Mad Hedge Technology Letter
August 11, 2023
Fiat Lux
Featured Trade:
(SHORT-TERM STUMBLES)
(AAPL), (NVDA)
Tag Archive for: (NVDA)
When Apple and Nvidia go, so does the Nasdaq.
That’s why tech shares have been relatively impotent the past few weeks as Apple, again, revealed they don’t have much more than the iPhone.
This has spooked tech shares.
Combine the lack of innovation from Apple with the scares of Nvidia not being able to sell their chips in China as Washington clamps down on China’s ability to procure semiconductor products, and there you have it.
Growth fears from the biggest and best tech companies mean that as a sector, the Nasdaq shares pull back and investors are feeling the pain.
Apple is experiencing a slowdown in the smartphone market, but will the presumed iPhone 15 release in September change that for Apple?
NVDA shares surged by over 200% year-to-date in 2023 and replicating that for the back half of the year is almost impossible.
A continued drop in Apple’s overall revenue suggests that investors demand Apple to pull another cat out of the hat and at some point find something new.
A bout of inertia from management could force investors to look elsewhere with their capital allocation strategy.
Services did have a good quarter, but moving forward, what is their grand plan?
What does that mean then for this quarter as well as the next quarter, when we get the presumed iPhone 15?
It's something that Apple is going to have to answer once those phones are revealed in September.
They're going to have to have stellar features and not just the same groundhog day with a different color lock screen.
New cameras, new processor, basically looks the same. So can Apple really push the envelope enough to get people back into stores, back online, and picking up their products?
Take what I just said about the iPhone and apply it to the iPad and the Mac businesses too.
It is an industry-wide trend where people bought their PCs or laptops during the government-mandated lockdowns.
Now they just don't need another new one. And so we're seeing that from manufacturers to chip makers as well.
Beyond Apple, what about Nvidia?
There was a massive run-up on NVDA shares throughout the year. And now the question is, can they keep it rolling?
NVIDIA is a unique company when it comes to the AI space. They produce chips that nobody else can. They've perfected this over decades. They made the bet several years ago, and now it's really paying off for them.
Also, what happens when companies, this kind of hyperscaler companies, go out and begin putting their own chips into their own servers?
We know that Microsoft is working on it, Google is working on it, Amazon's working on it; Tesla has their own supercomputer that they're building with their own chips.
They already use NVIDIA as well and Elon Musk had said, look, we'll order as many as we can.
I don’t believe that will bite Nvidia in the short term, but it’s definitely a long-term risk.
As long as Nvidia produces the quality required to stay ahead of the competition, the stock market will pick back up after it has time to digest the rally in the first half of the year.
Ultimately, these are great companies, but faster than we know it, solutions are demanded for structural problems.
Mad Hedge Technology Letter
July 7, 2023
Fiat Lux
Featured Trade:
(TRAFFIC SAGS FOR THE GENERATIONAL TECHNOLOGY)
(OPENAI), (NVDA)
OpenAI’s splash into AI was the secret sauce as to why tech stocks have gone parabolic in 2023.
The platform achieved a remarkable milestone by amassing 100 million monthly active users quite early on, setting a record for the fastest-growing user base.
With ChatGPT’s widespread absorption, OpenAI has been looked at as the savior for revenue models in Silicon Valley.
However, this period of AI enthusiasm has proved to be short-lived, as the technology experiences its first real pullback.
Based on the latest data, ChatGPT experienced a 9.7% decrease in desktop and mobile web traffic during June. The site also saw a decline of 5.7% in unique visitors.
This was followed by an 8.5% decrease in the average time users spent on the site. In the United States, the month-on-month traffic decline for the website was recorded at 10.3%.
The downtrend in traffic is quite surprising considering that groundbreaking new technologies which are still in their honeymoon phases never report any decrease in eyeballs whatsoever.
