Mad Hedge Technology Letter
November 25, 2024
Fiat Lux
Featured Trade:
(TECH STOCKS COULD ENTER A RENAISSANCE)
(NVDA), (TSLA), ($COMPQ)
The consensus of AI and robotics only taking “blue-collar” jobs is now steadily morphing into a new type of rhetoric.
It was once seen that heavy labor, like Amazon’s robots hauling away heavy items in a warehouse, was the widespread case for robots and AI.
However, I’ve been talking to many industry experts who have privately confided that it could be white-collar jobs that receive the most dramatic cuts.
Think about it, can AI and a robot really do the same job as an HVAC repairman or even a plumber?
If tech is able to solve that level of complexity, then the sky is the limit for tech, but I don’t believe we are anywhere near that yet. It is more likely that people typing simple code into computers will be swapped out for an algorithm, which would be an easy one-to-one switch. Jobs that don’t require a physical presence will always be first in line to be cut.
AI has proven that it operates with limited common sense or street smarts, and in some jobs, these 2 skills are essential to performing well.
By analyzing over 24,000 AI-related patents filed between 2015 and 2022, the researchers were able to identify which occupations might be most affected by emerging AI technologies.
Surprisingly, some of the occupations with the highest scores were white-collar jobs requiring advanced education and specialized skills. Topping the list were cardiovascular technologists and technicians, sound engineering technicians, and nuclear medicine technologists. Other jobs at high risk of automation included air traffic controllers, magnetic resonance imaging (MRI) technologists, and even neurologists.
In the information technology sector, 47% of software developers’ tasks and 40% of computer programmers’ tasks were found to align closely with recent AI patents. These patents focused on automating programming tasks and developing workflows, suggesting that even highly skilled tech jobs may not be immune to AI’s influence.
The least likely to be impacted by AI in the near future tended to be blue-collar jobs requiring physical labor or manual dexterity, such as pile driver operators, dredge operators, and aircraft cargo handling supervisors.
Just looking at the new increases in amount of robots suggests that job replacement is coming thick and fast.
Slightly more than 10% of South Korea's workforce has been replaced with robots.
The country has increased its use of robots by 5% each year since 2018.
China, with 470 robots per 10,000 employees, has overtaken Germany and Japan and landed in third place behind Singapore.
The United States ranked 10th with 295 robots per 10,000 employees.
North America's robot density is 197 units per 10,000 employees – up 4.2%.
America has lost around half a million jobs to robots so far, but I believe this concept isn’t linear, and we won’t be able to just extrapolate our current trends into the future.
Once it rains, it will really pour.
It is no coincidence that software companies are firing software engineers in large groups. Silicon Valley has really trimmed the fat off the boat, taking the cue from Elon Musk firing 80% of Twitter and functioning meaningfully better.
I come back to this concept of tech companies operating with algorithms powered by AI with a few “managers” and executives.
We aren’t a few days or months from this coming to fruition, but we are years.
The complete overhaul in staff numbers would mean that tech stocks would enjoy a renaissance and rise 5X to 10X from today’s levels to the joy of shareholders.
American society has never held such a high portion of its wealth in tech stocks, and that will continue as tech stocks get bid up and tech companies doing anything under the sun to massage the stock higher.
The top groups of tech companies ($COMPQ) are still growing around 4X more than the other listed companies, but that doesn’t mean they are sure-fire buy-and-hold stocks today.
In fact, there is a legitimate case that the gap between tech and the rest will narrow as we roll into 2025, making tech stocks marginally unattractive if a full-fledged rotation occurs.
I am not downplaying tech, but sometimes the sector needs a little breather or sideways correction.
Much of the over performance in 2024 has been breathtaking with the gem of the group Nvidia (NVDA).
I am not saying that there will be a non-tech Nvidia-like firm sprouting up from nothing in 2025, but the rate of stock acceleration could face some resistance in the tech sector.
That is why it is important not to chase big gains and wait for stocks to come to you as investors book profits to close the year.
There will be moments where you wish you waited.
Remember, much of tech’s success has already been priced into the stock, and looking out, they will need to deliver another bounty of alpha for shareholders to bid up the price even more.
