“Success is a lousy teacher. It seduces smart people into thinking they can't lose.” – Said Founder of Microsoft Bill Gates
Mad Hedge Technology Letter
September 11, 2024
Fiat Lux
Featured Trade:
(IS THE TRIFOLD SMARTPHONE A GENIUS IDEA?)
(HUAWEI), (APPL)
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 is 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.
“One of the only ways to get out of a tight box is to invent your way out.” – Said Amazon Founder Jeff Bezos
Mad Hedge Technology Letter
September 9, 2024
Fiat Lux
Featured Trade:
(IS C3.AI WORTH AN INVESTMENT)
(AI)
I’m not going to write here that C3.ai is the best AI firm in the world.
They are not.
They have been around for a while and that has helped them with the first-mover advantage.
The AI software they develop helps corporations finish tasks quicker and more efficiently.
The stock hasn’t cared much for its business lately causing the stock to be beaten down.
C3.ai stock was trading at $183 per share in 2021 and has now settled around the low $20 range.
Needless to say, a drop that big stemmed from big questions about it’s the effectiveness of its business model and an overhyping of its AI business.
It won’t be the last to drop that hard and I do believe a wide swath of AI stocks won’t be able to meet the lofty expectations from investors.
It currently has a portfolio of over 40 ready-made software applications designed to help businesses accelerate the adoption of artificial intelligence.
C3.ai made a significant change to its business model two years ago, and it's starting to pay dividends.
C3.ai serves businesses across 19 industries, many of which wouldn't typically be associated with cutting-edge technologies like AI. They include manufacturing, oil and gas, utilities, and more. It's because C3.ai offers a unique value proposition - the company can deliver tailored AI solutions to customers in as little as three months following an executive briefing.
Oil and gas giant Shell, for example, deployed over 100 C3.ai applications across its organization. They're used to monitor over 10,000 items of equipment for predictive maintenance, which reduces the probability of a catastrophic failure. Plus, at one of Shell's liquefied natural gas plants, C3.ai's asset optimization software reduced carbon emissions by 355 tons per day. That's the equivalent of taking 28,000 vehicles off American roads.
C3.ai sells its AI software directly to customers, but it also has sales partnerships with tech giants like Microsoft, Amazon, and Alphabet. They offer C3.ai's applications on their cloud platforms, placing them in front of millions of customers the company might not have had access to otherwise.
C3.ai generated a record $87.2 million in revenue during Q1, representing a 21% increase from the year-ago period. It also marked the sixth consecutive quarter of accelerating growth, which is a direct result of a strategy shift inside the company two years ago.
C3.ai came public in December 2020, during a frenzy in the cutting-edge new technology called generative AI.
According to a recent survey by PwC, around 70% of top corporate executives expect AI to significantly change the way their organization creates value over the next three years. PwC also expects AI to add $15.7 trillion in value to the global economy by 2030, so the financial opportunity is enormous.
The company only has a growth rate of around 20% and that won’t cut it in the highest growth subsector in the tech sector.
Its change in strategy is starting to turn around and if they can nudge up the growth rate to 35%, I do believe the stock will go from the low $20 to the low $30.
There is a trade here, with 1-2% of your portfolio, and if we get a big market sell-off down to the teens, I would buy and hold this stock for the medium turn for a profitable trade.
As for a long-term buy and hold, I don’t believe the company has done enough to justify investors giving that much faith in them.
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
September 6, 2024
Fiat Lux
Featured Trade:
(BROADCOM A LONG-TERM WINNER)
(AI), (NVDA), (AVGO),
The chip trade isn’t in the dumps, but traders are taking a fine tooth comb to earnings guidance to see if the numbers are stacking up with the hype.
Today we got yet another data point that suggests chip stocks are great, but they aren’t living up to the lofty expectations of growth that tech companies are used to.
In short, they are too expensive and investors want a cheaper multiple for chip stocks right here and now.
So be prepared for a little bit of a selloff in the immediate short term.
One of the best second-tier chip stocks and one of Apple's biggest customers gave us a glimpse into operations behind the scenes at one of Silicon Valley’s robust silicon makers.
Broadcom (AVGO) delivered a disappointing sales forecast, hurt by the parts of its business that aren’t tied to artificial intelligence.
The company projected sales of roughly $14 billion in the fourth quarter while they expect $12 billion of revenue from AI-related products for the full year, beating the average estimate of $11.8 billion.
The forecast showed that Broadcom’s non-AI operations are growing more slowly than anticipated. Though the company has benefited from a surge in artificial intelligence spending, not all of its wide-ranging divisions are significantly profiting.
The AI spending boom has turned Broadcom’s rival Nvidia (NVDA) into the richest, most valuable company in the industry. Nvidia sells so-called AI accelerators that help develop tools such as ChatGPT. Broadcom has benefited as well by supplying related components and software.
Datacenter providers rely on Broadcom’s custom-chip design and networking semiconductors to build their AI systems. The company also sells components for cars, smartphones, and internet access gear. Its push into software, meanwhile, includes products for mainframe computers, cybersecurity, and data center optimization.
Over the long term, the AVGOs CEO believes that the AI chip market will move to custom, in-house designs. That would mean shifting away from Nvidia components — a change that could benefit Broadcom since it helps customers produce their chips.
Apple is a top customer as well: Broadcom provides key components for the iPhone.
Chip stocks were hovering at an all-time high just a few weeks ago.
The scandal that spurred a selloff in chips was the accounting issues at SuperMicro.
The initial event opened up a can of worms and signaled to traders to take profits while conditions were still favorable.
Now chip stocks are telling traders that they cannot keep up with the high expectations and investors will need to taper back the whole idea that AI is about to overtake the world.
Even if AVGOs AI business is doing exceptionally well, they have a legacy business that is bringing up the rear and could be a drag on the overall business for years to come.
AVGO is still a stalwart in the chip business with interests in the right verticals and I do believe it is still a long-term buy especially considering they still haven’t successfully integrated VMware.
Mad Hedge Technology Letter
September 4, 2024
Fiat Lux
Featured Trade:
(FEDS KNOCK THE WIND OUT OF TECH)
(AI), (NVDA), (MSFT), (META)
