Mad Hedge Technology Alerts!
Buy Applied Materials (AMAT) on the dip.
That was my conclusion after hearing this chip-making stock nose-diving by the most in almost a year.
Rarely do traders get such a good entry point into such a high-quality name.
AMAT has been around forever and it is a tried and tested chip brand that produces high-quality equipment.
It’s noteworthy that a report showed that AMAT faces a US criminal investigation for allegedly violating export restrictions to China, but it’s a storm in a teacup.
It’s not such a big deal, because the bad news will get discounted quickly and the US will probably give AMAT a light slap on the wrist.
It makes no sense to destroy a company that is critical to national security infrastructure.
Maybe a few executives will get laid off and then we move on.
After this issue is swept under the carpet, it’s all systems go for AMAT.
The company is being probed by the Justice Department over dealings with China’s biggest chipmaker, Semiconductor Manufacturing International Corp.
The department is considering whether Applied Materials sold hundreds of millions of dollars of equipment without the proper licenses.
Chip companies are operating under increasingly strict rules imposed by Washington on exports of chip technology to China.
Acquiring licenses to send certain types of machines to Asia is a sign of the times and how national governments are desperate to keep technological know-how in the state.
Applied Materials produced chipmaking gear in Gloucester, Massachusetts, and then shipped it to a subsidiary in South Korea.
It then went to China’s SMIC, the people familiar with the investigation said.
SMIC was placed on a so-called entity list in December 2020 by the Department of Commerce, which cited alleged links between the chipmaker and China’s military.
Semiconductor manufacturers order machinery from Applied Materials and its peers well ahead of opening new factories, which can take more than a year to build and equip.
Though the chip industry has been contending with a slowdown in personal computers and smartphones, Applied Materials Chief Executive Officer Gary Dickerson has argued that artificial intelligence computing will fuel a new surge in demand.
Semiconductor equipment companies have been hurt by weak demand from memory chip makers, which are enduring an industry glut.
Luckily, the savior is AI and its insatiable demand for high-end processors.
China has been one of the fastest-growing markets for chip equipment. But the US restrictions have put a wet towel on the business relationship.
Uncertainty is the keyword here, but if AMAT keeps producing world-class equipment, it will accrue value in almost any financial market.
I am comfortable recommending AMAT now and the discount certainly makes it look more attractive.
Once AMAT acquires a license to sell to the Chinese, this will be forgotten.
The demand for conventional chips and AI chips is leading the charge and even though there is a glut of non-AI chips, AI chips will lead the charge in the short term before consumer demand comes back.
This is the forefront of technology and readers should grab a piece of it.
Mad Hedge Technology Letter
November 15, 2023
Fiat Lux
Featured Trade:
(CONSIDERING AT INVESTMENT IN FISKER THEN READ THIS)
(FSR), (TSLA)
Removing the Chief Accounting Officer and delaying earnings on the day of earnings is a massive red flag for EV start-up Fisker (FSR).
Fisker said in a filing that it “determined that it has material weaknesses in the company’s internal control over financial reporting.”
Hiring the wrong person for one of the most important jobs at the company only to realize on the day of an earnings report is more than bad optics, and it certainly means there is probably a lot worse going on under the hood.
The blood bath in FSR shares continues today with the stock cratering over 2% which is on the heels of a 21% drop on Tuesday.
Fisker CFO Geeta Gupta-Fisker said the company is cutting its 2023 production guidance to a range of 13,000-17,000 units to enable the company’s “global delivery and logistics platform to scale” and not sit on inventory. Fisker’s challenges with delivery resulted in 4,725 vehicles produced, but only 1,097 delivered.
FSR has continued to over-promise and deliver which creates a toxic recipe for lower stock prices.
After peaking at over $28 per share in the summer of 2021, the stock has done nothing but slide into the abyss.
CEO Henrik Fisker said customers were waiting a long time for their vehicles and were getting “annoyed.”
Fisker’s production forecast stood at 20,000-23,000 units, which itself was reduced from a prior forecast of 32,000-36,000 in May, and again from 42,400 earlier this year.
It’s only time until the EV company starts reducing its forecasts even more and this constant expectation of changing expectations is due to bad management.
FSR lost $91 million in the past quarter and only has a tick above half a billion in cash.
Doing some basic math, it means that FSR will burn through their existing cash in 5 quarters if they lose around the same amount of cash each quarter moving forward. If this happens, they will need to tap the corporate debt market and pay extortionate rates of something between 17% and 20% considering they have a high chance of filing for bankruptcy.
Readers should keep in mind that FSR doesn’t sell a cheap car.
It’s quite expensive which will make it even harder to scale.
That’s bad news for a start-up that only delivers about 1,000 cars per quarter.
Performance and management seem like they aren’t up to snuff and on paper, the company isn’t hitting the metrics it needs to be taken seriously by investors.
From a pricing point of view, Fisker made pricing adjustments for its lone Ocean SUV, cutting its top trim Ocean Extreme by $7,500 to $61,499.
Ultimately, I see FSR’s competitive position, or lack thereof exacerbating as we move forward.
I don’t see how they catch up with the heavyweights as it relates to many critical factors in running a successful EV firm.
Low-interest rates or something similar to them will not be back for a long time and perhaps never.
This new rate environment doesn’t favor the start-ups the ones that already “made it” in a low-rate environment of the past.
FSR makes a good car, but not to the point where buyers will pass up other cheaper options.
If FSR is struggling to deliver more than 1,000 cars per quarter, it bodes ill for repeat purchases after so many buyers are waiting for cars that should have already been delivered.
Management not understanding the logistics of the situation is hard to fathom in 2023.
They might want to pick up the phone and call around to see what is going on.
If a buyer spends more than $70,000 for an EV from an untested brand like FSR, better get the car there on time.
There is a reason why Tesla (TSLA) just caught a bid and shares went up 18% and the stock has doubled this year and it’s not because they have trouble delivering 1,000 cars.
I’ll take a hard pass on FSR for right now.
