Page 22 - Mad Hedge Fund Trader

THIS AI STOCK ISN’T SEXY ANYMORE — AND THAT’S WHY I LOVE IT

(CRM)

I've seen enough tech bubbles pop to know that when the air starts hissing out, most investors hit the exits faster than a cat at a dog park. But that's often when the real fortunes get made — hidden behind a wall of boring fundamentals and (gasp!) actual profitability.

Welcome to the curious case of Salesforce (CRM).

Lately, Salesforce has been wobbling around like your buddy who insisted he "was fine" after a third spin on the teacup ride. CRM shares are down about 15% since January, mirroring the broader tech malaise. Checking your portfolio these days feels like opening a mystery Tupperware from the back of the fridge: you know it won't be good.

But before you bolt, let's peel back the layers.

The days of Salesforce dazzling us with steroidal growth numbers are fading in the rearview, along with our "lockdown" ambitions to learn Italian or master sourdough. Last quarter, Salesforce delivered 8% revenue growth to $10 billion. Respectable for most, sure. But for Salesforce? That's like seeing Usain Bolt clock a 12-minute mile.

The AI-fueled growth story, once hotter than a sidewalk in July, has cooled considerably. Analysts have moved from "rabid optimism" to "meh" faster than you can say "pivot." But here’s the twist: Salesforce might be shedding its adolescent growth phase in favor of something the market could crave even more — a cash flow machine with expanding margins.

Last quarter, Salesforce posted $2.78 in non-GAAP EPS, comfortably topping guidance. Think of it like promising your friend you'll be there at 8:00—and showing up at 7:45 with coffee and donuts. CRM is growing up, and growing up, my friends, can be lucrative.

The company ended the quarter with $14 billion in cash and $8.4 billion in debt. That’s the corporate equivalent of having an umbrella, raincoat, and a canoe ready for a 20% chance of showers. In uncertain times, that kind of balance sheet isn't just nice—it's a lifeboat.

Across its sprawling empire, Salesforce showed steady progress. Slack revenue growth accelerated to 11%, which is impressive for an acquisition some had already written off. Tableau, meanwhile, lumbered along at 3% growth, the corporate equivalent of, "Well, the teacher made the test really hard."

Guidance for the first quarter? Up to 7% revenue growth. For the full year? Up to 8%. Oh, and Q1 will get dinged by the leap year—proving that in 2025, even something as archaic as the Gregorian calendar can mess with earnings.

Management is also trying to reframe the story around AI agents. Customers using Agentforce are reportedly handling 30-60% of service cases with AI. The jury’s still out on whether this is a rocket booster or just a shiny hood ornament. But it does make customer retention stickier than a melted lollipop in a toddler's hand.

At around 24x earnings, Salesforce isn't dirt cheap, but it's not living in the stratosphere either. Consensus forecasts call for an acceleration back to high-single-digit growth over the next five years. Personally, I'm more skeptical of those forecasts than I am of "fat-free" cookie labels.

Decelerating growth is the natural gravity of mature companies — it's not "if," it's "when." That said, I see Salesforce sustaining 35%-40% net margins. If so, fair value multiples could float between 18x to 22x earnings over time. That pencils out to solid double-digit annual returns, even without multiple expansion. Any multiple boost would be like finding a $20 bill in your ski jacket next winter — sweet, but not essential.

Risks? Of course. Revenue misses could trigger tantrums worthy of a three-year-old denied ice cream. Generative AI could also disrupt the field, though history suggests incumbents like Salesforce tend to survive — and even thrive — through tech revolutions.

In short: Salesforce has graduated from growth wunderkind to cash flow powerhouse. It may no longer be the life of the tech stock party, but when the glitter fades, it's the companies with real earnings and loyal customers that still have seats at the table.

Remember, bubbles come and go. Balance sheets and bored markets? That’s where fortunes are built. Bet smart — bet boring.

April 30, 2025

Tech Letter

Mad Hedge Technology Letter
April 30, 2025
Fiat Lux

Featured Trade:

(HUMANOIDS TO THE RESCUE OR NOT)
(TSLA)

Humanoids To The Rescue Or Not

Tech Letter

Dr. Doom Nouriel Roubini needs to lay off the fear porn – I’m not taking the bait this time. Sorry Roubs!

Roubini is sounding the alarm bells on humanoid robots, but I think it is more of a case of fear-mongering than anything else.

After all, like most economists, Roubini isn’t a trader, he is an academic who sits behind the scenes and goes after those juicy sound bites that the media need to publish stories.

He wasn’t taking profits in great tech trades like when I captured profits on Netflix just the other day.

His idea goes like this…

He thinks the big breakthrough right now is the evolution of humanoid robots that essentially follow individual workers on the factory floor, on a construction site, even a chef in a restaurant, or a housekeeper. It's terrifying, but it's happening in the next literally year or two.

