(AAPL) Archives - Page 8 of 113 - Mad Hedge Fund Trader

Optimistic Future For Google

It isn’t a surprise that the Department of Justice is going after Google (GOOGL) to divest its Chrome browser following a ruling in August that the company holds a monopoly in the search market.

I don’t believe this will tank the cash cow business of Google Search, and let’s not forget the most likely outcome is that Chrome is retained as a division of Google.

At worst, if it does get divested, the appeal process takes many years.

Although I do believe it will become harder for Google Search to track and monitor user behavior without Google Chrome, this is by no means a deal breaker.

Plenty of traffic comes from completely different operating systems like Apple (AAPL) iOS that don’t employ the Chrome browser.

In fact, spinning out its browser would result in a massive windfall because the current setup hides the aggregate value and synergies within a larger corporation.

Once Google Chrome is spun out, animal spirits could take hold, and the value could skyrocket.

Google will naturally profit from this as well.

Chrome, which Google launched in 2008, provides the search giant with data it then uses for targeting ads. The DOJ said in a filing that forcing the company to get rid of Chrome would create a more equal playing field for search.

The DOJ said that Google will be prevented from entering into exclusionary agreements with third parties like Apple and Samsung. The department also said that Google be prohibited from giving its search service preference within its other products.

Search advertising accounted for $49.4 billion in revenue, representing three-quarters of total ad sales in the most recent period.

The DOJ’s request represents the agency’s most aggressive attempt to break up a tech company since its antitrust case against Microsoft, which reached a settlement in 2001.

In August, a federal judge ruled that Google holds a monopoly in the search market.

Also, the DOJ suggested limiting or prohibiting default agreements and “other revenue-sharing arrangements related to search and search-related products.”

The most likely outcome is that Google will be legally forced to do away with certain exclusive agreements, like its deal with Apple. I also don’t believe that Google will be forced to divest from the Android operating system, and the chances of that happening are almost zero.

Even without an exclusivity agreement, most Apple users use Google Chrome because it is still the most useful search engine.

Will that be the case in the future?

With AI changing business models left and right, it is hard to say, but in the interim, it is hard to believe that a lack of exclusivity agreement will cause any meaningful change to the bottom or top line in the next few years.

Breaking up parts of Google would result in a massive windfall for shareholders, strengthen the tech ecosystem, and make Google and its spinoff entities more competitive.

However, high-up executives are wary about voluntarily dumping revenue from the mothership because it hurts negotiating leverage when agreeing on future compensation, and that is what usually standalone corporate executives care about.

I believe spinning out some of these businesses, like Waymo, Google devices, Google Maps, and YouTube, would be great for America and give an opportunity for investors to jump into great tech companies before they skyrocket.

November 27, 2024

Tech Letter

Mad Hedge Technology Letter
November 27, 2024
Fiat Lux

Featured Trade:

(BEST BUY THROWS UP SOME WARNING SIGNALS)
(BBY), (AAPL)

Best Buy Throws Up Some Warning Signals

Tech Letter

Best Buy (BBY) tanking their earning results is indicative of where we are right now, not only as a society but also in the tech sector.

People just don’t have that extra dollar or 2 to fund that iPhone (AAPL) upgrade, and that is why Best Buy sales are so underwhelming.

It isn’t the end of the world, but we need the consumers to stay healthy for the short-term health of the tech sector.

Sure, it is true that a great deal of spend comes from enterprise sources, but that is not the entire economy.

The U.S. economy is held up by consumers, and that isn’t the case in many other economies like China or India.

Get ready for a lukewarm Christmas season, which should manifest itself in some pretty sweet deals for the individual.

At the aggregate level, it looks quite sluggish in the mid-term as electronic retailer Best Buy ponders about how to reverse the dimming outlook.

Best Buy cut its full-year sales forecast and missed revenue targets.

Best Buy expects full-year comparable sales to decline by between 2.5% and 3.5%, compared with its prior expectations of a 1.5% to 3% drop.

Granted, the holiday season is five days shorter than last, so some of the softness is a one-off.

Management did say shoppers are responding to big deals and sales events. Management said it expects the peak in sales during times like Black Friday and Cyber Monday to be higher but the valleys before and after those to be lower.

Best Buy is waiting for a wave of shoppers to replace old devices and upgrade to new, higher-tech ones after an approximately two-year sales slump in the consumer electronics category.

Management said they anticipate this year to be one that brings “increasing industry stabilization.” They also mentioned specifically about Apple’s fresh collection of iPads, as well as artificial intelligence-enabled laptops from Microsoft, will drive sales.

Tariffs could put Best Buy’s sales at risk, too, if they result in higher costs for the company and for customers. President-elect Donald Trump said he would raise tariffs by an additional 10% on all Chinese goods and impose tariffs of 25% on imports from Mexico and Canada.

Artificial intelligence products are nowhere near the shelves of Best Buy, and nobody knows when they will debut.

