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Ready Player One’s Insight into the Future of Technology

The technology-laced film Ready Player One gives viewers a snapshot into the future where technology, income inequality, and society have run their course, and the year 2045 looks vastly different from the world of 2018.

Set in a semi-dystopian backdrop, the movie offers us a deeper insight into how certain technology trends will permeate into everyday life.

The first and most obvious future trend is the copious use of avatars.

Avatars will become the new normal. The first place that humans will find them is through the use of social media and entertainment, as children eventually becoming a part of us like our social media profiles today.

The Mad Hedge Technology Letter has incessantly hammered home about the phenomenon of gaming, and this will incorporate virtual reality allowing gamers access to a new digital world.

This was the on show in the film where the likes of protagonist Wade Watts, played by Tye Sheridan spent most of his life playing in the virtual world of Oasis using his character Parzival.

This could be your child in the future.

Wade Watts character is the new cool for Generation Z, as they are largely unconcerned about underage drinking and partying like the generations before them.

Gaming and hanging out on their preferred social media platforms are the new cool.

The companies dictating the current video game industry will have the first crack at it to realize profits and develop new businesses such as Microsoft (MSFT), Nvidia (NVDA), Advanced Micro Devices (AMD), Electronic Arts Inc. (EA), Take-Two Interactive Software, Inc. (TTWO), and Activision Blizzard, Inc. (ATVI).

Children just aren’t going outside like they used to and per most studies, they are addicted to the smartphone you bought them at age 10.

Most studies have found that once a child becomes hooked on technology, it is hard to reverse the habit, as once they enter into adult life and start their career, they become even more reliant on the technologies that got them to that point in the first place.

If your kid is already staring at tech devices three to four hours per day now for activities other than school work, expect that to grow to a minimum of six to seven hours per day once he hits puberty and smartphone time limits begin to fade away.

This all means that VR and gaming could be the handsome winner in all this, and the use of social media platforms will reap the benefits as well.

Generation Z just surpassed Millennials in terms of population comprising 25% of the American populace.

Neither of these generations have grown up with VR in their daily lives because the technology wasn’t advanced enough to really make a dent in their lives.

More than 75% of Generation Z has access to a smartphone, and they can truly be called the first generation of digital natives.

Avatars will push deeper into everyday life because the facial tracking technology has advanced by leaps and bounds.

Instead of cartoon-like avatars, lifelike avatars have replaced the less refined versions. It will be a tough time going forward distinguishing what is real and what is fake.

If you think fake news is a problem now, imagine how fake it will become in the future.

This could devastate the news industry as news organizations run the risk of melting down at any point, or just being completely taken over by tech companies and their algorithms, which is already happening now with Alphabet (GOOGL).

The future looks bleak for all newspaper assets, and the ones with the most advanced digital strategies will survive.

Newspapers only have so much time they can hang on with digital ad revenue, the reason they are still in business.

Viewers don’t want to see ads – period. And at some point, they will be disrupted as well.

Swashbuckling youth already have downloaded ad-blockers to completely remove ads from their lives, and refuse to open any website that forces them to white list a website.

There are children in Generation Z who might never have seen an ad before because their digital native capability allows them to navigate around ads with adept skill.

Or the easy solution for many Millennials is just watch Netflix because the platform is ad-less. The aversion to ads is so strong that traditional media giants such as Fox are experimenting with six-second ads because that is all a viewer can tolerate these days.

The traditional media giants were forced to adopt this new format after Alphabet’s YouTube rolled out micro-ads.

Popular browser Mozilla announced it will block all tracking scripts by default beginning in 2019, thwarting unregulated data collection and relentless ad pop-ups.

The reason why digital ads will have an existential crisis is because companies will be able to monetize the pure data, forcing companies with huge digital ad businesses such as Facebook (FB) to battle with the new competition that only wants your data and not hawk ads.

This is already happening in the e-brokerage space with disruptors such as Robinhood, which charges no commission and is more interested in collecting data and getting by with interest payment revenue.

Let’s face it, digital ads are not a high-quality business even though they are a high-margin business. As tech moves forward, the quality of tech will rise eliminating all low-grade tech that is still profiting in 2018.

On the business side of things, automation is replacing humans faster than humans realize, and the replacement will be an avatar representing the face of a company.

For lower-end services, an avatar chosen by the customer will populate to often give better service than a human can provide.

If this type of service is scaled, it would offer a massive cut in costs for American corporations saving on employee costs.

