“Computers are useless. They can only give you answers.” – Said Artist Pablo Picasso
Mad Hedge Technology Letter
May 22, 2020
Fiat Lux
Featured Trade:
(WHY DATA HAS BECOME THE OXYGEN OF MODERN COMMERCE),
(BIG DATA)
What does it mean for companies to apply data to gain an edge?
Let me explain.
Data is best described as the oxygen that is provided to the lungs.
Competition is based on the business intelligence excavated from vast troves of data.
These insights enable companies to target proper growth drivers, migrate to revenue hotspots and add appropriate employee talent.
The data also delves into how to create product stickiness, customer loyalty, promote up-selling, and optimize operations.
It’s not me just saying this to hype up the phenomenon, and I can vouch that data-driven decisions have worked wonders for the Mad Hedge Technology Letter.
Other companies have reported robust performance in productivity and profitability margins up to 10% higher than analog companies.
A recent report showed that margins would expand wider after the first year to 10% and hit a roaring 15% after operations are further refined.
It's a world of data supremacy; it doubles in size every two years and will reach 70 zettabytes by next year.
Data is connected to every part of the model from marketing campaigns, to website traffic flow and activity engagement, to operational procedures.
Can you believe that only 10% of global data is currently being acted on?
It’s hard to digest that most companies are winging it without any rhyme or reason.
The world is way too complex to bring a knife to a gunfight.
Predictive insights used to be only reserved for Fortune 500 companies who could afford the high expense of applying these high-powered tools.
But after the recent wave of automation and cloud software, even individual proprietors can participate in this once-taboo management exercise because the costs have come down.
Going on gut instinct and best estimates can only get you so far in a rapidly digitizing world and the coronavirus has only made the volume of data explode and required insights into business that are much more important.
I would also say that companies must be vigilant in harnessing the data because the skyrocketing number of nefarious elements out there have corrupted many data forms.
Just recently, the Mad Hedge website was overpowered by a tsunami of bots scouring our website for data.
The bots overloaded our email distributer service with new subscriptions by registering 1000s of emails into our database which muddied our underlying data and our ability to glean salient insights into it.
Bots find the data needed to answer a question or solve a problem and the Mad Hedge Fund Trader website has been a target to find the best financial content in the English-speaking world.
Once the requisite data is in hand, bots identify what toolsets are needed to organize the data and produce predictive and prescriptive business insights.
Many of these bots use content to create trading algorithms based on stand-alone content from the Mad Hedge Fund Trader that acts as a direct input into the database.
This new form of business intelligence deploys machine learning software as a question or problem and generate actionable solutions.
They can categorize base cases, outliers, marginal cases, and errors that require further data cleaning, additional reporting, and queries.
Ultimately, these bots are the vehicles in which a final answer is populated such as whether or not to buy Amazon stock today or tomorrow and so on.
As we push into the 5G era, this same technology will be repurposed for the internet of things (IoT) translating into another wave of products being groomed and fine-tuned by machine learning.
Internet of Things (IoT) is the fastest-growing segment of data and already comprises 15% of total global data.
Physical products will need embedded sensors that will monitor the performance and send terabytes of data back to the data servers for data analysts to pick apart.
One example is a Geared Turbo Fan engine which requires 5,000 sensors that generate up to 10 GB of data per second.
Now you can understand why the volume of data is literally about to mushroom as 5G takes hold and why Amazon has been so hellbent in penetrating the smart home market.
Bots facilitate conversations between systems and data silos and allow your decision-makers to have the keys to the Ferrari.
Bots enable an easy view of displaying key performance indicators (KPIs) and alerts on the run with simple charts and graphs.
As the coronavirus offers us glimpses into the world tomorrow, data analysts embedded all over the world will be harnessing bots to maintain your home thermostat or upgrade software in the rear of your smart microwave.
As we speak, the Mad Hedge Fund Trader website is gearing up for the next wave of data supremacy and I advise everyone else to get with the program.
This is the world of the future and for companies who don’t adapt, they will be swept into the dustbin of history.
