Mad Hedge Technology Alerts!
Europe’s fintech companies are exploding.
The weakness in stock prices is emblematic of the broader malaise in the Eurozone economy.
The positive here is that the US economy keeps chugging along and on a relative basis, is leaps and bounds stronger than its counterpart.
Why does that matter?
The less money invested into European tech can be diverted into the likes of Tesla (TSLA), Nvidia (NVDA), Apple (APPL), and the rest of the American tech companies.
I absolutely see this as a zero sum game in a world where all the low-hanging fruit has been plucked.
In a globalized world, investors can really just dabble in whatever national market they seek to profit from with ease.
It’s really just a few taps of the screen.
Silicon Valley is already heavily entrenched in Europe with sprawling workforces in many of the 27 countries in which they arbitrage lower wages to their benefit.
If one ever hoped a local rival would root out American variants, it’s a hard slog ahead.
France’s worldline shares plummeted a record 59%, erasing €3.8 billion ($4 billion) of market value, after the French payments company slashed future forecasts.
The stock’s plunge echoes August’s huge fall in peer Adyen NV and follows Tuesday’s 72% drop in fintech CAB Payments Plc. Shares in Adyen declined 7.5% on Wednesday, while another peer, Nexi SpA, slid 18%.
Since then, worries over lofty valuations and a broader slowdown in consumer spending have brought the high-flying stocks back to earth. Adyen, Nexi, and Worldline have lost more than $33 billion in market value combined in the year to date.
Worldline said it now sees full-year organic revenue growth of 6% to 7%, down from a previous forecast of 8% to 10%. The company’s third-quarter sales also missed estimates.
Small fintech companies growing in the single digits is one of the biggest fopaux an up-and-coming fintech company can commit.
Management also complained that European consumers are tapped out.
They don’t have the money to allocate to “non-discretionary” items.
Europeans are basically paying for shelter, energy, and food.
If there is anything else left over, it’s not much. That’s what happens when the cost of living rises between two and three times.
Management also emphasized an acute slowdown in German consumer spending which hurts since these consumers are some of Europe fintechs biggest customers.
I do believe that many investors aren’t going to stay invested in Europe’s fintech space and it is ripe for consolidation which ironically could come from America’s magnificent 7 who have the deep pockets.
It’s a fragmented sub-sector of tech with some operators pigeonholed into one microscopic area of Europe like Andorra or Slovenia.
Technology scales but Europe is hard in the sense it must cut through a vast language, sprawling bureaucracy, high tax regimes, and cultural barriers not to mention different laws. Throw into the mix that multinationals have stopped supporting work visas for non-EU citizens and it is easy to understand why Europe is not ideal for starting tech firms.
The narrow path is why a company like Worldline generates revenue of around $1.2 billion per quarter as opposed to an American PayPal (PYPL) which does $8 billion per quarter.
If we look at the big boys like Google, quarterly revenue goes up to $80 billion per quarter highlighting how far back Europe is from the real upper echelon of American tech.
If Europe is getting trounced by the likes of PayPal, then investors can’t get angry when they get labeled the bush leagues of global technology.
Look at Silicon Valley and especially the tier 2 firms like Uber (UBER) or AirBnb (ABNB) for the real growth instead of Europe’s suffocation of free market technology.
Mad Hedge Technology Letter
October 23, 2023
Fiat Lux
Featured Trade:
(A SIMPLE GUIDE TO QUANTUM COMPUTING)
(RGTI), (IONQ)
According to IBM, Quantum computing is a rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.
Used correctly, quantum computers are incredibly fast and effective. They can perform calculations in a few seconds for which today's supercomputers would need decades or even millennia. This fact is also referred to by experts as quantum superiority.
Why Buy Quantum Computing Stocks?
Quantum computing isn’t so crazy as you think and it’s inching closer to reality.
These types of transcendent technologies are what investors need to key in on to help make their tech stock portfolio better than ever.
This will enable researchers to break new ground in areas such as pharmaceutical drug discovery, weather forecasting, cybersecurity, and computational chemistry.
It will also result in unprecedented gains for owners of quantum computing stocks.
The Best Quantum Computing Stocks
Will quantum computing be successful? That's the multi-trillion dollar question.
We're in the first innings of a long ball game if the game has even started.
Still, there are already some pioneers that are re-imagining the field.
Here are two quantum computing stocks to put on your radar:
Rigetti Computing, Inc. (RGTI)
Rigetti Computing builds and deploys integrated quantum computing systems leveraging superconducting qubit technology.
CEO Chad Rigetti has a simple and clear thesis on this space: “In the next decade, a single Rigetti quantum computer could be more powerful than the entire global cloud industry today.”
Rigetti will need the capital infusion from going public because the firm doesn’t have any positive revenue to talk about. The IPO delivered a much-needed financial lifeline and the additional $458 million in funding came after an initial $200 million was raised previously. That could also be a big con about the sub-sector, it might be years until an actual profitable income stream is built.
Whoever said that Rome was built in one day?
Quantum computing is only at the beginning of its development. It is difficult to estimate how large the market demand for this product will be. It's also uncertain how quickly Rigetti or competitors like IonQ will be able to expand their technical capabilities. This is an entirely new technological territory, so there are zero guarantees here in this tech sub-sector.
Needless to say, Rigetti is a concept stock for now. One has to believe in the underlying vision of quantum computing to place a bet here. Otherwise, it would be wise to switch to other stocks without a quantum computing business plan or corporate strategy.
IonQ (IONQ)
IonQ produces quantum hardware and software.
IonQ was faster to market than Rigetti, making it the first publicly traded quantum computer stock. Also, the company is backed by a number of influential investors including Bill Gates, Silver Lake, and Fidelity.
Unfortunately, like many SPACs these days, IonQ only exists on paper. That means there is still very little operational business. IonQ only did a few million in revenue last year and had no revenue in 2019 or 2020. In fact, free cash flow is projected to remain negative through at least 2026. Also, it will take multiple technological leaps - such as machine learning - to reach a point where quantum computing can reach mass markets and make IonQ successful.
RGTI’s market cap is only $125 million and IonQ’s is $927 million and they are cheap for a reason.
Investors aren’t willing to pay for the time it's willing to take for quantum computing to go mainstream yet.
However, if a reader is willing to invest with a 35-year view, then it would make sense to invest 1% of one’s portfolio into these names and also at a time when interest rates are trending lower.
These types of loss-makers and far-in-the-future bets work better when the cost of capital is lower.
Expect some stock appreciation as investors start to bet on the Fed lowering interest rates.