It will have the same effect that self-checkout kiosks have at supermarkets, wiping out another position at the low-end.

The front-end avatar that will service you is all possible because of the rapid advancement of artificial intelligence.

Every possible situation will be programmed in the software and executed briskly.

If customers desire the human touch, they will have to pay up.

Human interaction will command a premium price because human interaction cannot be automated.

The financial industry has a huge target on its back, and swaths of financial advisors could be sacked in favor of avatars with the functional software behind it to produce profits.

In fact, many financial advisors are instructed to refrain from recommendations now and urged to collect input to enter into a proprietary algorithm that will decide the customers’ portfolio.

Big banks have enjoyed their time in the sun, but technology will disrupt them in the near future. This is why you have seen huge run-ups in innovative fintech companies such as Square (SQ) and PayPal (PYPL).

Many forms of outside entertainment are on the chopping block, as well as indoor entertainment such as Hollywood.

Hollywood A-list actors command hefty premiums to contract their services, and that could all crumble if younger audiences prefer avatar-based films with the human roles performed by unknowns.

Johnny Depp earns more than $50 million for one movie, and these insane amounts could deflate rapidly if human participation in films becomes marginalized.

Ready Player One was a test case for how much technology could be infused into a movie, and the audience easily absorbed it.

I could argue that audiences could argue even more in this VR format.

The movie had a budget of $175 million, and returned $582 million at the box office.

The resounding success will encourage more directors to inject technology into their movies, and they will have to, if they hope to tempt younger audiences to the movie theater.

Going to the movie theater is another activity that has struggled to cope against the rise of Netflix and technology.

Theaters have been forced to improve the overall experience of watching a film with prime seating, comfortable seats, and other extras that never existed.

Every industry is going through the same headache of competing with technological disruption.

Stagnation is akin to surrendering in 2018.

And it wasn’t just a fringe director creating Ready Player One, it was visionary director Steven Spielberg, one of the most famous movie directors to ever exist.

This will pave the way for other lesser-known movie directors relying on technology to pump out the profits.

They wouldn’t be the first people or the first industry to go down this road either.

The Avatars Used In Ready Player One

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Quote of the Day

“The worst thing a kid can say about homework is that it is too hard. The worst thing a kid can say about a game is it's too easy,” – said American media scholar Henry Jenkins III.

August 27, 2018

Tech Letter

Mad Hedge Technology Letter
August 27, 2018
Fiat Lux

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Why Alibaba is the First Stock to Buy with the Outbreak of Trade Peace

Tech Letter

According to the government agency, China Internet Network Information Center, the Chinese Internet community has surpassed 802 million, which only represents a 57.7% penetration rate, miles behind the 89% penetration rate in America.

The gargantuan scale of the Chinese Internet world means China has three times as many Internet users than America, and this is a big deal.

The additional 30 million added to the Chinese Internet ecosphere in the first half of 2018 shows the scale in which local Chinese tech companies are playing with and use to their clear-cut advantage.

Ostensibly, most business strategies in China revolve around scaled tactics as the backbone to operations.

There is even more room to expand in the Middle Kingdom and one clear victor sits atop the parapet looking at the riffraff below and that is Chinese Internet conglomerate Alibaba (BABA).

Alibaba, led by Chinese Internet pioneer Jack Ma, posted its highest-performing growth quarter in the past four years.

Total quarterly revenue ballooned an incredible 61% YOY to $11.8 billion, highlighting the dominant position Alibaba possesses in the Chinese e-commerce landscape.

If you want to know what Amazon (AMZN) is going to do next watch Alibaba.

Profit margins were somewhat sacrificed in the process because of M&A activity that saw Alibaba move into the physical supermarket business snapping up 35 Hema supermarket locations then reinvesting into the business. Echoes of Whole Foods?

Alibaba did not stop there, funneling another $3 billion into food delivery app ele.me, which plans to merge its operations with Yelp (YELP) lookalike app Koubei.

If you thought Silicon Valley moves at a rapid pace, the Chinese Internet space moves faster than lighting.

Alibaba last year dipped into the retail segment as well pocketing a department store chain with 29 stores along with 17 shopping malls.

Alibaba is the closest replica the world has to Amazon and thus is an ideal barometer of the health of the overall Chinese consumer and a peek under the complicated hood that is the Chinese economy.

Alibaba also provides onlookers at how China and its Internet behemoths are coping with the global trading war that has invaded the news headlines from its outset.