There's been a lot of buzz around artificial intelligence since ChatGPT was released seven months ago. About a month and a half before the chatbot was released to the public, the stock market bottomed in a bear market around the middle of October.
I am not saying the bottom will fall out of tech stocks, but the gaps up will probably cool down in the short term.
Take example one stock that has performed spectacularly – Nvidia (NVDA).
They have even managed to achieve this against a backdrop of challenging macroeconomic headwinds and a hawkish Federal Reserve.
The drop in ChatGPT interest is a warning sign that the beautiful girl has hit the wall.
It can’t be as simple as investors cheering on AI from the sidelines and then stocks go magically up. It’s not that easy.
The inherent technology needs evidence of outperformance and cannot lack substance.
A significant majority, comprising 61%, of ChatGPT’s user base consists of individuals from Generation Z.
This AI tool has gained considerable popularity for its educational applications.
For example, according to a research report, respondents reported using ChatGPT for educational purposes, with 33% utilizing it for educational assistance. 18% rely on it to comprehend complex concepts, and 15% use it to acquire new skills.
Investors need to understand that sliding interest in ChatGPT could be a catalyst for the AI bubble to lose air.
At the moment, AI's risks are as massive as its potential. We won't know until ten years later whether AI's impact is more akin to the internet or the Google Glass.
There are also other issues. Sam Altman, chief executive at OpenAI, has described the cost of running the services as “eye-watering.”
ChatGPT is free to use but also provides a premium subscription, where users can pay $20 a month to access OpenAI’s more advanced model, GPT-4.
Some 1.5 million people have signed up for the subscription, but the other tens of millions aren’t on board yet. For many people, it’s not worth paying for yet.
OpenAI has projected $200 million in revenue this year.
I believe it is time to take a short-term breather for the moment in AI. AI might turn out to be the shiny star many experts think it will be, but it doesn’t take one day to become that shiny start especially when the majority of OpenAI users are applying it to do their homework.
Global Market Comments
June 29, 2023
Fiat Lux
Featured Trades:
(SATURDAY, AUGUST 5, 2023 ROME, ITALY STRATEGY LUNCHEON)
(MY 2022 LEAPS TRACK RECORD),
(FCX), (PANW), (RIVN), (NVDA), (BRKB), (JPM), (MS), (VRTX), (TLT), (GOLD), (SLV), (TSLA)
CLICK HERE to download today's position sheet.
Recently, I have been touting a 2022 track record of +84.63%.
I have a confession to make.
I lied.
In actual fact, my performance was far higher than that. In reality, I generated a multiple of that +84.63% figure.
That is because my published performance is only for my front-month short-term trade alerts. It does not include the LEAPS recommendations (Long Term Equity Anticipation Securities) issued in 2022, the details of which I include below.
LEAPS have the identical structure as a front month vertical bull call debit spread. The only difference is that while front-month call spreads have expiration dates of less than 30 days, LEAPS go out to 18-30 months.
LEAPS also have strike prices far out of-the-money instead of deep in-the-money, giving you infinitely more upside leverage. LEAPS are actually synthetic futures contracts on the underlying stock.
Of the 12 LEAPS executed in 2022, eight made money and four lost. But the successful trades win big, up to 1,260% in the case of NVDIA (NVDA). With the losers, you only write off the money you put up.
And you still have 18 months until expiration for my four losers, ample time for them to turn around and make money. In the case of my biggest loser for Rivian (RIVN), Tesla launched an unprecedented EV price way shortly after I added this position. Never take on Tesla in a price war. Black swans happen.
Of course, timing is everything in this business. I only add LEAPS during major market selloffs as the leverage is so great, over 20X in some cases, of which there were four in 2022.
If you would like to receive more extensive coverage of my LEAPS service, please sign up for the Mad Hedge Concierge Service where you can excess a separate website devoted entirely to LEAPS. Be aware that the Concierge Service is by application only, has a limited number of places, and there is usually a waiting list.
