“It's better to be a pirate than to join the Navy.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
February 8, 2021
Fiat Lux
Featured Trade:
(VENTURE CAPITALISTS SHARE THE CLUES TO THE TECH MARKET)
(NVDA), (OTCMKTS: SFTBY), (GOOGL), (BABA), (AMZN), (UBER), (FB)
To gain a glimpse into the current psyche of tech investing, we need to take a raw snapshot of the state of Softbank’s Vision Fund.
The Vision Fund is the brainchild of the Japanese telecom company’s founder Softbank Masayoshi Son and is the world’s largest technology-centric venture capital fund with over $100 billion in capital.
The torrent of bullish price action of late has meant that SoftBank recorded a record quarterly profit in its Vision Fund as a gangbusters’ stock market lifted the value of its portfolio companies.
However, the significant gains accrued in equity were also substantially offset by painful derivatives losses as Son attempted to parlay his winnings into leverage directional bets in the short-term.
The Vision Fund’s $8 billion profit in the December quarter is a stark change from the prior March when the pandemic was in full gear and the Fund booked major losses amid embarrassing flops like office space sharing company WeWork.
As 2020 came to a close, tech growth firms like Uber (UBER) stock exploded higher and DoorDash (DASH) gave the Vision Fund a nice payday going public at the end of the year in stellar fashion.
On the options trading front, things didn’t go so rosy.
SoftBank posted a 285.3 billion yen or $2.7 billion derivatives loss in the period.
I understand “hedging your bets” but for Son to create this massive loss undeniably has to infuriate deep-pocketed investors from Arab nations that have stuck with him through tumultuous events.
The staggering option losses was why the asset management arm registered a loss of 113.5 billion yen or $1.08 billion, up from losses of 85.2 billion yen in the previous three-month period.
Experiencing wonderful gains only to have the narrative wiped out because of high stakes option bets is perhaps a sign of the times as phenomena like the Gamestop (GME) have moved to the forefront indicating that players have access to too much liquidity at this point in the market cycle.
Some 15 companies have gone public from the Vision Fund so far, and Son does have a long list of busts and winners.
However, one might assume that he won’t hit on every company as he revealed that his Vision Fund 1 and Vision Fund 2 have invested in a total of 131 companies. In the case of DoorDash, SoftBank invested about $680 million for a stake now worth about $9 billion while its $7.7 billion investment in Uber is worth $11.3 billion.
There are still shining stars on the balance sheet.
Another six more portfolio companies are planning IPOs this year and bringing this volume model to the public markets is logical considering even zombie companies are getting funded out the wazoo at this point.
Tech is also still holding its perch as the darling of the market and Son is simply delivering to market what investors want which is growth tech and more of it.
Other issues on Softbank’s list are to sell off its interests in Alibaba, T-Mobile US Inc., and SoftBank Corp., the Japan telecommunications unit. SoftBank also announced a deal to sell its chip designer Arm to Nvidia (NVDA) for $40 billion.
On top of the risky growth companies, Softbank has also parked its capital in a who’s who of tech firms such as a $7.39 billion investment in Amazon.com (AMZN), $3.28 billion in Facebook (FB). and $1.38 billion in Alphabet or Google (GOOGL). The operation is managed by its asset management subsidiary SB Northstar, where Son personally holds a 33% stake.
Son labeled his options debacle as a “test-drive stage” hoping to play down the fact that he should have made a lot more with the massive ramp-up in tech demand in 2020.
It’s not all smooth for Son with the chaos at Alibaba (BABA), Son’s most exotic investment success to date and SoftBank’s largest asset, tanked 20% last quarter amid a Chinese government clampdown on Alibaba Founder Jack Ma.
This has to worry Son’s future tech investing prospects in China (P.R.C.).
SoftBank’s own sale of Arm to Nvidia (NVDA) is still making the rounds through the EU approval process. The United Kingdom and European Union are both preparing to launch probes into the deal.
All in all, a mixed bag for the Vision Fund where profits should have been higher and most of the damage was self-inflicted.