The short answer to all this is that China is coping quite well and by no means is ready to back down.

Indeed, there will be peripheral pressures exerted from the fringes, but the core engines remain intact and Chairman Xi can fall asleep in his Beijing abode more than peacefully.

A reason for the stalemate between the two governments is that both are quietly confident they have the levers in place to absorb whatever Molotov cocktails the other has to throw at them.

Investors would be mad to dismiss China’s capabilities after experiencing a mesmerizing economic rise enriching hundreds of millions of Chinese nationals that can be found comfortably living in western megacities in luxury real estate often with a real estate portfolio dotted around the world.

Alibaba’s management made it known on the earnings report that it is not worried much about the trade war because it is largely focused on the domestic Chinese consumer, which has been one of the best economic stories of the past decade.

The overseas expansion unfolding under Alibaba’s tutelage is away from the western world and predominantly focused on Southeast Asia and Eastern Europe where cheap, value-for-money hardware and software allows citizens at these income levels to participate in the e-commerce game.

These individuals can’t afford iPhones on a salary of peanuts. And Alibaba has targeted the undeveloped world as a potential lever of substantial growth.

The regulatory harshness of the west has shut out Huawei and ZTE from its shores. Australia followed suit as well, banning the two telecom companies even though it enjoys a better relationship with Beijing than Europe or North America.

China has already planned a workaround because the engines driving the Chinese tech miracle are semiconductor companies such as Micron (MU), which sells boatloads of DRAM memory chips to Chinese tech companies that flood the world with smartphones and other gadgets.

Beijing has already formulated a plan to circumvent American chips by tapping Korean, European, and Japanese chips to replace the current American supply that could vanish at any time.

Shenzhen-based chip company HiSilicon fully owned by Huawei is responsible for supplying Huawei with chips and is the biggest local designer of integrated circuits in China.

This is what the future of China looks like when China can finally build up the adequate supply necessary to achieve its plans to dominate global technology, America, and the world.

But the plan is still in the process of playing out. The awkwardness was highly visible when the administration’s ban of selling U.S. manufactured components to telecommunications company ZTE resulted in the company almost shutting down until a last-second change of heart by the administration.

The near-death experience will invigorate ZTE to muster its own local supply of chips to avoid the unreliable foreign supply and a deja vu feeling.

American chip companies won’t be able to enjoy the Chinese market for long as all these negative experiences for Chinese companies has forced Chinese tech companies to search and secure a guaranteed chip supply.

At the same time, Chinese local smartphone players have gone from 0 to 60 in no time with companies that barely existed a few years ago, such as Oppo, Vivo coming into the fore along with Huawei picking up 43% of the global smartphone market.

This is bad news for Apple as local competitors are learning fast and furious how to build premium smartphones via re-engineering the current technology or through forced technology transfers.

These companies subsequently offer these phones at the lowest possible price point. And at some point in the near future Apple could be expendable if Chinese smartphones start to display the type of quality the best phones show.

Chinese domestic consumption and investment comprise 90% of the GDP growth in China and are propped up by three robust trends including real wage growth boosting the middle-class population, high savings rate that of which Americans would be jealous, and easy access to credit vehicles.

When I was recently in the Middle Kingdom, it was highly evident that as the generations became younger, their quality of life was higher than their parents.

The opposite is happening in America with millennials earning demonstrably less than their parents’ generation while the American middle class is shrinking at an accelerated pace.

Beijing knows this and hopes to wait things out as it feels time is a positive variable for China and not America.

It is true that if this trade war took place in 20 years in the future, China would be in a stronger strategic position to extract whatever concessions it desires because even though Chinese growth is slowing, it is still growing at 6.5%.

And if you don’t believe what I just said then just look at Alibaba’s cloud division, which grew 93% YOY opening artificial intelligence-based data centers around Europe to battle Amazon (AMZN) and Microsoft (MSFT).

Europe was once Elysian Fields for American tech companies, but with European regulators going after American tech and China encroaching on European turf, the future looks a lot less certain for the FANGs there than ever before.

Alibaba’s operating margins dipped 10% YOY but the slide will be returned to shareholders in the future in the form of high-quality revenue and is worth the investment into the most innovative ideas of tomorrow.

I did not even mention the large stake Alibaba has in Ant Financial, which operates the ubiquitous digital payment app Alipay.

It would be analogous to Amazon if it owned Visa.