That is certainly what Nvidia is doing as they impress and then reestablish a new higher goal.
The rally isn’t over, but readers will need to pick their spots.
Since peaking on July 10, big tech stocks have fallen 2%. That lags every major sector in the S&P 500, with the utilities, real estate, financial, and industrial groups jumping more than 10% and the broader index gaining 3.1% over the same span.
Microsoft faces concerns about its prospects in AI. Apple has seen early signs of tepid demand for its newest iPhones, although long-term optimism helped send the stock to a record last week. Amazon investors are worried about heavy capital spending eating into profits. And Alphabet has regulatory uncertainty as the US Justice Department investigates it for monopoly practices.
In the third quarter, Microsoft, Alphabet, Amazon, and Meta Platforms are projected to have poured $56 billion into capital expenditures, up 52% from the same period a year ago.
This is getting expensive, and investors want to know if the expenses are becoming too burdensome to the point that it doesn’t make economic sense.
Raising concerns about future profit margins was never a concern, but it suddenly is for tech investors looking down the road.
Top-line gains are starting to get offset by surging AI-related capital spending.
The reason for the optimism is fairly simple. For all the concerns, they continue to offer above-average profit growth, exposure to AI, strong capital returns, and less risk than other stock market sectors.
They are still attractive businesses with established business models, but at what price?
This earnings season will finally be the acid test to whether investors co-sign management’s vision to grow earnings in 2025.
The path is certainly much harder than in years past, and the goalpost continues to shrink.
Opportunities will present themselves as many companies might need a short-term haircut after earnings.
I still like the tech sector, but I would like it more if the expensive prices were reigned in.
For companies like Nvidia or Tesla, I don’t believe that will be possible, but the tier after that should offer optimal chances to pocket some high-quality names at better prices.
Mad Hedge Technology Letter
November 22, 2024
Fiat Lux
Featured Trade:
(PICK YOUR SPOTS)
(NVDA), (TSLA), ($COMPQ)
Mad Hedge Technology Letter
November 20, 2024
Fiat Lux
Featured Trade:
(THE FUTURE IS HERE)
(NO CODE)
The future is here.
No code or low code will bring a raft of new innovative tech companies to market, and we are in the early innings of this transformative development.
What is no code?
No-code is an approach to designing and using applications that requires zero coding or knowledge of programming languages.
This type of software hits us at a perfect time when the home office is beginning to become ubiquitous.
The self-service movement that empowers business users will support the creation, manipulation, and employment of data-driven applications.
If we turn back the pages of history, companies needed an army of software programmers to develop even the measliest application.
That was then, and this is now.
Fast forward to today, and automated technology doesn’t only include cutting-edge industries like automotive cars but also software on laptops that can be rejigged by individual entrepreneurs.
That’s right, one person with no coding experience will be able to design, develop, and offer a real-life application with meaningful business value without the help of expert programmers.
The research data backs up my thesis with research firms projecting a 23% increase in the global market for this type of technology.
During the pandemic, low-code/no-code tools saw steady growth due to their effectiveness in addressing some of tech’s most complicated challenges.
The essential need to digitize workflows and enhance customer and employee experiences will be a boost to the efficiency of commercial and operational teams.
No-code platforms have evolved from just facilitating mundane tasks to making it possible for a broader range of business employees to truly own their automation and build new software applications with no coding while increasing organizational capacity.
A few risks that larger companies might consider is that even for remote developers building new applications, governance is paramount.
IT staff will need to install guardrails in place and have those built into low-code/no-code platforms to maintain consistent levels of security across the organization.
Cybersecurity solutions need to be integrated into this workflow by training every employee at the organization on security behavior and using compartmentalization and limited access to prevent opportunities for mistakes.
Hard landings are hard to recover from, and some can be crippling to the business model.
For no-code companies, harmonizing workflows is a key requirement for success.
In a low-code/no-code organization, departments should be able to work without silos and communicate freely across functions.
Elevated performance enabled by low-code/no-code tools will mean that the number of useful apps hurling toward the marketplace will be more and merrier than ever before.
Higher performance will no doubt usher in a new renaissance of efficiency and even better performance.