At some point, throwing massive amounts of capital to juice up tech growth firms will backfire, but the generous access to liquidity that Son has makes this strategy work while even affording him some massive failures.
In short, the Vision Fund should be many times more profitable and it’s a reminder that these leveraged bets aren’t going away which should mean enough liquidity out there to take the markets higher.
We should also be aware that the eventual “market mistake” could give us 10% tech corrections, which are no brainer buying opportunities if the same liquidity volume persists.
Then consider that many tech companies have done well in the recent earnings season and combine that with the eventual reestablishment of buybacks and the neutral observer must think that tech has more room to run in 2021.
Mad Hedge Technology Letter
February 5, 2021
Fiat Lux
Featured Trade:
(SHOULD INVESTORS BUY QUALCOMM STOCK AFTER THE DIP?)
(QCOM)
What’s the one-sentence answer to why you should buy chip company QUALCOMM Incorporated (QCOM)?
The simultaneous global adoption of 5G, combined with increasingly complex technical requirements and an accelerating pace of change drives a significant multiyear industry transition that directly offers QCOM more revenue opportunities.
The numbers are showing up big time with record first-quarter revenues of $8.2 billion, up 63% year over year, and record earnings of $2.17 per share, more than doubling from the prior year.
In fact, Qualcomm is being held back by supply constraints - business is that good.
RF or better known as mobile antennas, demonstrated continued growth with quarterly revenues more than doubling year over year and crossing the $1 billion threshold, a significant milestone.
QCOM is executing a masterful digital strategy to address many of the technical challenges of delivering a true modem to antenna 5G experience and capture a higher dollar share of content in smartphones.
The automotive revenues of $212 million were up 44% year over year, and QCOM’s design win pipeline has grown to $8.3 billion from just $3 billion three years ago, placing QCOM on a trajectory to achieve its fiscal-year 2024 revenue target of $1.5 billion.
Internet of Things (IoT) vertical also passed the $1 billion threshold in Q1 and grew 48% year over year, driven by the growth of QCOM’s core technologies for the digitization of consumer, networking, and industrial applications.
The rapid deployment of 5G in both the core handset industry is something that QCOM has planned to take advantage of for years.
In QCOM’s licensing business, their broad portfolio of foundational system-level innovations and intellectual properties across 3G, 4G, and 5G, along with valuable implementation patents is unmatched and recognized in part by having signed more than 120 5G license agreements, up from 111 license agreements last quarter.
Qualcomm has also spent the past decade knee-deep in AI research and development, resulting in the creation of the technology necessary to scale AI across industries and products from smartphones and automotive to the IoT and data centers.
To create a world full of artificial intelligence, QCOM focused on making efficient hardware, algorithmic advancements, and software tools available to developers and original equipment manufacturer (OEM).
The car is somewhere where QCOM can make some serious inroads as the industry continues to grow rapidly.
The undeniable trend is that the car is becoming more connected, more autonomous, and more electric.
A demand for 5G connectivity, and new experiences and user demands such as always-connected digital cabins for infotainment, real-time navigation, and entertainment are becoming the new standard.
This “iPad on wheels” will ultimately be powered by 4G LTE and 5G connected services with integrated cellular V2x, Wifi, Bluetooth, and precise positioning technologies, QCOM’s 4G and 5G platforms are designed to securely connect vehicles to the cloud, each other, and the surrounding environment.
Qualcomm already has 200 million vehicles on the road today connected with QCOM modems, and nobody produces modems better than them.
QCOM currently has a third-generation automotive cockpit solution that has been selected by 20 of the top 25 automakers.
This shows QCOM’s achievements in high-performance computer vision, artificial intelligence, and multi-sensor processing.
IoT products have been a hit with the launch of QCOM’s second-generation Snapdragon HCX, and the introduction of QCOM’s commercial and educational platforms for both Windows and Chrome, and continued ecosystem progress.