Alibaba is one of the best tech companies in the world headed by a former Chinese English language teacher in Hangzhou.

If America becomes too difficult or expensive with which to do business, Alibaba and Chinese tech will just recalibrate their strategy to deeper infiltrate the confines of Southeast Asia and the rest of the undeveloped world.

Any price war on undeveloped soil favors the Chinese as they have mastered scale better than anyone on the planet.

The stellar Alibaba numbers also mean the trade war has no end in sight as each player thinks they have the upper hand. But it also means the tech giants from both countries will come out unscathed and will lead their country’s respective equity markets higher for the foreseeable future.

The Jeff Bezos of China – Alibaba’s Jack Ma

________________________________________________________________________________________________

Quote of the Day

“Technology is nothing. What's important is that you have a faith in people, that they're basically good and smart, and if you give them tools, they'll do wonderful things with them,” – said Apple cofounder and former CEO Steve Jobs.

August 23, 2018

Diary, Newsletter, Summary

Global Market Comments
August 23, 2018
Fiat Lux

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Why the Dow is Going to 120,000

Diary, Newsletter, Research

For years, I have been predicting that a new Golden Age was setting up for America, a repeat of the Roaring Twenties. The response I received was that I was a permabull, a nut job, or a conman simply trying to sell more newsletters.

Now some strategists are finally starting to agree with me. They too are recognizing that a ganging up of three generations of investment preferences will combine to drive markets higher during the 2020s, much higher.

How high are we talking? How about a Dow Average of 120,000 by 2030, up another 465% from here? That is a 20-fold gain from the March 2009 bottom.

It’s all about demographics, which are creating an epic structural shortage of stocks. I’m talking about the 80 million Baby Boomers, 65 million from Generation X, and now 85 million Millennials. Add the three generations together and you end up with a staggering 230 million investors chasing stocks, the most in history, perhaps by a factor of two.

Oh, and by the way, the number of shares out there to buy is actually shrinking, thanks to a record $1 trillion in corporate stock buybacks.

I’m not talking pie in the sky stuff here. Such ballistic moves have happened many times in history. And I am not talking about the 17^th century tulip bubble. They have happened in my lifetime. From August 1982 until April 2000 the Dow Average rose, you guessed it, exactly 20 times, from 600 to 12,000, when the Dotcom bubble popped.

What have the Millennials been buying? I know many, like my kids, their friends, and the many new Millennials who have recently been subscribing to the Diary of a Mad Hedge Fund Trader. Yes, it seems you can learn new tricks from an old dog. But they are a different kind of investor.

Like all of us, they buy companies they know, work for, and are comfortable with. During my Dad’s generation that meant loading your portfolio with U.S. Steel (X), IBM (IBM), and General Motors (GM).

For my generation that meant buying Microsoft (MSFT), Intel (INTC), and Dell Computer (DELL).

For Millennials that means focusing on Netflix (NFLX), Amazon (AMZN), Apple (AAPL), and Alphabet (GOOGL).

That’s why these four stocks account for some 40% of this year’s 7% gain. Oh yes, and they bought a few Bitcoin along the way too, to their eternal grief.

There is one catch to this hyper-bullish scenario. Somewhere on the way to the next market apex at Dow 120,000 in 2030 we need to squeeze in a recession. That is increasingly becoming a topic of market discussion.

The consensus now is that an impending inverted yield curve will force a recession sometime between August 2019 to August 2020. Throwing fat on the fire will be a one-time only tax break and deficit spending that burns out sometime in 2019. These will be a major factor in U.S. corporate earnings growth dramatically slowing down from 26% today to 5% next year.

Bear markets in stocks historically precede recessions by an average of seven months so that puts the next peak in top prices taking place between February 2019 to February 2020.

When I get a better read on precise dates and market levels, you’ll be the first to know.

To read my full research piece on the topic please click here to read “Get Ready for the Coming Golden Age.”

Dow 1982-2000 Up 20 Times in 18 Years

Dow 2009-Today Up 4.3 Times in 9 Years So Far

August 22, 2018

Tech Letter

Mad Hedge Technology Letter
August 22, 2018
Fiat Lux

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What’s in Store for Tech in the Second Half of 2018?

Tech Letter

Tech margins could be under pressure the second half of the year as headwinds from a multitude of sides could crimp profitability.

It has truly been a year to remember for the tech sector with companies enjoying all-time high probability and revenue.