Given the numbers below, it is easy to understand why most professional full-time traders only invest their personal retirement funds in LEAPS.
To learn more about the Mad Hedge Concierge Service, please contact customer support at support@madhedgefundtrader.com
2022 LEAPS Track Record
Date Position Cost Price Profit
9/27/2022 (FCX) January 2025 $42-$45 Call spread LEAPS $0.65 $1.26 94%
9/28/2022 (PANW) January 2025 $306.67-$313.33 Call spread LEAPS $0.80 $4.42 453%
9/28/2022 (RIVN) January 2025 $75-$80 Call spread LEAPS $0.50 $0.06 -88%
9/29/2022 (NVDA) January 2025 $270-$280 Call spread LEAPS $0.50 $6.80 1,260%
9/30/2022 (BRK/B) January 2025 $420-$430 Call spread LEAPS $1.00 $1.95 95%
10/3/2022 (JPM) January 2025 $175-$180 Call spread LEAPS $0.50 $0.89 78%
10/4/2022 (MS) January 2025 $130-$135 Call spread LEAPS $0.50 $0.24 -52%
10/12/2022 (VRTX) January 2025 $430-$440 Call spread LEAPS $1.50 $2.76 84%
11/9/2022 (TLT) January 2024 $95-$100 Call spread LEAPS $2.30 $3.51 53%
11/10/2022 (GOLD) January 2025 $27-$30 Call spread LEAPS $0.25 $0.18 -28%
11/28/2022 (SLV) January 2025 $25-$26 Call spread LEAPS $0.50 $0.22 -56%
12/19/2022 (TSLA) January 2025 $290-$300 Call spread LEAPS $1.50 $2.94 96%
Good luck and good trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Sweet Taste of LEAPS
Mad Hedge Technology Letter
June 28, 2023
Fiat Lux
Featured Trade:
(REGULATION HEATS UP)
(AMZN), (MSFT), (GOOGL), (NVDA)
Silicon Valley has gone from the least regulated industry to trending the other way. On a global scale, draconian regulations are rearing their ugly head to really stymy places like China and artificial intelligence.
The European Union just rolled out a slew of proposed regulations on AI that could hamper its ability to embed itself in many tech companies.
The net result is highly bullish for Silicon Valley companies minus the chip companies that are experiencing revenue cuts.
When rules tighten, the entrenched benefit disproportionately and this could trigger a continuation of the tech rally that has been blistering hot this year.
Inversely, it will become even more difficult for start-ups to become unicorns, because they suffer more at smaller sizes to digest the higher amount of regulation that mature tech companies never faced.
Much of this is occurring at the highest level as the White House is considering new restrictions on exports of artificial intelligence chips to China, potentially adding to a list of banned semiconductor technology from Nvidia, Advanced Micro Devices, and other US companies.
The U.S. Department of Commerce could prohibit shipments of chips from Nvidia and others to customers in China as soon as early next month.
Nvidia, which produces graphics chips that drive the technology behind OpenAI Inc’s ChatGPT and Alphabet Inc’s Bard chatbots, is one of those chip companies that could see a slide in revenue in the short term.
Across the pond where governments are specialists at regulation, the European Parliament has approved draft legislation to regulate AI-powered technology.
The Act applies to anyone who creates and disseminates AI systems in the EU, including foreign companies such as Microsoft, Google, and OpenAI.
As outlined in the Act, EU lawmakers seek to limit or prohibit AI technology they classify as unacceptable or high risk.
It’s a little vague who will be deemed high risk but in the crosshairs are technologies such as predictive policing systems and real-time, and remote biometric identification systems.
Silicon Valley cash cows can function without these intrusive elements.
The AI Act would give the European government the authority to levy heavy fines on AI companies that do not abide by its rules.
Financial penalties may be steeper than GDPR penalties, amounting to €40 million or an amount equal to up to 7% of a company’s worldwide annual turnover, whichever is higher.
