Mad Hedge Technology Alerts!
How will Microsoft grow their stock in 2025?
In short, MSFT are building what the market wants, and what the market wants are AI data centers.
The stock price should be rewarded if they can deliver these new AI data centers to the market.
The data center increase shows no signs of slowing down and I do believe this puts a floor under tech stocks.
To be honest, there has been a lot of bad energy surrounding the current tech business models because many of them are getting stale.
Why upgrade to the next iPhone when there isn’t much of an upgrade?
The refresh cycle data shows people are standing pat and using their own tech longer and that is bad news for tech software and hardware companies.
So instead of trying to squeeze the remaining juice out of a stale model, beefy balance sheet tech companies are driving full force into AI investment even though this investment doesn’t reciprocate with any sort of revenue stream.
It’s a little bit of a build it and it will come mentality which I do believe is quite risky and at some point, we are due for a heavy selloff.
That selloff could get triggered if the US 10-year interest rate blows past 5.5%, then all bets are off.
Microsoft says it plans to spend $80 billion on building AI data centers this year.
Microsoft has poured billions of dollars over the last two years into Anthropic, as well as Elon Musk’s startup xAI.
Advances by these firms would not have been possible without new partnerships founded on large-scale infrastructure investments that serve as the essential foundation of AI innovation and use.
The $80 billion would reflect a significant increase on the $53 billion capex spend Microsoft made in 2023.
Documents leaked last April revealed it had more than 5GW of capacity at its disposal, with plans to add an additional 1.5GW in the first half of 2025. It is possible this has since been revised upwards as it looks to provide compute power to OpenAI to run ChatGPT and its other AI services, as well as supporting its own Azure public cloud platform.
Part of this is definitely the management at OpenAI namely CEO Sam Altman. He is seen as the avant-garde of AI and the leader of the whole movement. He is demanding a massive build out and investors have largely taken him at this word. Nobody has really questioned him and that stems partly from no one really knows where this AI thing is headed in the future, but we are convinced that buckets of data space are needed for whatever comes next.
My issue is what if the thing that comes next is a cataclysmic letdown, then where do tech stocks head?
Most likely they would head for the gutter.
So we give the benefit of the doubt to this gargantuan AI infrastructure build-out and it feels like we are flying blind in a snowstorm, but that is what the market is telling us and the market is always right until it is not.
Sometimes tech does figure it out, and we are really hoping there is something of great value at the end of the build-out.
Buy the dip in MSFT until the AI infrastructure story is killed off.
Mad Hedge Technology Letter
January 6, 2025
Fiat Lux
Featured Trade:
(DIGITAL SPORTS CONTENT RISES TO THE TOP)
(FUBO), (DIS)
It isn’t a shocker that the first deal to go through in 2025 is in digital sports streaming.
This sub-sector is scorching hot.
It was only just a few days ago when Netflix rolled out its debut in streaming NFL during Christmas when they broadcasted 2 games.
Live American football – not the European variant - is the holy grail of digital content and the beefiest of marketers with the deepest of pockets will cough up to place their ads in these commercial slots.
Disney (DIS) will combine its Hulu + Live TV business with sports streamer FuboTV (FUBO) in the first major media dealmaking move of 2025.
Disney will control 70% of Fubo. Shareholders of the sports streamer will own the remaining 30% of the combined business, which will operate under the Fubo publicly traded company name.
Disney is struggling in many parts of their business, for example, is underperforming in their theme parks.
Their movies also suck.
Pro football is the last bastion of premium content and even the woke employees at Disney understand that.
Disney stock has essentially halved since 2021 with shareholders furious about their lack of strategic vision.
The acquisition of Fubo gives Disney a chance to restart in a sub-sector that has a glowing future.
Cord cutters are exploding and since last year’s Presidential election, the trust in legacy media has never been at such a low ebb, and rightly so with the poor level of content quality.
The combination of the two businesses will form one of the largest digital pay-TV providers as consumers search for cable alternatives amid increased cord-cutting.
Fubo, which offers users access to live TV channels over the internet, has primarily focused on sports.
Hulu + Live TV, categorized as a cable replacement option — similar to YouTube TV — allows users to stream from about 100 live TV channels across sports, news, and entertainment.
As a much smaller player, Fubo struggled with high content costs and the ability to curb subscriber churn and adequately compete in the marketplace — hence the lawsuit's inception.
The three companies first announced the joint venture last year, with an expected price point of $42.99 a month. The service will bring together their respective slates of sports rights and comes as media companies face pressure from investors to scale their streaming services and achieve profitability.
I’m not saying that digital streaming of pro sports is easy.
We aren’t in the early innings.
Content costs are astronomically high and subscriber churn can be a problem in the offseason.
The nightmare could end up like the NBA.
Look at sports like pro basketball (NBA, viewership is down 50% this season as subscribers flee the sinking ship.
The basketball commissioner created a model where most teams make the playoffs meaning the 82 game schedule has been deemed irrelevant causing their best stars to sit out games.
It’s just one example of the management of pro sports going down the drain and pro football isn’t immune to bad management too.
As it stands, I highly support Disney’s foray into Fubo and Fubo would be a great stock to pick up and hold at $4.80.
The stock is up from $1.44 this morning.
Live pro sports still fetches a premium and I don’t believe that will change any time soon.
Jump into tech stocks that have big investments planned in American football.
Much of the big growth opportunities have been saturated and I do believe the tech market will become more of a zig-zag trading market in 2025.