The tech industries’ best of breed are surpassing and approaching the trillion-dollar valuation mark highlighting the potency of these unstoppable businesses.

Sadly, it can’t go on forever and periods of rest are needed to consolidate before shares relaunch to higher highs.

This could shift the narrative from the global trade war, which is perceived as the biggest risk to the current tech market to a domestic growth issue.

Healthy revenue beats and margin growth have been essential pillars in an era of easy money, non-existent tech regulation, and insatiable demand for everything tech.

Tech has enjoyed this nine-year bull market dominating other industries and taking over the S&P on a relative basis.

The lion’s share of growth in the overall market, by and large, has been derived from the tech sector, namely the most powerful names in Silicon Valley.

Late-stage bull markets are fraught with canaries in the coal mine offering clues for the short-term future.

Therefore, it is a good time to reassess the market risks going forward as we stampede into the tail end of the financial year.

The shortage of Silicon Valley workers is not a new phenomenon, but the dearth of talent is going from bad to worse.

Proof can be found in the controversial H-1B visa program used to hire foreign tech workers mainly to Silicon Valley.

A few examples are Alphabet (GOOGL), which was granted 1,213 H-1B approvals in 2017, a 31% YOY rise.

Alphabet’s competitor Facebook (FB) based in Menlo Park, Calif., was granted 720 H-1B approvals in 2017, a 53% YOY jump from 2016.

This lottery-based visa for highly skilled foreign workers underscores the difficulty in finding local American talent suitable for a role at one of these tech stalwarts.

Amazon (AMZN) made one of the biggest jumps in H-1B approvals with 2,515 in 2017, a 78% YOY surge.

The vote of non-confidence in hiring Americans shines an ugly light on American youth who are not applying themselves to the domestic higher education system as are foreigners.

For the lucky ones that do make it into the hallways of Silicon Valley, a great salary is waiting for them as they walk through the front door.

Reportedly, the average salary at Facebook is about $250,000 and Alphabet workers take home around $200,000 now.

Pay packages will continue to rise in Silicon Valley as tech companies vie for the same talent pool and have boatloads of capital to wield to hire them.

This is terrible for margins as wages are the costliest input to operate tech companies.

United Technologies Corp. (UTX) chief executive Gregory Hayes chimed in citing a horrid “labor shortage in the U.S. and in Europe.”

He followed that up by saying the company will have to grapple with this additional cost pressure.

Certain commodity prices are spiraling out of control and will dampen profits for some tech companies.

Uber and Lyft, ridesharing app companies, are sensitive to the price of oil, and a spike could hurt the attractiveness to recruit potential drivers.

The perpetually volatile oil market has been trending higher since January, from $47 per barrel and another spike could damage Uber’s path to its IPO next year.

Will Uber be able to lure drivers into its ecosystem if $100 per barrel becomes the new normal?

Probably not unless every potential driver rolls around in a Toyota Prius.

If oil slides because of a global recession instigated by the current administration aim to rein in trade partners, then Uber will be hard hit abroad because it boasts major operations in many foreign megacities.

A recession means less spending on Uber.

Either result will be negative for Uber and ridesharing companies won’t be the only companies to be hit.

Other victims will be tech companies incorporating transport as part of their business model, such as Amazon which will have to pass on more delivery costs to the customer or absorb the blows themselves.

Logistics is a massive expense for them transporting goods to and from fulfillment centers. And they have a freshly integrated Whole Foods business offering two-hour free delivery.

Higher transport costs will bite into the bottom line, which is always a contentious issue for Amazon shareholders.

Another red flag is the deceleration of the global smartphone market evident in the lackluster Samsung earnings reflecting a massive loss of market share to Chinese foes who will tear apart profit margins.

Even though Samsung has a stranglehold on the chip market, mobile shipments have fell off a cliff.

Damaging market share loss to Chinese smartphone makers Xiaomi and Huawei are undercutting Samsung products. Chinese companies offer better value for money and are scoring big in the emerging world where incomes are lower making Chinese phones more viable.

The same trend is happening to Samsung’s screen business and there could be no way back competing against cheaper, lower quality but good enough Chinese imitations.

Pouring gasoline on the fire is the Chinese investigation charging Micron (MU), SK Hynix, and Samsung for colluding together to prop up chip prices.

These three companies control more than 90% of the global DRAM chip market and China is its biggest customer.

The golden days are over for smartphone growth as customers are not flooding into stores to buy incremental improvements on new models.