With over 40 design wins and strong ecosystem momentum with global operator partnerships, QCOM is flexing the IoT division with the RF division to continue on its path of stand-out revenue drivers for the foreseeable future.
Sadly, investors focused on the supply constraints “across the entire industry” as a reason to dump the stock in the short-term, but I do believe this is a great buy and hold chip stock.
This will be a technical issue and not a long-term structural overhang that could potentially kill the trajectory of the underlying stock.
I am bullish QCOM.
“A.I. is probably the most important thing humanity has ever worked on.” – Said Alphabet CEO Sundar Pichai
Mad Hedge Technology Letter
February 3, 2021
Fiat Lux
Featured Trade:
($4,000 A DONE DEAL FOR AMAZON IN 2021)
(AMZN)
Amazon is highly likely to surge past $4,000 this year.
Like many other tech stocks, last March was a kick in the teeth that served up a quick correction.
But unlike a handful of sectors, investors saw their faith in Amazon rewarded when the stock reversed and roared to $3,500.
After a sharp spiral down off the March lows, as investors saw Amazon as a beneficiary of lockdown measures, the stock had been consolidating within a narrowing range over the past several months.
Traders have solid support levels at $3,100 and any trader should be buying AMZN at anything close to that.
The price action suggests that AMZN has a favorable chance to break up to the upside some point after what was a blowout fourth quarter results of net income of decisively more than the predicted $6.3 billion and revenue approaching $120 billion.
They outdid themselves and reported earnings of $14.09 per share on record revenue of $125.56 billion.
The e-commerce and technology titan went into its important holiday quarter report on a strong note and 2021 will be no different as features if the pandemic persists.
Just a quick rewind to the third quarter, revenue and earnings also easily beat consensus estimates, and Amazon perennially guides up. This is becoming a constant pattern with the stock boding well for the future stock price.
Investors like companies who constantly over-deliver on earnings metrics.
The biggest bombshell of yesterday’s report was clearly that Jeff Bezos, the company’s founder and CEO, would leave from his role in the third quarter of 2021.
I thought it was interesting that after-hour trading was largely indifferent as investors were digesting the founder leaving his creation.
Next on deck is Andy Jassy, who currently leads Amazon Web Services (AWS), and will take over Bezos’ job.
Bezos will stick around in an “executive chairman” role and I envision this as Bezos not really leaving and still handling all the “big vision” stuff.
Inside the company, Jassy is the highest profile candidate and part of the most profitable part of the company giving him major clout.
This is out of the same mold of Microsoft’s CEO Satya Nadella who was also promoted to the top via the cloud division.
Bezos will now have more time to spend on Day 1 Fund which is a non-profit organization that will launch and operate a network of high-quality, full-scholarship Montessori-inspired preschools in underserved communities.
Along with that, he will spend time with the Bezos Earth Fund, Blue Origin, The Washington Post while Jassy handles the daily grind of the operation.
Don’t forget that Bezos is the largest shareholder, but because Amazon has become quite heralded for grooming top-level management, the company won’t miss a beat with Jassy.
Just look at what Jassy did in the fourth quarter.
Amazon Web Service (AWS) grew revenue 28% to $12.74 billion. That year-over-year growth rate held roughly steady compared to the third quarter and is the U.S. market share leader in cloud web hosting.
AWS operating income grew even more strongly, jumping 37% to nearly $3.6 billion.
Awarding the best performing manager at a company is something good companies do.
The pandemic, in itself, was a major catalyst to take revenue growth higher and sales got a boost from the company's annual Prime Day event, which was pushed back to the fourth quarter this year from its usual place in the third quarter due to the global crisis.
This year could be a similar repeat of 2020 with consumers crazy for e-commerce services and Amazon, best of breed service.
This should be a buy on every small dip stock and simply the best company in the world right now whether examining tech or anything else.
“Our goal is not to build a platform; it's to be across all of them.” – Said CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
February 1, 2021
Fiat Lux
Featured Trade:
(A SLAM DUNK TECHNOLOGY)
(BIG TECH)