“The sidelines are not where you want to live your life. The world needs you in the arena.” – Said CEO of Apple Tim Cook
Mad Hedge Technology Letter
May 20, 2020
Fiat Lux
Featured Trade:
(IT’S ALL ABOUT THE CLOUD),
(CLOUD), (WCLD), (SKYY)
The x-factor for the last tech generation has been none other than – the cloud.
Any portfolio manager that hasn’t aligned performance with this transformational phenomenon is most likely not a portfolio manager anymore.
Now, as we enter into an unknown world, if you thought the cloud was the x-factor of the tech in the last generation, then the 2020s will make the cloud contributions to growth in the last generation appear meek.
About 1/3 of small businesses recently surveyed admitted there is really no path back to reopening. Who would really want to shoulder financial risk in an economic environment that outwardly punishes businesses that operate around anonymous customers in close proximity?
Many of these owners, even with generous government funding, have chosen not to fight against the path of strongest resistance.
When the dust settles, even if a vaccine arrives out of thin air tomorrow, the work at home thing, or should I say the work from anywhere but the office phenomenon will persist like a bad flu, no pun intended.
The Cloud is the winner, and everything associated with it will drive the economy forward.
It has emerged as the cog in the works, that no company can live without.
Not only is the cloud highly effective but it's also cheaper than traditional systems.
It also provides nimbleness in scaling up or down computing capacity according to business requirements.
Search for growth companies that do not deploy the cloud as a critical pillar of operational execution.
They hardly exist now.
Whether it’s the vanguard of the cloud plays such as Amazon (AMZN), the second in show nipping at Amazon’s heels, Microsoft’s (MSFT), or any other small cloud play, they are all profiting off the monstrous pivot to digital commerce and cord-cutting.
In China, Tencent, Alibaba, and Huawei are cloud companies doing so well that the U.S. government has tried to shut them down to allow a wider moat around U.S. companies.
What’s the simplest way to carve out significant exposure to cloud equities?
A barrage of ETFs (exchange-traded funds) has come online to serve your needs.
They are also durable enough to endure stormy and uncertain times.
Here are three that should whet your appetite.
The First Trust Cloud Computing ETF (SKYY) tracks a modified equal-weighted index of infrastructure, platform, and software cloud companies. Microsoft, Amazon, and Alphabet are its secret sauce.
The Global X Cloud Computing ETF (CLOU) consists of companies that are positioned to benefit from the increased usage of cloud computing. While Amazon, Microsoft, and Alphabet are included in the portfolio, the fund’s top holdings are pure-play cloud companies like Zscaler (ZS) and Shopify (SHOP).
The WisdomTree Cloud Computing ETF (WCLD) tracks an equal-weighted index of emerging companies with DocuSign (DOCU) and RingCentral (RNG) among the largest holdings.
What’s more, let’s remember that every cloud company is about to embark on a massive round of expense cuts by getting rid of the physical office.
Twitter (TWTR) even has allowed workers to work from home on a permanent basis.
Yes, this means San Francisco commercial real estate prices are about to nosedive, but as it relates to the tech industry, operation costs will benefit in one fell swoop boosting earnings.
This also paves the way for many tech companies to re-establish tax headquarters in Nevada, Texas, or Florida which will act as another supercharger to growth.
Elon Musk has called out the Bay Area politicians in Alameda County, California because of a convoluted response and conflicting rules with regards to restarting the Fremont, California factory.
Covid-19 is most likely the straw that breaks the camel’s back as many Bay Area tech workers start to question what on earth they are doing paying $4,000 per month to rent a “cozy” 400 square foot apartment in Cupertino or San Francisco.
The mass exodus from high tax states to low tax states is just another supercharger out of many cloud superchargers on top of growth.
What more can I say?
“It's better to be a pirate than to join the Navy.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
May 18, 2020
Fiat Lux
Featured Trade:
(CHINA’S BIG SEMICONDUCTOR PLAY),
(SMH), (SOXX), (DOCU), (AKAM), (NVDA), (AMD), (XLNX)
We received a convincing data point as to why we trade cloud companies and not the semiconductor chips.