Customers are staying away.

The smartphone market is turning into the American used car market with people holding on to their models longer and only upgrading if it makes practical sense.

Chinese smartphone makers will continue to grab global smartphone market share with their cheaper premium versions that western companies rather avoid.

Battling against Chinese companies almost always means slashing margins to the bone and highlights the importance of companies such as Apple (AAPL), which are great innovators and produce the best of the best justifying lofty pricing.

The stagnating smartphone market will hurt chip and component company revenues that have already been hit by the protectionist measures from the trade war.

They could turn into political bargaining chips and short-term pressures will slam these stocks.

This quarter’s earnings season has seen a slew of weak guidance from Facebook, Nvidia (NVDA) mixed in with great numbers from Alphabet and Amazon.

Beating these soaring estimates is not a guarantee anymore as we move into the latter part of the year.

Migrating into the highest quality names such as Amazon and Microsoft (MSFT) with bulletproof revenue drivers would be the sensible strategy if tech’s lofty valuations do not scare you off.

Tech has had its own cake and ate it too for years. But on the near horizon, overdelivering on earnings results will be an arduous chore if outside pressures do not relent.

It’s been fashionable in the past for market insiders to call the top of the tech market, but precisely calling the top is impossible.

The long-term tech story is still intact but be prepared for short-term turbulence.

________________________________________________________________________________________________

Quote of the Day

“By giving people the power to share, we're making the world more transparent,” – said cofounder and CEO of Facebook Mark Zuckerberg.

August 15, 2018

Tech Letter

Mad Hedge Technology Letter
August 15, 2018
Fiat Lux

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How to Play the New Fortnite Gaming Fad

Tech Letter

Each generation grows up in its own unique environment.

Childhood experiences differ more and more as the world rapidly changes because of hyper-accelerating technology.

Millennials are usually defined as children born between 1981 to 1996.

They were the last generation to grow up outside breathing crisp, fresh air and meandering around the neighborhood with their friends looking for excitement.

Generation Z is the first generation in America generally raised indoors because of their overwhelming preference and broad-based addiction to technology.

Social media stocks have been a huge winner from this new paradigm shift in the behavior of young adults.

Instead of running around the block in packs, children are laser focused on these platforms communicating with the entire world and propping up their social lives.

Children meet a lot less than they used to and convening on a social media platform of choice has become the new normal.

Platforms such as Twitter (TWTR), Instagram and Snapchat (SNAP) have convincingly won over these new eyeballs even so much so that the new "going out" is congregating on Snapchat with a group of friends.

Facebook (FB) is now considered a legacy social media platform full of millennials and the older crowd.

Generation Z do not fancy drugs or drinking like the youth before them, rather, their panacea is video games and a lot of them.

These new societal trends will hugely affect your portfolio going forward.

A battle royal game is a video game category mixing the survival, exploration and scavenging elements together with last-man-standing gameplay.

These types of games predominantly contain 100 players sharing the same experience on a broadband connection.

This genre has been all the rage with PlayerUnknown's Battlegrounds (PUBG) piling up 400 million gamers across the globe selling 50 million copies of the game.

Of the 400 million gamers, 88% access the game via mobile devices highlighting the vigorous shift to mobile for younger generations.

PUBG made more than $700 million in sales in 2017.

The rise of the billion-dollar video games is alive and well.

In fact, Activision Blizzard (ATVI) stakes claim to eight gaming franchises commanding more than $1 billion in annual revenue with titles such as Overwatch, Candy Crush, and Call of Duty.

The popularity of video games will drive GPU manufacturers Nvidia (NVDA) and AMD (AMD) to new heights because gamers require high-quality GPUs to effectively game.

Nvidia CEO Jensen Huang even spouted that "the success of Fortnite and PUBG are just beyond comprehension" boosting GPU sales and capturing the imagination of global youth.

Fortnite, a "Hunger Games" style battle royal video game mirroring PUBG, has taken the world by storm in 2018.

This cultural juggernaut surpassed the 125 million gamer mark in just one year.

In February 2018, Epic Games, the maker of Fortnite, earned $126 million in one month, and it was the first time it passed PUBG in monthly sales.

In April 2018, it followed up monster February numbers by pulling in $296 million.

The growth trajectory is parabolic. Hold onto your hats.

Fortnite sparkles in the sunlight because its free-to-play model does not exclude anyone and is available on all devices.

