Mad Hedge Technology Letter
November 6, 2024
Fiat Lux
Featured Trade:
(TECH STOCKS POISED TO MOVE UP)
($COMPQ), (PLTR), (MSFT), (AMZN), (GOOGL), (INTC)
Now that the U.S. election has come and gone with nothing more than a whimper, we are full speed ahead with the last upmove in tech stocks ($COMPQ) for the year 2024.
The beginning of the rally is here, and readers shouldn’t miss it.
A lot of money was waiting on the sidelines, and now we will start seeing institutional money pouring in.
The equity market ripping higher up on the news of a new administration coming to town is a highly bullish signal for the rest of the year for the Nasdaq index.
Chip stocks did quite remarkable today, with the likes of Micron up around 6% at the time of this writing.
I believe that fund managers will hop on and try to achieve the extra alpha now that the biggest risk of an incomplete election is off the table.
The move down in gold by around 3% suggests that fear over the election being inconclusive is off the table.
I don’t envision the new administration starting a witch hunt against tech stocks. Tech stocks still represent a massive motor in the United States economy, which the administration will respect.
Much of the same trends that were occurring before the election continued along the same path, such as a stronger dollar, higher yields, and a weak Japanese yen.
Tech stocks can move higher with all these trends.
In general, a Republican administration should be good for the tech sector, and the corporate taxes will benefit Silicon Valley the most.
First, there's artificial intelligence. The market should expect significant AI initiatives within the U.S. that would be a benefit for Microsoft (MSFT), Amazon (AMZN), Google (GOOGL), and other tech players. Department of Defense AI initiatives would also benefit the likes of Palantir Technologies (PLTR).
Republicans could make major revisions to President Biden's Inflation Reduction Act, which could negatively impact the act's beneficiaries, such as Intel (INTC).
Tesla and its CEO, Elon Musk, will be the biggest beneficiary of a Trump administration. Trump is likely to stop or reduce the electric vehicle rebates and tax incentives. That would be an overall negative for the EV sector but a big positive for Tesla. As will Trump's proposed selective import tariffs.
Tesla has the scale and scope that are unmatched in the EV industry, and this dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players (BYD, NIO, etc.) from flooding the U.S. market over the coming years.
One of the only few things the Democrats did well was igniting equity prices and, specifically, tech stocks, which is a positive omen moving forward.
Ultimately, a crushing loss by the Democrats revealed another crippling black eye to liberal mainstream media, which should accelerate cord-cutting and the transition to citizen journalism and other independent journalist sources.
Left-wing mainstream media sources wielding radical progressive viewpoints luckily won’t do much collateral damage to tech stocks, and in the backdrop of a strong U.S. economy, I am highly optimistic about tech stocks in the short term.
I believe that the Trump administration will attempt to supercharge tech stocks by cutting red tape and allowing them to flourish.
Reducing taxes will be the bow tie on top to really juice up shareholder returns.
I am bullish on tech stocks going into the end of the year because much of these synergies are still not discounted yet in the price of tech stocks.
Mad Hedge Technology Letter
November 4, 2024
Fiat Lux
Featured Trade:
(A SIDEWAY CORRECTION BEFORE THE MOVE UP)
(AAPL), (BRK-B)
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.
“Apple doesn't do hobbies as a general rule.” – Said Apple CEO Tim Cook
Mad Hedge Technology Letter
November 1, 2024
Fiat Lux
Featured Trade:
(WILL THE TRIFOLD PHONE SAVE TECH?)
(HUAWEI), (AAPL)
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.
Mad Hedge Technology Letter
October 30, 2024
Fiat Lux
Featured Trade:
(LACK OF AI ROCKS THE KOREAN HEAVYWEIGHT)
(SAMSUNG), (SK HYNIX)
It’s not just about smartphones for Samsung anymore, their stalwart chip business is in full-blown crisis mode as they have been too slow to adapt to the artificial intelligence revolution.
It shows that if a company is asleep at the wheel, how quickly and how far they can fall back.
Samsung is Korea’s flagship tech company, and it is like the Titanic in a way because it is hard to turn around with the amount of employees it has.
Old habits die hard, and management simply wasn’t prepared for the giant leap forward in semiconductor chips.
Remember when their flagship smartphone, named the Galaxy, was the best phone in the world?
Oh, have times changed?
Concerns are piling up that the company is losing out to smaller rival SK Hynix in AI memory and failing to gain on Taiwan Semiconductor Manufacturing.
Overseas investors have sold about $10.7 billion worth of the South Korean company’s shares on a net basis since the end of July.
That hope has been snuffed out with the company admitting delays with its latest-generation HBM chips in early October, soon after SK Hynix said it had begun volume production. Meanwhile, US rival Micron Technology is stepping up efforts in HBM as well and has reported strong demand for its offerings.
Beyond its lag in AI memory, Samsung has struggled with a costly, yearslong effort to close the gap with TSMC in the foundry business. Like Intel— which has run into similar difficulty with plans to expand its outsourced chipmaking operations — the Korean firm is now moving to cut jobs and make other efforts to stop the bleeding.
Jay Y. Lee — a grandson of Samsung’s founder who was appointed executive chairman two years ago — was acquitted of stock manipulation charges in February after years of legal issues. Three months later, the company unexpectedly replaced its semiconductor division head with Jun Young-hyun, a memory chip veteran.
Samsung executives and engineers are now in full unison, heading towards the exits, looking for greener pastures, and that is a massive red flag.
It certainly isn’t a good optics when the best talent is looking for another job, but that is where we are at with Samsung.
In the short term, I don’t expect a quick turnaround because the management problems are real, and to get competitive in AI is a tall order.
Just look at AMD, they are about a year behind Nvidia, and Samsung isn’t even in the ballpark.
I expect a slow slide into irrelevancy and foreign shareholders dumping big swaths of Samsung stock backs this theory.
In the short term, readers shouldn’t get too fancy with picking AI stocks because there is a massive risk to the downside, considering how expensive the equity market is right now.
Samsung won’t be the last company to be swept up by the dustbin of tech firms.
In the U.S., it is clear which companies are behind and which are leading.
Microsoft is definitely one to buy the dip on.
I definitely envision at least one fiercer rally in AI stocks as we cruise past the U.S. election.
Mad Hedge Technology Letter
October 28, 2024
Fiat Lux
Featured Trade:
(THE FUTURE OF TECH STOCKS)
(AI), (NVDA), (XLU), (XLE), (AAPL), (GOOGL), (AMZN), (META), (MSFT)