For this level of transformation in one year, I believe the percentage chance of this coming to fruition is less than 2%.

My understanding of the humanoids is that the software will take 10 years to figure out the nuances.

Roubini — known as Dr. Doom for his bleak economic forecasts — said human jobs will be lost to humanoids.

Instead, an LLM (large language model) learns about everything in the world, the entire internet follows your job or my job or anybody else's job in a few months, then learns everything that a construction worker, factory worker, or any other service worker can do, and then can replace them. And I think that it's going to be a revolution — it's going to affect blue-collar jobs like we've never, ever seen before.

The humanoid robot market could reach $7 trillion by 2050, Citi research recently found. Those robots — such as Tesla's (TSLA) Optimus — may be able to do everything from clean your home to fold your laundry. The robots could create job loss as routine tasks get automated.

There is a higher likelihood that this humanoid from Tesla will be used as staging to convince investors to buy more tech stocks.

Tech companies have a huge problem on their hands and there hasn’t been a lot of great brain activity to find a real solution.

Venture capitalists have been lamenting the lack of real innovation in tech products like Mark Andreesen and Peter Thiel.

The humanoid is here to get investors to buy more tech stocks in companies that aren’t innovating.

Tech companies are cutting staff to beat earnings and that isn’t a sign for top notch growth.

Investors need to separate the fluff from reality.

The reality is that big tech companies still make enormous amounts of profit, but have failed miserably in finding something new.

Apple CEO Tim Cook is still figuring out what to do next after selling iPhones to Chinese people.

The humanoid operating on AI software might give tech stocks an extra 6-month cushion before investors pull the rug.

Enjoy the bull market while it lasts. I executed a bullish trade in Dell which is part of the AI story.

AI stocks will go higher and humanoid stocks will too – not because they will make money, but because investors still buy the hype.

April 30, 2025 - Quote of the Day

Tech Letter

“I have more concerns about potential risks and vulnerabilities than most people.” – Said Nouriel Roubini

April 30, 2025

Jacque's Post

(THE STOCK MARKET IS HEADED HIGHER NEXT YEAR ACCORDING TO THIS SIGNAL)

April 30, 2025

Hello everyone

Have you ever heard of the Zweig Breadth Thrust?

Well, last Thursday, April 24, it was signalled.

And yes, that’s a good thing.

The Zweig Breadth Thrust was developed by legendary investor Martin Zweig. He published a major stock market newsletter in the 1970’s. He is perhaps best known for predicting Black Monday in 1987, when stocks lost over 20% in one day.

He developed the Zweig Breadth Thrust after realizing that a shift from widespread selling to buying in 10 days or less had led to significant gains over the following year.

The Zweig Breadth Thrust triggered on April 24 is just the 20^th since 1945, according to Carson Investment Research. The last time we saw one was near the S&P 500’s low in November 2022.

In the past, the benchmark S&P 500 has produced gains 100% of the time one year later, with an average and median return of over 23%.

Zweig Breadth Thrusts are uncommon because they require a period of extremely broad selling immediately followed by extremely broad buying.

The measure is calculated by dividing a moving average of the number of NYSE stocks advancing by the total number of advancing plus declining stocks.

Initially, a ratio of 0.659 was considered a buy signal, while 0.366 was a sell signal. However, the indicator’s buy signal has since been modified to be when the 10-day exponential moving average of stocks rises above 61.5% after being below 40% within the past two weeks

The S&P 500 has historically delivered robust returns after a Zweig Breadth Thrust.

Not only was the S&P 500 up one year later by an average of nearly 24% following every previous occurrence, but it has also delivered impressive short- and intermediate-term results.

The average historical return over the following one, three, and six months is 5%, 8%, and 15%, with a 95%, 79%, and 100% success rate.

But the lesson here is to be cautious. Rightfully so, this signal is one to respect. But remember that stocks have retested and even made new lows in the past following them, including in 2023, when we got two signals, one in spring and the other in the fall.

Investors have plenty to be concerned about. Inflation, unemployment numbers are rising, and a decelerating (GDP). And then there is the muddy tariff landscape on top of that, which can influence people’s spending habits.

In short, a Zweig Breadth Thrust doesn’t mean we have escaped the bear just yet. Stocks often require back-filling of gains, meaning a retest or new low isn’t out of the question.

Nevertheless, the returns associated with a Zweig Breadth Thrust are undeniably encouraging for long-term investors with horizons longer than six months or one year.

BITCOIN TARGETS ACCORDING TO AN ARK STUDY

An ARK study sees Bitcoin hitting up to $2.4 million by 2030, driven by institutional inflows, nation-state adoption, and growing on-chain utility.

