“Price is what you pay, value is what you get.” – Said Warren Buffett
Mad Hedge Technology Letter
October 21, 2024
Fiat Lux
Featured Trade:
(BITCOIN PRICE ACTION IS GOOD FOR TECH STOCKS)
($COMPQ), (BTCUSD)
When I see Bitcoin coming back from the doldrums, it highly suggests to me that there is a great deal of liquidity sloshing around in the markets.
Bitcoin doesn’t pay your mortgage or buy food at the grocery.
Fiat currencies do.
Therefore, users still need to convert their crypto holdings into whatever it may be, whether it is Turkish Lira or Euro, to transact with most retailers.
So when we have a roaring economy of 3% GDP powered by $3 trillion in annual deficit spending, it seems that many investors are focused on the large deficit spending, which infuses a heavy dose of asset appreciation into the economy and other asset classes like crypto and tech stocks. That is why tech stocks, houses, Bitcoin, and groceries are all expensive and rarely go down in price.
Bitcoin approaching $70,000 per coin is a highly bullish sign to the rest of the tech stocks that this rally will power on until year-end.
Tech stocks are denominated in US dollars, which makes them a huge beneficiary of increasing global liquidity, which is on the rise again, with central banks across the world injecting cheap capital into their economies.
When global liquidity has exceeded its moving average in the past, it has often coincided with significant upward movements in the price of Bitcoin and tech stocks.
Compounding the positive fortunes of Bitcoin and tech stocks are the presidential candidates saying they are very pro-crypto.
Republican candidate Donald Trump is avowedly pro-crypto, so much so that Bitcoin is viewed as a so-called Trump trade. Democratic rival Vice President Kamala Harris has vowed to support a regulatory framework for the industry.
I do believe that this synchronized trade of higher-tech stocks, higher bitcoin, a weaker yen, and stronger gold continues until there is a paradigm shift.
The one outsized risk that is a “known known” is the Aha moment when investors realize the federal debt is a now problem.
We have kicked the can down the road for decades, but even Elon Musk has repeated a warning that the U.S. is hurtling toward the brink of "bankruptcy."
U.S. national debt has skyrocketed in recent years, crossing the $34 trillion mark at the beginning of 2024, largely due to lockdown stimulus measures that sent inflation spiraling out of control and forced the Federal Reserve to hike interest rates at a historical clip.
Earlier this year, Bank of America warned the U.S. debt load is about to ramp up to add $1 trillion every 100 days, headed towards $36 trillion by the end of 2024. This will also trigger a surge in Bitcoin prices.
I do believe if the federal government limits its debt spending to $3 trillion per year, tech stocks and bitcoin will continue to increase in price in tandem.
However, if we ever do get a recession, yes, the one that was supposed to happen since 2019, then it could trigger a $15 trillion federal debt response to limit the contagion, destroying more purchasing power.
A massive fiscal event like that would careen the US economy into a dangerous path while disrupt the tech and bitcoin trade into the only bitcoin and gold trade.
We still have time to get the situation under control, but neither party has even talked about it during their campaign. Only Musk has said he wants to create a department of efficiencies to trim the fat and reduce government spending.
As it stands now, goldilocks continues, and readers should buy the dip in tech stocks.
Mad Hedge Technology Letter
October 18, 2024
Fiat Lux
Featured Trade:
(AMD GAINING MARKET SHARE)
(AMD), (NVDA)
If you thought that AI chips had reached the high water mark, then you are entirely wrong.
Nvidia has been one of the only games in town, and that is a strong sign of a first-mover advantage.
In fact, the ecosystem could benefit if several chip companies could rise to the occasion to infuse that extra bit of supply.
Nvidia is on record, saying they can’t meet demand.
Well, we have finally reached the next phase of the AI chip story, and that is the next company stepping up to the plate.
AMD (AMD) has been working furiously to get into the AI GPU game, and it appears as if their harvest is just around the corner.
For the past 18 months, Nvidia (NVDA) has dominated the GPU industry with a ball-busting market share of up to 98%.
Nvidia's H100 GPU set the benchmark for AI training and AI inference.
The H100 is still a sizzling product today, and Nvidia continues to struggle with supply constraints because demand is so high from leading AI companies like OpenAI, Amazon, Microsoft, and more.
Those supply challenges have opened the door for competitors like Advanced Micro Devices to swoop out of nowhere. The company announced its own data center GPU called the MI300X at the end of 2023, which was specifically designed to compete with the H100. So far, it has lured in some of Nvidia's top customers, including Microsoft, Oracle, and Meta Platforms.
AMD forecasts the MI300 series will propel its GPU revenue to a record $4.5 billion in 2024 - an estimate that has already been raised twice.
Nvidia still is the champion - it started shipping its new H200 GPU earlier this year, which is capable of performing AI inference at nearly twice the speed of the H100.
Nvidia is now focused on its latest Blackwell chip architecture, which paves the way for the biggest leap in performance so far. The new GB200 NVL72 system is capable of performing AI inference at a whopping 30x the pace of the equivalent H100 system.
AMD is preparing to ship another new GPU next year called the MI350X, offering a staggering leap in performance of 35x compared to CDNA 3 chips like the original MI300X.
Advanced Micro Devices has explicitly said the MI350X will compete directly with Nvidia's Blackwell chips.
Nvidia plans to ramp up shipments of Blackwell GPUs during its fiscal 2025 fourth quarter.
A 114% increase year over year in data center revenue is what it looks like on the balance sheet for AMD.
Developing artificial intelligence (AI) software wouldn't be possible without data centers and the powerful graphics processing chips (GPUs) inside them.
This is where we stand – at the beginning of an AI-induced supercycle in technology stocks.
AMD is clearly the 2nd horse in the race that will pick up market share on Nvidia.