Beyond the government’s power to enforce the Act, European citizens would have the power to file complaints against AI providers they believe are in breach of the Act.
European officials expect to reach a final agreement on the rules by the end of 2023 after spending years developing the legislation. Such swift and consistent momentum to regulate technology in Europe stands in stark contrast to the United States, where lawmakers are still grappling with initial regulatory steps.
If passed, the Act is expected to become law by 2025 at the earliest.
It’s a lot easier for tech firms to operate in the Wild West when there are no rules, but if there are rules, it’s better than American tech has already built cash cows to keep the party moving right along.
It’s true there won’t be much competition and possibly an oligarchy, but it will translate into much higher share prices for the likes of Apple, Tesla, Meta, Microsoft, Google, and Amazon.
Mad Hedge Technology Letter
June 26, 2023
Fiat Lux
Featured Trade:
(AMAZON JOINS THE PARTY)
(AMZN), (MSFT), (GOOGL), (NVDA)
Keeping up with the Joneses – that’s what Amazon is doing with its foray into generative artificial intelligence.
Its cloud division AWS is building a $100 million AI center to go toe to toe with increasing competition in cloud infrastructure services
The upcoming AWS Generative AI Innovation Center will become the heart and soul of Amazon experts in AI and machine learning.
This is a seismic strategic move for Amazon whom we have heard very little about in the generative AI sphere so far.
However, most people in the know understand that Amazon wouldn’t let this get away from them and use time wisely to concoct something worthy enough to show they have some skin in the game.
Unsurprisingly, AMZN shares were up relative to other big tech companies in a down week last week on the Nasdaq.
AMZN shares haven’t had quite the mojo that stocks like Tesla or Microsoft have had this year and this call to action is an aggressive step towards the vanguard of technological development.
I highly applaud the management at AMZN for this chess move.
In generative AI, algorithms are used to create new content, such as audio, code, images, texts, simulations, and videos.
Amazon said Highspot, Twilio, Ryanair, and Lonely Planet will be among the first users of the innovation center. With the new center, the company expects to hijack additional cloud services amidst increasing competition in the cloud infrastructure market.
Enterprise spending on cloud solutions reached $63 billion worldwide in the first quarter of 2023, up 20% from the same quarter last year.
Microsoft and Google had the strongest year-over-year growth rates, gaining 23% and 10% in worldwide market share, respectively. Amazon, the leader in cloud infrastructure, kept its 32% market share in Q1.
Amazon recently debuted Bedrock, an AI solution that allows customers to build out their own ChatGPT-like models.
The company also announced the upcoming Titan, which includes two new foundational models developed by Amazon Machine Learning.
Tech is largely downsizing staff and firing diversity officers and other woke positions, but the one area that is pushing for greater numbers is artificial intelligence data scientists and a bevy of LinkedIn posts show they are on the lookout to poach talent.
Amazon, who crushed Microsoft and Google in the business of renting out servers and data storage to companies and other organizations, enjoys a commanding lead in the cloud infrastructure market.
However, those rivals are early into generative AI, even though Amazon has drawn broadly on AI for years to show shopping recommendations and operate its Alexa voice assistant.
Amazon also failed to create the first popular large language model that can enable a chatbot or a tool for summarizing documents.
One challenge Amazon currently faces is in meeting the demand for AI chips. The company chose to start building chips to supplement graphics processing units from Nvidia (NVDA), the leader in the space. Both companies are racing to get more supply on the market.
At a technical level, Amazon shares and the rest of tech shares are quite overbought in the short term.
Last week was a modest pullback between 1-2% in the Nasdaq and I view that as highly bullish because of its orderly nature and lack of volume.
No panic selling is what we want for the markets to optimize the next bullish entry point.
After the modest price action digests fully, I do expect another dip-buying shopping spree for tech shares.
Stay patient and stay hungry.
