody else.
Remember they went public when there was more money than common sense.
Interest rates were low and half-baked tech ideas were getting funded left and right.
That was back when things like Hollywood used to be relevant.
Fast forward to today and 23andMe is done and dusted.
They filed for bankruptcy protection in the US to help sell itself.
Many of these mediocre tech companies are falling like dead flies as the thirst to prove profitable has really hit tech as small firms deal with the 1000-pound gorilla in the room.
The company has never flipped a profit.
They could solve the problem of extracting recurring revenue and many customers fled the company after doing their DNA test.
The San Francisco-based company said its chief executive and co-founder Anne Wojcicki was stepping down. She has been pushing for a buyout since April last year but was rebuffed by 23andMe’s board.
The company is still reeling from a huge data breach in 2023 that affected the data of nearly 7 million people, about half of its customers. Revenues have fallen as many of its 15 million customers scramble to delete their DNA data from the company’s archives.
This is a company that can solely exist with some level of trust, and that trust was extinguished in one fell swoops as hackers made out with everything important to the company.
At a time when other tech overlords are headed into the health business, the proverbial goalposts could never be narrower than they are today.
That is bad news for shareholders and bad news for the possibility of a quick turnaround.
Fighting for survival, 23andMe has cut the jobs of 200 people, amounting to 40% of its workforce, and stopped the development of all its therapies in November. Wojcicki’s ambition has been to turn the company into a drug developer.
The CEO will be replaced by its chief financial officer, Joe Selsavage, until a permanent replacement is found but she is staying on the 23andMe board.
It has never been harder to make a profit in Silicon Valley and even though data leaks aren’t a big deal for big tech giants, they are a death sentence for an upstart.
A company like 23andMe never found a way to monetize its business model.
I remember the fad of getting your genes tested to see where you are from, but that spark was met with a big thud.
The truth is, how do you come back from a data leak when that is the sole value of your firm?
The answer is you don’t.
23andMe won’t be able to do much of anything to expand their revenue projections while they are mired in over 30 lawsuits.
Everything they will do will be like walking on a tightrope.
Better to just shut down the company and restart a new one.
It’s hard to believe that in 2021, the company had a stock price of over $320.
Fast forward to today and the stock is trading under $1.
American capitalism is for no faint of heart and 23andMe’s story is a bruising anecdote to what happens when tech firms don’t safeguard their secret sauce.
That sauce has now gone rotten.
Mad Hedge Technology Letter
March 21, 2025
Fiat Lux
Featured Trade:
(TECH BURNS DOWN ON TV)
(TSLA), (ROBO-TAXI)
Mad Hedge Technology Letter
March 21, 2025
Fiat Lux
Featured Trade:
(TECH BURNS DOWN ON TV)
(TSLA), (ROBO-TAXI)
It is a bad look for Tesla (TSLA) when every time you look at a TV and you see Tesla products either getting slyly keyed or engulfed in flames.
That is the type of figure Elon Musk to American society.
Through one lens – he could be considered one of the greatest technologists of all time.
Through another lens – he could be considered a man preventing the flow of Democratic party funding to its NGOs and other party apparatus entities.
Either way – this guy is going to be controversial and his stock has suffered immensely in the short-term.
That being said, one of the richest venture capitalists in the world Peter Thiel who is a remarkable man himself said to never bet against Elon. He might even dislike Musk as well.
Those words are hard to forget as Musk held an impromptu company all-hands meeting on Thursday night, giving an update on the progress of a number of products while also attempting to assuage fears that the CEO is ignoring his post.
Tesla stock has been in free fall since the start of the year, with sales slipping in key regions like Europe and China and even in the US. The changeover to the new Model Y SUV has been seen as a drag on sales.
Overall, Musk maintained that the news was "good" for Tesla and urged employees and others to hold onto their Tesla stock because, in his eyes, the future is bright.
The bet on robo-taxis and autonomous driving is one of the key catalysts for Tesla's future growth, and Musk again laid out his audacious vision.
Key to the company's autonomous vision is the Cybercab robo-taxi, slated for production in 2026. Musk said the factory was already beginning preparations for production using its "unboxed" assembly technique, which would resemble a "high-speed consumer electronics line," rather than an automotive production line.
Speaking of future product production, Musk said Tesla built the "first Optimus at the Optimus production line in Fremont," adding that the humanoid robot would be available for sale in 2026, initially to Tesla employees, after internal company use.
Turning back to the here and now, Musk predicted the Tesla Model Y — the company's most important current product — would once again be the top-selling car in the world following its new update.
To me, it is clear that Musk went the political route because he sensed his robo-taxi and Optimus robot projects were about to be drowned out by bureaucracy.
He probably understands more than anyone that America has become overregulated and it is hard to get stuff done, even if it is a lot more efficient than a place like Europe.
Being in agreement with the current administration has to boost his humanoid robot and robo-taxi project by at least 75% and I wouldn’t be surprised he is attempting to get as much regulatory approval in the next 4 years.
These two projects are what will quadruple the stock in the next 5 or 10 years. He knows that investors know that, and he is doing everything in his power to force the impossible to become possible.
Perhaps Peter Thiel will say that is something Elon Musk would and can achieve.