A.I. continues to be strictly an enterprise build-out with a future use case, which doesn’t help companies like Best Buy and their bottom line.

Apple and its micro-improvements don’t move the needle enough for shoppers to get off the sidelines and splurge.

This type of transitory environment for consumer tech isn’t what investors like to hear.

I also mentioned earlier about the inflation effect of households redirecting funds to essentials like housing, insurance, and food.

Therefore, it is better for investors to stay out of the tech consumables and target the enterprise side of the equation.

I don’t believe the enterprise part of tech needs a reboot of growth is waning, and I am still executing bullish trades in stocks that are exposed to the A.I. story.

However, the times of the “tide lifts all boats” all long gone in the rearview mirror.

Today, I executed another bullish trade in Dell (DELL) on a monster dip of 12%. Weak guidance is another manifestation of stalling tech growth. I will exit this position before the year is over.

November 21, 2024

Diary, Newsletter, Summary

Global Market Comments
November 21, 2024
Fiat Lux

Featured Trade:

(THURSDAY, JANUARY 16, 2025 SARASOTA FLORIDA STRATEGY LUNCHEON)

(TEN REASONS WHY I ONLY EXECUTE VERTICAL CALL DEBIT SPREADS)
(AAPL), ($VIX), (SPY)

Hang On To The A.I Story With Meta

Tech Letter

One of the reasons I believe this AI narrative will continue in the short-term is because cash cow tech firms like Meta (META) are pouring cash into AI infrastructure.

There is a lot we still don’t know about the direction of AI – the future is uncertain.

However, the one takeaway is that the AI infrastructure spend continues right now unabated, and we know that because Meta raised capital expenditures guidance for the 2024 fiscal year to between $38 billion and $40 billion, up from $37 billion to $40 billion previously.

They also expect capital expenditures to continue to grow significantly in 2025 due to an acceleration in infrastructure expenses.

Founder Mark Zuckerberg is desperate to not miss out on the “next big thing.” Remember, he whiffed big time at the smartphone, and he will never stop blaming himself for it. Apple has been a constant pain in the ass for his company because Meta still needs to go through Apple management and their app store to get their platform to users. They also changed the privacy settings, which were directly targeted at Meta.

Zuckerberg is also on record for saying that Meta would be twice as profitable if he could remove the costs of going through Apple.

Meta is still growing at 19% year over year, and that is quite impressive for a company this big.

The company reported 3.29 billion daily active people for the third quarter. That was up 5% year over year, and we can expect that percentage point to stick in the single digits.

Zuckerberg has been pointing to the company’s massive investments in artificial intelligence, which includes spending billions of dollars on Nvidia’s popular graphics processing units, as helping improve the company’s core online ad business in the aftermath of Apple’s 2021 iOS privacy update. The company has been improving upon and building more data centers to help provide the technology infrastructure needed for its AI strategy.

The company’s Reality Labs hardware unit posted an operating loss of $4.4 billion in the third quarter, which was less than analysts’ expectations of $4.68 billion.

Facebook Reality Labs is a research and business unit of Meta Platform that develops virtual reality (VR) and augmented reality (AR) products and technologies.

I do believe the jury is still out on the Facebook Google story. It is not a given that consumers will just adopt some ridiculously looking VR headset and venture off into daily life with that thing on. The over $4 billion of losses points to a challenging time to turn the VR business into something legitimate.

Apple has also had some issues with its VR headset as well.

In the short term, Meta is still highly profitable, and they roll these profits into trying out new businesses.

It only takes one new killer business for the stock to explode again, much like what happened when Zuckerberg doubled down in social media through the acquisition of Instagram.

Investors need to be patient and keep a hold of META stock as it grinds higher.

In the event the stock does experience a mild sell-off, I am certain dip buyers will come to the rescue because of the nature of the stock being high quality.

Although digital ads aren’t the growth engine it once was, they are giving time and money for META to find the next path forward. 99% of tech companies don’t have that luxury.

November 4, 2024

Tech Letter

Mad Hedge Technology Letter
November 4, 2024
Fiat Lux

Featured Trade:

(A SIDEWAY CORRECTION BEFORE THE MOVE UP)
(AAPL), (BRK-B)

A Sideway Correction Before The Move Up

Tech Letter

Warren Buffett shedding millions of Apple (AAPL) stock, and the stock to subsequently avoid a meaningful dip is an inherent victory for Apple and big tech.

In almost any other stock, the price action would be sharp and damaging to the underlying stock, and Apple had a wave of buyers to pick up all the shares Buffett unloaded.

Buffett and his flagship investment company, Berkshire Hathaway (BRK-B), did really well in their Apple investment, where they loaded the boat with Apple stock.

Taking profits is never a bad thing, but I do believe Buffett had a feeling that Apple started getting too ahead of itself.

The company still has not done enough since creating the iPhone, and Buffett certainly was not impressed by the latest “upgrade” to the flagship device.

Apple shares are flat over the past 4 months after a sharp 22% rise in the summer starting from May.