This could easily turn into a duopoly of GPU chip companies, and readers would be ignorant to not apply this knowledge a trading regimen.
Wait for a substantial dip to buy into AMD shares.
You’ll regret it if you don’t, especially long-term.
“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
October 16, 2024
Fiat Lux
Featured Trade:
(THE CHIP TRADE IS STILL IN-TACT)
(ASML)
Computer chip equipment maker ASML said they will cut 2025 financial guidance, citing weakness in markets other than AI and delayed orders.
This triggered a steep sell-off in many chip names, and I view this as a healthy event.
We are bombarded with so much robust news from the chip sector that it is hard for investors to catch their breath before the next spike higher in underlying shares.
Once in a while, it is highly positive to recalibrate momentum and allow the stock to settle.
Chips are definitely boom-and-bust stocks, and we are right in the middle of the boom. and I wouldn’t be too worried for other chip companies as we head into earnings.
This is a great chance to buy the dip in many of the best of class.
Europe's most valuable technology company, ASML, as an essential supplier to chipmakers, is not in question. But doubts have emerged over short-term sales and, for the longer term, whether it can continue to outgrow the overall market.
ASML's dominance of the market for lithography tools needed to create circuitry triggered the stock to all-time highs before this recent weakness.
After the health crisis of the early 2020’s, customers stopped overbuying, which reduced demand.
Now, ASML said some customers had announced delays of new plants and upgrades, including makers of the logic chips used in smartphones, PCs, and other devices.
Manufacturers that make the memory chips that go into them also plan fewer expansions, meaning they can rely on existing equipment for longer.
That's especially the case for an upstream equipment supplier highly reliant on the spending plans of its manufacturing customers.
It’s highly likely that Taiwan Semiconductor was the company who decided to cut back on business with ASML.
TSMC has been spending rather low capex numbers so far this year, and they may do so again next year because their overall (plant) utilization is not as good as their sales numbers suggest.
Among ASML customers that make logic chips, Intel said in August it would cut capital spending by $10 billion in 2025, while Samsung has said it faces challenges at the factory it is building in Texas.
Roughly a quarter of chipmakers' spending on tools goes to ASML, though some analysts say changes in chip-making techniques could lead that to be lower.
Management also said that customer delays are also a negotiating tactic that may force pricing concessions from ASML, squeezing margins.
Ultimately, this is a temporary demand adjustment after years of outperformance, and I would allow the seasonality to work itself through the system.
I see no threat to the overall business model of ASML, and if bad news on ASML triggers hits to other great chip stocks, I would look at some short-term bull call spreads on strong chip stocks in the US.
At the very least, if you don’t buy the dip, don’t take the other side of the trade because, more often than not, this type of price action sets up a “rip your face off” rally to the upside.
Mad Hedge Technology Letter
October 14, 2024
Fiat Lux
Featured Trade:
(GREAT POTENTIAL FOR A TECH SUB-SECTOR)
(CIBR)
I know many people don’t talk about this, but they should.
Much of the insurance industry has been lapping up the profits, because of cataclysmic hurricanes, floods, earthquakes, tsunamis, and mudslides.
Why not do the same with tech?
Now there is a new insurance sub-sector that could become equally as expensive for companies protecting against cybersecurity risks.
The demand for cyber insurance is set to grow amid a series of high-profile cyber-attacks and this trend is unrelenting.
From my channel checks, the cyber insurance industry is set to expand at an 18% compound annual growth for the next 5 years.
Instead of physically robbing a bank and exposing oneself to the violent harm, cyber criminals are sitting behind computers in remote parts of the world digitally looting from their laptops.
Even if they do get caught, they are often in countries that have no extradition agreements with victims from the nation state.
The low risk nature of the heist and asymmetrical gains are almost like options trading.
Let’s see some of the instance of recent cyber fraud.
United Healthcare’s Change Healthcare medical billing processor, which links one third of Americans to health-insurance payments, suffered a cyber-attack in February, crippling the payments systems of a significant number of hospitals.
The May attack on Ticketmaster compromising 560 million customer records was another win for the cyber bullies.
An estimated $8 trillion was lost globally to cybercrime in 2023, a significant increase vs. the $600 billion estimated in 2018.
This industry pays and a time will come when Fortune 500 companies will become the main target.
Some of these far flung places that have major cyber hacking operations are little known places in South East Asia where they took in over $200 billion last year.
Malware, generative AI, and deepfakes have been integrated into their operations while opening up new underground markets and cryptocurrency solutions for their money laundering needs.
As a result cyber frauds have continued to intensify from East and Southeast Asia.
This is just the tip of the iceberg, but the message is clear.
If funds are illegal taken, it is almost impossible to recover them when they are funneled into China then laundered into a 3rd party jurisdiction.
Much of this type of cybercrime is now professionalized.
Ultimately, cybersecurity insurance is a variable that is set to mushroom in the coming years.
Cybercriminals are not only in the widely active East Asia, but many more from Eastern Europe and Africa, and each region is imitating each other as they see strategies succeed.
Ironically, according to the data, the only companies that feel it is worth paying up for cybercrime insurance and companies in North America and Europe.
If this starts to become a drag on the earnings, it could really drag down some smaller companies.
As what is usual for bigger companies, these types of costs are usually passed down to the end consumer and their pricing power allows big tech to do it.
Many have not heard of insurance in tech, and it might be the new tail risk to monitor moving forward in tech, because the monetary rewards for starting a hacking ring in a foreign country is too great to ignore.
I predict that in the next few years, one big tech name will fall due to a run on its security integrity creating a new massive windfall into cybersecurity firms.
Readers should not fall asleep at the wheel and invest in First Trust Nasdaq Cybersecurity ETF (CIBR).