The analysis by the firm highlights institutional investment — spot Bitcoin ETFs in particular — as the biggest driver in the bull case, contributing 43% of total capital inflows.

ARK Invest believes that Bitcoin’s future price targets are justified by its increasing role as a global financial asset that is receiving capital inflows from numerous avenues. It’s being considered a store of value, especially in developing countries where citizens face inflation and currency devaluation.

The spread of nation-state adoption, starting with nations such as El Salvador and Bhutan, also recently announced by President Donald Trump in the U.S., reinforces the bull case ARK is assuming.

Furthermore, growing corporate adoption of Bitcoin and the growth of on-chain financial services such as the Lightning Network and WBTC are further boosting the capital potential of Bitcoin. These dynamics, Ark says, lend their forecast structural validity.

Wrapped Bitcoin (WBTC) is an Ethereum token that is intended to represent Bitcoin (BTC) on the Ethereum blockchain. It is not Bitcoin, but rather a separate ERC-20 token that’s designed to track Bitcoin’s value.

The journey to 2030 through this vehicle will be full of peaks and troughs – put BITCOIN in the bottom drawer and leave it alone.

Cheers

Jacquie

Trade Alert - (TSLA) April 30, 2025 - TAKE PROFITS - SELL

Trade Alert

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more

The Lazy Man’s Guide to Trading

Diary, Homepage Posts, Newsletter

I like to start out my day by calling readers on the US east coast and Europe, asking how they like the service, are there any ways I can improve the service, and what topics would they like me to write about.

After all, at 5:00 AM Pacific time, they are the only ones around.

You’d be amazed at how many great ideas I pick up this way, especially when I speak to industry specialists or other hedge fund managers.

Even the 25-year-old day trader operating out of his mother’s garage has been known to educate me about something.

So when I talked with a gentleman from Tennessee in the morning, I heard a common complaint.

Naturally, I was reminded of my former girlfriend, Cybil, who owns a mansion on top of the levee in nearby Memphis overlooking the great Mississippi River.

As much as he loved the service, he didn’t have the time or the inclination to execute my market-beating Trade Alerts.

I said, “Don’t worry. There is an easier way to do this.”

Only about a quarter of my followers actually execute my Trade Alerts, and a lot of them are professionals. The rest rely on my research to correctly guide them in the management of the IRA’s 401(k)’s, pension funds, or other retirement assets.

There is also another, easier way to use the Trade Alert service. Think of it as “Trade Alert light.” Do the following.

1) Only focus on the four best of the S&P 500’s 101 sectors. I have listed the ticker symbols below.
2) Wait for the chart technicals to line up. Bullish long-term “Golden crosses” will set up for several sectors, as with precious metals now.
3) Use a macroeconomic tailwind.
4) Shoot for a microeconomic sweet spot, companies and sectors that enjoy special attention.
5) Increase risk when the calendar is in your favor, such as from November to May.
6) Use a modest amount of leverage in the lowest risk bets, but not much. 2:1 will do.
7) Scale in, buying a few shares every day on down days. Don’t hold out for an absolute bottom. You will never get it.

The goal of this exercise is to focus your exposure on a small part of the market with the greatest probability of earning a profit at the best time of the year. This is what grown-up hedge funds do all day long.

Sounds like a plan. Now, what do we buy?

(ROM) – ProShares Ultra Technology 2X Fund – Gives you a double exposure to what will be the top-performing sector of the market for the next six months, and probably the rest of your life. Click here for details and the largest holdings.

(UXI) – ProShares Ultra Industrial Fund 2X – Is finally rebounding off the back of a dollar that will slow down its ascent once the first interest rate hike is behind us. Onshoring and incredibly cheap valuations are other big tailwinds here. For details and the largest holdings, click here.

(BIB) – ProShares Ultra NASDAQ Biotechnology 2X Fund – With technology, this will be the other hyper-growth sector in the stock market for the next 20 years. How much is a cancer cure worth to stock valuations? Oh, about $2 trillion. A basket approach favors this notoriously volatile sector by rotating in new winners to replace losers.

(UYG) – ProShares Ultra Financials 2X Fund – Yes, after six years of false starts, interest rates are finally going up, with a December rate hike by the Fed a certainty. My friend, Janet, is handing out her Christmas presents early this year. This instantly feeds into wider profit margins for financials of every stripe. For details and the largest holdings, click here.

Of course, you’ll need to keep reading my letter to confirm that the financial markets are proceeding according to the script. We all know that sectors can rotate rapidly, as they have just done.

You will also have to read the Trade Alerts, as we include a ton of deep research in the Updates.

You can then unload your quasi-trading book with hefty profits in the spring, just when markets are peaking out. “Sell in May and Go Away?” I bet it works better than ever in 2024.