The rift between blacklisted telecom equipment giant Huawei Technologies and the U.S. administration has had a dramatic side-effect on the business models of U.S. chip companies.
The U.S. commerce department now will require licenses for sales to Huawei of semiconductors made abroad with U.S. technology signaling more turbulent times ahead.
Huawei is the Chinese smartphone maker and telecom provider who has stolen intellectual property from the West and used mammoth subsidies funded by the Chinese communist party to build itself into one of the premier telecom equipment sellers and number two maker of smartphones in the world.
I seldom issue trade alerts on semiconductor chip companies because I'd rather not compete with the Chinese communist party and their capital funding capacity.
China is hellbent on subsidizing its own chip capacity as many Western chip companies are blocked from doing deals with them.
A recent example is the Chinese communist party injecting $2.25 billion into a Semiconductor Manufacturing International Corp. wafer plant to ramp up development in the sector.
To read about this, click here.
Exploiting the economic freedom and laws of the West has worked out perfectly for Chinese tech enabling them to develop juggernauts like Tencent and Baidu.
In fact, state-sponsored hacking of Western intellectual property is not considered a malicious activity in China.
There is the Chinese notion that everything is fair game in business and war and protecting company secrets falls on the shoulders of the cybersecurity sector.
To read more about the fallout in the West from China’s aggressive trade strategy, click here.
The concept that you should only blame yourself if you allow your secrets to get stolen prevails in China.
The consequences are impactful with U.S. chip companies suffering large drops in revenue without notice.
Leading up to the coronavirus, chip companies experienced a revenue slide of 12% in 2019 to $412 billion largely due to the trade war.
An example is Xilinx Inc. (XLNX) who will fire 7% of its workforce citing lower revenue from Huawei and delayed adoption of superfast 5G networks.
Along with the West getting smacked by the trade war, the ripple effect of increased uncertainty and guide-downs across the semiconductor supply stems from China’s economy being hit even worse than the U.S. economy.
There are no winners here and it will be a hard slog back from the nadir.
Either way, the sabre-rattling doesn’t stop here and each tweet and counterpunch will cause heightened volatility in chip shares.
Then consider that the existence of supply chains will most likely uproot, and we got indication of that type of activity with Taiwan Semiconductor’s (TSM) announcement to build a new chip factory in Phoenix.
To read more about this impactful deal then click here.
This would have never happened during prior administrations where all manufacturing was offshored to China.
As it stands, China has been circumventing existing U.S. law to clampdown chip sales by buying U.S. chips from 3rd party channels.
Once many of the supply chains come back, it will be almost impossible for Chinese to procure those same chips.
The Taiwan semiconductor manufacturing facility in Arizona will ultimately employ 1,600 high-tech workers.
Building is slated for 2021 with production targeted to begin in 2024.
Moving forward, the U.S. administration will make it implausible for many U.S. chip companies to offshore using the reasons of national security and domestic job demand to ensure that many factories are rerouted back to U.S. shores.
The boom and bust nature of chip companies make for treacherous spikes and drops in share prices.
The insane volatility is why I stay away from them as the Mad Hedge Technology Letter mainly opts for short-term options trades.
Nvidia (NVDA) and AMD (AMD) are great individual chip stocks that I would encourage readers to buy and hold.
Another option is to just park your money in the semi ETF VanEck Vectors Semiconductor ETF (SMH) or iShares PHLX Semiconductor ETF (SOXX).
On the flip side, cloud stock’s backbone of recurring monthly revenue is just too savory.
The constant cash flow with minimal international risk along with pristine balance sheets is what makes U.S. cloud companies top on the list of trade alert candidates.
That won’t stop anytime soon as the pandemic has offered us more conviction into the moat between cloud stocks and the rest of technology.
I apologize if I sound like a broken record, but I love my Akamai’s (AKAM) and DocuSign’s (DOCU), they have the growth portfolio that backs up my thesis.
Buy cloud stocks on the dip.
“If you are a big company, a big website, and lots of users come to your website, you will have attacks, and you have to deal with that.” – Said Founder and CEO of Baidu Robin Li
