Mad Hedge Technology Alerts!
It won’t be the case that only 1 or 2 AI stocks hit pay dirt.
There will be more winners.
Most importantly, companies need to get a set at the table whether it be hardware, software, or chips.
There are different ways to play AI and for example, Palantir is a good bet through the software side of it as it gobbles up government contracts that are indeed lucrative, but also highly stable.
Palantir (PLTR) has become one of the top stocks mentioned in conversations I’ve had and I don’t believe it’s going away.
The company has long used AI in its Gotham and Foundry platforms, and its Artificial Intelligence Platform (AIP) has produced eye-popping productivity gains.
But Palantir is currently expensive and management likes to issue new stock like there is no tomorrow.
One stock that could garner attention is Super Micro Computer (SMCI).
It’s a dark horse AI stock that few know about.
Super Micro stands out as a "rack-scale" IT solutions provider, designing servers, switches, storage systems, and software with global support services.
Since this approach combines hardware and software, it provides a competitive advantage over peers who focus primarily on either hardware or software.
Despite a market cap of only $14 billion, Super Micro has built a customer base in more than 100 countries. And so large is its operation that it requires more than 6 million square feet of manufacturing space globally.
A demand surge led to more need to attract talent through stock-based compensation.
Thus, that expense came to $57 million in fiscal Q1, up from $11 million in the year-ago quarter.
Super Micro maintained its fiscal 2024 revenue guidance of $10 billion to $11 billion.
This amounts to a 47% increase which definitely bolsters this tech stock as a prototypical growth stock that investors love.
The stock has skyrocketed by 210% over the last 12 months. And despite that surge, the stock sells at a P/E ratio of 24.
Considering the rapid growth expected, Super Micro's gains are not likely to stop anytime soon.
Thanks to a lack of name recognition, investors are only now seeing the potential for this AI stock.
Consequently, investors can buy a fast-growing stock at a low price.
This means that if they missed the opportunity to buy Palantir more cheaply, Super Micro gives them a second chance. Moreover, with its ability to combine hardware and software, it appears to have a competitive advantage in the AI space.
I’m not saying that investing in something like Nvidia won’t work.
There is room for other chip suppliers and Super Micro Computer is one of them.
The stock has really surged in the past year, but I would be inclined to add on big drawdowns.
Entry points are few and far between for SMCI.
This is just the early stages of AI and to get into one of the better names at a cheaper price is a good long-term strategy.
Mad Hedge Technology Letter
December 13, 2023
Fiat Lux
Featured Trade:
(RIVIAN SPEEDS UP)
(RIVN), (TSLA)
One company I am quite bullish on is EV maker Rivian (RIVN).
They make great cars, but they also lose money by the fistful.
How bad is it?
Rivian lost $1.19 a share in Q3, less than feared, while revenue jumped 149% $1.34 billion.
The EV startup produced 16,304 vehicles and delivered 15,564 vehicles in the third quarter. Meanwhile, Rivian booked a loss of $30,648 per vehicle delivered in Q3, down from a loss of $139,277 per unit delivered a year ago.
Going from losing $140,000 to $30,000 is a big jump and these are eye-popping losses.
The more important takeaway is that big investors are sticking with RIVN as the cash burn improves.
The real hard work is reducing the loss for each car to zero because many variables are working against RIVN.
Then there is the competition and by that I mean Tesla’s Cybertruck.
RIVN shares surged the day after Tesla began initial deliveries of its Cybertruck.
The company also announced it will allow more customers beyond — Amazon (AMZN), which remains a key buyer — to purchase its commercial electric vans.
Rivian raised its 2023 production guidance to 54,000 electric vehicles, up from 52,000 in August.
The company tied the hike to "progress experienced on our production lines, the ramp of in-house motor line and the supply chain outlook."
Tesla offers three trims of the Cybertruck, with the rear-wheel drive version starting at $60,990 with a 250-mile range. The base model will be available in 2025, according to Tesla's website.
The all-wheel drive version has a starting price of $79,990 with 340 miles of range. Tesla is also offering a top-end trim, called the Cyberbeast, starting at $99,990 with a 320-mile range. Both the all-wheel drive version and the Cyberbeast have 2024 deliveries.
Four years ago, Tesla announced the price would start at $39,900 with Chief Executive Elon Musk previously saying he wanted to price the base model under $50,000.
Originally, Tesla and Musk stated the tri-motor Cybertruck would have 500 miles of range with the dual-motor model managing 300 miles and the base rear-wheel version getting 250 miles per charge.
Tesla’s Cybertruck has an eccentric design that could turn off a lot of buyers and funnel them into interest for a RIVN.
Not only is the design extreme, but Musk is asking for more than the $50,000 he first quoted.
RIVN is cheap, to begin with, but it will be able to compete with Tesla’s Cybertruck in price and quality.
Supply-chain issues have hampered the entire industry. Rivian has also had problems of its own complicate its launch.
Rivian is not likely to be profitable for a while it scales out manufacturing.
RIVN burns around $1 billion in cash per quarter, and yet the company is still nowhere near hitting the mass production rates which would achieve a more competitive cost structure.
Another painful bottleneck is the sizable increases in the cost of key metals, including lithium, nickel, aluminum, and cobalt.
Even though they lose $4 billion per year, investors are patient with this company.
Patience stems from the fact that RIVNs are great cars and surely will improve the product.
If RIVNs start to fall in quality then I would expect a massive exodus from the shares which will hit the price of shares.
Until that narrative is broken, I believe RIVN will be bought on dips.