At first, Fortnite was available for iOS customers and Samsung Android holders because it inked an exclusive deal with Samsung.

This week is the first week Epic Games is rolling out Fortnite to non-Samsung Android users with an interesting caveat.

The Android version of Fortnite bypasses Google Play (Google's app store on Android) preferring to sell the game direct for download from its official website.

This highlights that content is truly king.

Epic Games is betting the surge in popularity for its juggernaut game will sell itself.

This decision will cost Alphabet (GOOGL) $70 million per year in commission.

Apple makes it mandatory that any app downloaded to its devices must be downloaded from Apple's app store.

However, Android doesn't have the same requirements as its system is more functional, open, and a developer's dream.

Simply put, there are ways to download the game on Android without ever touching Google Play.

Going forward this could have a similar effect Spotify (SPOT) had on Wall Street on its IPO.

The middlemen or broker app could get bypassed in favor of direct sales.

Apple pockets commission on 30% of all in-app spending raking in around $60 million from Fortnite.

In-game add-on revenue is how Fortnite makes money from this free-to-play game.

The bulk of spending comes in the form of costumes better known as skins, where players pay to dress up their character in various garments selected for purchase.

The other revenue stream is a season subscription on sale for $10.

The tech sector has been migrating to subscription-based offerings and video games are no different.

This could play havoc with Alphabet's Google Play and Apple's app store down the line if prominent content producers choose to bypass their stores to sell directly.

The lack of video game exposure to the FANG group is mind-boggling. It seems they have their finger on the pulse of every other major trend in technology but have missed out on this one.

Microsoft (MSFT) is the closest FANG-like stock deep inside the video game ecosphere by way of its famous console Xbox.

In fact, Microsoft earns more than $10 billion per year from its gaming segment surpassing Nintendo at $9.7 billion per year.

This doesn't eclipse Sony's gaming revenue, which is $17 billion per year, but the 36% YOY growth in Xbox-related revenue signals its intent in the gaming industry that plays second fiddle to its cloud and software businesses.

Gaming is just a side business for Microsoft right now.

Ironically, Tencent has a 40% stake in Epic Games and is patiently waiting for government approval to sell Fortnite in China, which could be painstakingly arduous.

If Tencent gets the green light, Fortnite could develop into a monster business in 2018, and this is just the beginning.

Regrettably, Tencent has been mired in regulatory issues with the communist government reluctant to approve selling in-game products, which usually make up the bulk of revenue.

Recent blockbuster hit "Monster Hunter: World" was blocked by censors after debuting to great fanfare on August 8, 2018.

This title was expected to be one of the most popular video games of 2018.

Chinese state censors are on a short-term crusade to block the video game industry from receiving critical licenses and is the main reason for Tencent shares' headwinds.

Tencent shares peaked in January and are down almost 15% in 2018 because of uncertain gaming revenues.

Investors need to wake up and understand the gaming industry is about to mushroom because of demographics and the migration away from outdoor activity.

Following generations will have an even stronger bias toward technology-based indoor entertainment.

We are entering into the unknown of $4 billion per year video game businesses based on just one title and not one company.

Fortnite made PUBG's $700 million in revenue last year look paltry.

Gamers will soon see the rise of a $5 billion game franchise in 2019 and the sky is the limit.

This industry has growth, growth, and more growth and these single titles could surpass revenue of large semiconductor or hardware companies.

Don't underestimate the power of your child gaming away in your basement, he or she is part and parcel of a wicked tech growth driver about which not many people know.

Unfortunately, Epic Games is not a public company and shares cannot be purchased, but the success of Fortnite means that investors must pay heed to these new developments.

I am highly bullish on the video game sector and a big proponent of Activision (ATVI). A secondary name would be EA Sports (EA), which curates the Madden and FIFA franchises.

ATVI has felt the Fortnite effect in its share price selling off 11% because of investors' nervousness of Fortnite siphoning off ATVI gamers.

This short-term drop is a nice entry point into a solid video gaming company with various successful franchises that have withstood the test of time.

The 200-day moving average has provided ironclad support on the way up, and the Fortnite phenomenon won't last forever.

I would avoid the video game ETF ticker symbol GAMR because it includes one of my bona fide shorts - GameStop (GME).

It's mainly comprised of American, Japanese, and a Korean name but it would be sensible to focus on the companies with the highest quality comprehensive content.

The ETFs recent drop is also due to the strength of Fortnite.