Mad Hedge Technology Alerts!
There has been non-stop talk about how ChatGPT is reimagining the tech sector.
The highest quality artificial intelligence chatbot to ever grace the earth is scaring tech executives around the world.
My personal discussions with people in the know are that every tech company is now forming a work group and assembling its best engineers to figure out how to get their hands on something similar.
That being said, here are five companies that will benefit asymmetrically as this chatbot tech goes from fringe to mainstream.
Buckle up with your cowboy hat because this type of technology will become pervasive in no time.
Since the cutting-edge chatbot was launched, there has been a massive re-rating of A.I. stocks because of the legitimacy of the technology.
It definitely appears that chatbot AI will finally live up to the hype.
On November 30th, OpenAI Chat introduced GPT and has since shown that the software can be used in everything from writing stock reports to resignation emails to messages for dating apps
Nvidia (NVDA), famously known for designing and manufacturing graphics chips, is the first stock that goes off the top of my head to benefit from this new AI craze.
The company's technology is being used for various AI integrations from self-driving cars to robots.
Nvidia's CEO Jensen Huang is one of the better leaders in Silicon Valley.
Recent forecasts estimate that a boom in Chat GPT usage could bring Nvidia revenue of between $3 billion and $11 billion over the next 12 months.
Success of Chat GPT brings Nvidia a potentially significant boost in demand for computing power.
New Nvidia chips are benefiting from the large computing requirements of AI tools such as ChatGPT.
Ambarella (AMBA) is another chip company powering the AI market. It develops semiconductors used in everything from in-car entertainment consoles to cell phones.
AMBA chips are also specifically used in self-driving cars, and the company recently partnered with German auto parts maker Continental for a joint autonomous driving project.
Mobileye (MBLY) was spun off from Intel and focuses on autonomous driving technology and driver assistance systems, which include chips and cameras. Volkswagen, Ford, and GM are among the company's customers.
Mobileye SuperVision is the top AI product at MBLY and is the most advanced driver-assist system on the market, providing “hands-off” navigation capabilities of an autonomous vehicle and designed to handle standard driving functions on various road types, while still always requiring the driver's full attention and eyes on the road.
C3.ai (AI) is a provider of software solutions in the field of artificial intelligence and owes its recent share price increase to the success of Chat GPT. Upon the announcement alone, shares rose about 28% when it was announced that Chat GPT would be integrated into its product range.
Alteryx software (AYX) is best known for data and analytics. The company is also involved in automation and specializes in artificial intelligence integration, albeit to a much lesser extent than competitors like Google and Meta.
There are rosy days ahead for AI stocks that will attach their fortunes to one of the most important trends in Silicon Valley.
Mad Hedge Technology Letter
January 30, 2023
Fiat Lux
Featured Trade:
(A FEBRUARY AIR POCKET)
($COMPQ)
Tech shares have swung violently as the China re-open trade went from a false start in December 2022 to taking off in microseconds in 2023.
That lit a fire under tech shares and we’ve experienced epic gains, just look at Tesla’s 35% rise in just one month.
Bear market rallies genuinely provide those “rip your face off” up moves and the key is to get out of the way and try to hop on the bandwagon.
Now after a 10% gain in the tech-weighted Nasdaq index, investors are scratching their heads as to what comes next.
Could we hit a sudden air pocket and retrace performance?
There is still a 35.4% probability that the Fed will hike .25% at the March meeting which would represent .75% more of Fed hikes.
Right now tech shares are only pricing in .50% of interest rate hikes and any type of confirmation of that this week by Chairman Jerome Powell will trigger another leg up in the tech rally.
A .75% rise in the Fed Funds rate means that a higher chance of a “hard landing” increases and stock will sell off rapidly.
Tech shares are poised for a choppy start to the year as investors rely on incoming economic data and eyeball historical trends for clues
The problem is the scope of last year’s selloff makes historical comparisons difficult to use. In fact, last year’s big losers — like growth-obsessed tech and communications services stocks — are among the best performers this year, leaving investors wondering if the worst of the bear market decline is behind them.
Tech forecasts include a small earnings decline, higher borrowing costs, and persistent economic uncertainty, and the reason why stocks could do well through the year is because the bar is set so low.
However, after the great first month of 2023, positioning now has swung dramatically the other way with consensus building and assuming a soft landing.
As the soft landing consensus begins to spread, the individual company news begins to worsen.
Tech firms like Microsoft have issued weak guidance and brutal job cuts.
There hasn’t been another industry that has adopted the pace of job cuts like the technology sector which gives support to the nostrum that tech companies overshoot on the way up and overshoot on the way down.
Apple is about the only big tech company that avoided thrashing the number of jobs in Cupertino, and I believe that is a highly positive sign for the rest of the year.
Another substantial tailwind to the first month of the year has been the tanking of the US dollar.
It has cratered again the most prominent Western currencies and a weak dollar promotes global growth.
Bear in mind that many foreign firms borrow in US dollars and pay back using their own currencies.
I do expect the U.S. Central Bank to downplay the strength in the stock market to poo poo an earlier-than-expected Fed pivot.
The Fed is mostly all bark and no bite which is why dip buyers are so aggressive with their tactical decisions.
I believe after a transitory dip in tech shares, we are most likely off to the races unless the Fed can give us something believably hawkish.
The most important concept to understand is that this current iteration of the Fed is gladly tolerating minus real interest rates as gross interest rates don’t go parabolic.
Although on a personal level, I don’t think this is the right thing to do, at an economic level, this prevents a stock market crash and encourages dip buyers to come in and save the market because they know the Fed won’t pull the rug from underneath them.
Tactical active trading will continue to be the most prominent strategy in the equity market and tech shares moving forward.