This also puts a 3 or even 4-day workweek squarely in play.
Many of the best tech minds in the world have supported the concept of working smarter instead of working harder.
A low code/no-code standard will allow for these achievements to take place.
The cratering of costs to start and run a tech firm is affected, too.
Deploying startup capital to pay for other expenses will make it easier for successful incubation.
This will ultimately mean that this new type of tech company will need to embrace the fusion of IT and business staff, empowering them with composable applications to speed up the time to market for new solutions.
Low-code/no-code APIs and other tools are enabling companies to integrate new applications into their existing tech stack in a more seamless manner with a lift-and-shift approach vs a rip-and-replace.
At the entrepreneur level, individuals will be able to harness the technology to build $100 million companies with a snap of the fingers when it wasn’t possible to do it before.
This is finally a chance for the little guy to recapture their moxie in the vast and sometimes overwhelming business world.
Mad Hedge Technology Letter
November 18, 2024
Fiat Lux
Featured Trade:
(SPOTIFY WORTH A LOOK)
(SPOT), (META), (PINS)
If new research from Pew Research is anything close to accurate, there appears to be a massive shift underway that has major ramifications for the online media landscape.
Pew Research discovered that 40% of young adults rely on social media influencers without formal journalism training.
Gone are the days when journalists needed to cut their teeth doing coverage on the ground.
This phenomenon has reversed with social media influencers and podcasters dishing out the real media from the comfort of their home.
Yes, this has been happening for a while, but the data suggests we are on the cusp of the legacy media becoming the minority.
The evolving landscape was most notably taken advantage of the richest man in the world, Elon Musk, who used X.com to propel him into politics.
Most social media users relying on news influencers say the information they offer is unique and sometimes more helpful than what they’d find elsewhere and less likely to be fake.
Social media news is also reliant on ad revenue to stay afloat, so in that sense, it could be beholden to advertiser demands on viewpoint and ideology. The legacy media has the same ongoing problem with advertisers, and I believe there is no perfect model.
Yet, the direct connection of social media profiles to audience has grown and will remain attractive moving forward.
According to the survey, traditional journalism is dead, and 40% of young adults under 30 rely on these news influencers to stay updated on current events and politics.
While X, formerly Twitter, is the most popular platform for news influencers, video app TikTok and Google’s YouTube are home to the largest share of news influencers who monetize their content and have no formal background in journalism. Of the news influencers on TikTok, 84% haven’t worked in journalism, and roughly three-quarters of those influencers try to make money off their news analysis, whether by asking for tips, peddling merchandise, or touting separate subscriptions to additional exclusive material, Pew found.
The Pew report analyzed hundreds of news influencer accounts with more than 100,000 followers; surveyed more than 10,600 US adults about their news consumption habits; and reviewed content from more than 100,000 posts across Facebook, Instagram, TikTok, X, and YouTube from July and August.
One of the reasons traders cannot short META stock is because of this cash cow business tied to social media.
Instagram and Facebook are still great businesses, even if they aren’t growing like they used to.
TikTok is a private company, and so is X.com, and there are no stock opportunities there.
However, I would suggest readers take a look at Pinterest (PINS) and Spotify (SPOT).
PINS is still growing almost 20% per year, and I do believe the stock has an upside with the recent involvement of venture capitalists.
SPOT is in the podcast industry and has a locked-in quasi-monopoly in this sub-sector.
Podcasts and their popularity have exploded in the past few years, highlighted by SPOT signing podcaster Joe Rogan to a monster $100 million contract.
Legacy media has also followed up the election with terrible audience numbers, suggesting that the existing viewer base has decided to move on or temporarily pause participation.
META, PINS, and SPOT should be serious buy-the-dips candidates moving forward as the pivot to alternative media goes from a drip to a waterfall. As I am rereading this newsletter, the AP just fired 8% of its staff, citing “fast- changing conditions in the media industry.”
Mad Hedge Technology Letter
November 15, 2024
Fiat Lux
Featured Trade:
(ACCOUNTING STANDARDS COULD TAKE DOWN SUPERMICRO)
(SMCI), (NVDA)
