Mad Hedge Technology Alerts!
GameStop (GME) and AMC (AMC) shares taking off like a bandit from a bank heist is highly advantageous for tech stocks.
Everyone who owns tech stocks maybe doesn’t know that but won’t complain when their shares go up.
This aggressive price action clearly signals to the rest of the stock market that monetary policy is way too loose.
Yes, and I am saying that at Fed Fund rate sitting at 5% today.
It’s a tough job to reign in the inflationary genie after it’s out of the bottle, and the liquidity sloshing around that overflows into a high inflation backdrop means that prices trend up.
That also goes for tech stocks.
Much of that liquidity has found its way into growth tech stocks like Nvidia (NVDA) and Super Micro Computers (SMCI).
It’s also found its way into marginal tech companies like Gamestop and meme movie cinema stock AMC.
Capital wouldn’t be allocated this poorly into mediocre stocks if there was a tighter cap on liquidity which there isn’t.
It was only just the other week in which the US Central Bank slowed the pace of asset run off to their balance sheet which equated to yet another injection of quantitative easing for tech stocks.
What does that mean?
In the short-term, tech stocks are off to the races.
This is a side effect to the easy money policies resulting in 100% moves in AMC and GME.
It’s almost laughable but that is the world we live in.
The moves higher in both stocks, which have since been followed by several trading halts and subsequent paring of gains Tuesday, came after the reemergence of Keith Gill, also known as "Roaring Kitty," whose bull case on GameStop ignited the meme stock rally back in 2021.
Every bull market has its share of excess and mini bubbles, but this only becomes dangerous when it becomes widespread.
Even if interest in ‘meme’ stocks rebounds following a renewed surge in GameStop’s share price, it doesn’t mean that we are at the end of the tech sector’s Bull Run.
It does mean we are very late in the tech cycle, but honestly speaking, we have been late cycle since 2019.
It’s so late that tech companies now have to issue dividends to keep investors onboard.
They used not have to do that because they were growing so fast.
Sometimes tech stocks don’t sell themselves and this is a period when that is so.
The almost 5 year late cycle action has meant that tech stocks are a good bet in the short-run and the underpinnings to this rally has been fortified due to AI mania that has engulfed many of the best and brightest of tech.
Stocks like GME and AMC shouldn’t be experiencing 100% gains in days in this part of the late cycle, not because I don’t like these companies, but because their business models don’t support such price action.
Gamestop sells video games at the mall.
AMC has a failing movie theatre business.
My take from it is that the tech Bull Run is alive and well in the short-term and there is definitely enough capital to stage a summer tech rally.
Hold on to your hat cowboy!
Mad Hedge Technology Letter
May 13, 2024
Fiat Lux
Featured Trade:
(BUY THE TOURIST PLATFORM TECH STOCK)
(ABNB), (EXPE)
Any type of selloff in Airbnb (ABNB) shares will be short-lived as we approach the summer Olympics and European soccer summer tournament.
Global Events of a month-long will get people out of their homes and spending their cash.
These premium events will move the needle for Airbnb revenue-wise in Europe.
The heart of world travel is Western Europe so it’s convenient that these mega-events are in France and Germany and not in some backwater.
Better luck next time if you haven’t locked up your Airbnb in Germany or France by now.
Travelers even have the option to stay through September and enjoy the annual Oktoberfest in Bavaria.
There isn’t lodging to be found in Western Europe in the summer months and even though the economy is starting to weaken around the edges, we are still in for another summer of travel post-pandemic style.
Tourists are splurging like there is no tomorrow held up by the higher income bracket.
Italy is famous for hosting 8 million Americans per year and is otherwise known as Americans' favorite European destination.
That number is poised to balloon to 12 million by 2030 and that means revenue growth for Airbnb as Italian Airbnb’s are rampant everywhere you go in Italy.
As for the company, the business model has been doing great ever since CEO and Founder Brian Chesky put a tight leash on expenses after being caught wrongfooted during the pandemic.
The stock sold off on the earnings even with the nice beat and the Mad Hedge tech letter executed a call spread on the underlying shares.
Weak guidance has been a hallmark of this past earnings season as the economy softens.
Management needs a lower bar to jump over for later this year.
Revenue increased 18% year over year to $2.14 billion last quarter, ahead of the $2.06 billion consensus.
The surge in profit margins was due in part to a shift in the Easter holiday to the first quarter, strong interest income, and leverage from its revenue growth and cost discipline.
The stock is now down 13% from its year-to-date peak and at its lowest point in close to three months.
Airbnb competes with hotels and other types of overnight accommodations, but its closest competitors are other home-sharing platforms like Expedia's VRBO.
But Airbnb already dominates the home-sharing niche with a leading market share among those platforms, and the company appeared to strengthen its position in the first quarter. Revenue at Expedia (EXPE) increased 8% in the period, while its B2C division which includes VRBO was up just 3%.
Competitors have been unable to overcome the powerful network effect present on Airbnb's platform, allowing it to continue growing its lead.
The shareholder returns program is beefing up.
The company continues to return capital to shareholders, buying back $750 million in stock last quarter. With $2.5 billion in total share repurchases over the past year,
Airbnb has reduced its shares outstanding by nearly 3% over that period. While 3% might not sound like much, this strategy compounds over time, and Airbnb should be able to increase buybacks as profits grow.
Additionally, the company is benefiting from higher interest rates as it's on track to generate close to $1 billion in interest income this year, giving it a significant boost on the bottom line.
I’m betting on an uptick in shareholder interest in the short term at these price levels.
I was a little uncomfortable chasing it higher from $170, but $150 is more reasonable and I do believe the Fed pivot tailwinds could catapult us into profits with this trade.