I believe that the sideways price corrections will start to drag out even longer for many big tech companies as their growth engines start to fizzle out.

AI is also due another sideways correction after gangbuster returns.

It is becoming quite evident that “corrections” in big tech aren’t that damaging, and as long as investors can ride out the sideways move, the next move after that is usually to the upper right-hand corner.

Buffett has sent over 515 million shares of Apple to the chopping block since October 2023

Amid Warren Buffett's selling spree, top-holding Apple has been meaningfully reduced. In a three-quarter period from Oct. 1, 2023 through June 30, 2024, Berkshire's stake in Apple declined by more than 515 million shares, or 56%, to precisely 400 million shares.

During Berkshire Hathaway's annual shareholder meeting in early May, he opined that the corporate tax rate would likely climb in the future. With his company sitting on a mammoth unrealized gain in Apple, he suggested that locking in some gains now at a lower tax rate would, eventually, be viewed favorably by Berkshire Hathaway's shareholders.

Apple has done well to engineer the stock higher with its heavy involvement in shareholder returns, particularly buybacks.

Since initiating share repurchases in 2013, Apple has bought back $700.6 billion worth of its common stock and reduced its outstanding share count by 42.2%. This has had a decisively positive impact on the company's earnings per share (EPS).

Sales of its physical devices, including iPhone, iPad, and Mac, have been weak for much of the last two years. If a growth company's sales stall, it can expose its valuation premium.

The Oracle of Omaha's broad-based selling also alludes to the lack of value on Wall Street. This is one of the priciest stock markets in history, and Berkshire's record cash pile of $276.9 billion plainly suggests that Buffett and his team are struggling to find attractive deals.

Big tech is increasingly finding it hard to move the needle.

Anti-trust has also been a thorn in their sides lately as the Fed close it on them from a litigious angle.

In the short term, even without its next growth engine, I do believe Apple and certain big tech companies have the opportunity to experience a winter rally into yearend.

First, we need to get through the election, but the US economy is still running hot at 3%, and tech will do like it usually does, harvest the majority of the gains from the overall economic expansion in the United States.

November 1, 2024

Tech Letter

Mad Hedge Technology Letter
November 1, 2024
Fiat Lux

Featured Trade:

(WILL THE TRIFOLD PHONE SAVE TECH?)
(HUAWEI), (AAPL)

Will The Trifold Phone Save Tech?

Tech Letter

Silicon Valley is usually on top of the innovation game, and as Huawei announced the launching of its trifold smartphone, one must ask whether Silicon Valley is late to the party or if this technology is even worth their time.

My guess is that foldable devices won’t move the needle, and these announcements aren’t really about moving revenue but to offer bluster in a global game of cat and mouse.

In general, the smartphone super cycle is about tapped out, and I don’t see a foldable phone as a reason for another re-acceleration of revenue.

There is a higher chance that in the next few years, this foldable technology is adapted for some other technology and written off on the balance sheet.

To think it could be some revolutionary new trend is beggars’ belief.

To be honest, many consumers are tired of screen time and can’t get off their screen because work duties connect them to the screen.

When needing a bigger screen to watch global sporting events, many would prefer a large-screen TV that doesn’t fold. This phone has no TV screen – not by a long shot.

It is a little difficult for me to understand the use case here for Huawei going big in the foldable screen business.

It’s not like the new phone will be cheap either, the new trifold smartphone will start at around $2,800, which is more expensive than most premium laptops.

Huawei announced its foldable product on the same day as Apple unveiling the new iPhone.

Apple announced its iPhone 16 Pro Max will start at $1,199 and the iPhone 16 at $799.

The first set of Apple Intelligence AI features will be available in a free software update next month.

Huawei’s Mate XT also comes with artificial intelligence features, such as text translation and cloud-based content generation.

The device is 3.6 millimeters thick when unfolded, with a 10.2-inch screen.

More than 3.5 million people had pre-ordered Huawei’s trifold Mate XT smartphone as of midday Tuesday.

The Chinese company has sought to make a comeback in the smartphone industry, which was hard hit after the U.S. slapped sanctions on the company in 2019. The U.S. in October 2022 imposed broader restrictions on American sales of advanced chips to Chinese businesses.

Apple fell out of the list of top five smartphone vendors in China in the second quarter of this year. It was the first time that domestic players held all five spots.

Clearly, Chinese tech views Apple as the top dog to compete against, but I would say that Apple’s star is waning in China.

They are being pushed out by the Chinese government, who are indirectly suggesting to Chinese consumers to go with domestic alternatives.

National champions and protecting them are the modus operandi in the age of deglobalization, and that will not change anytime soon.

As for the tech, foldable screens are a mediocre and lateral upgrade.

The size of a screen has a size limit to its usefulness, and building gargantuan screens does not suggest that it could trigger some new wave of untapped profits.

I believe Apple is smart in not aggressively pursuing foldables, and the quest continues to find the new killer tech that will take over.

Until then, tech stocks should grind up, but not in a dramatic fashion.