Mad Hedge Technology Letter
April 30, 2025
Fiat Lux
Featured Trade:
(HUMANOIDS TO THE RESCUE OR NOT)
(TSLA)
Dr. Doom Nouriel Roubini needs to lay off the fear porn – I’m not taking the bait this time. Sorry Roubs!
Roubini is sounding the alarm bells on humanoid robots, but I think it is more of a case of fear-mongering than anything else.
After all, like most economists, Roubini isn’t a trader, he is an academic who sits behind the scenes and goes after those juicy sound bites that the media need to publish stories.
He wasn’t taking profits in great tech trades like when I captured profits on Netflix just the other day.
His idea goes like this…
He thinks the big breakthrough right now is the evolution of humanoid robots that essentially follow individual workers on the factory floor, on a construction site, even a chef in a restaurant, or a housekeeper. It's terrifying, but it's happening in the next literally year or two.
For this level of transformation in one year, I believe the percentage chance of this coming to fruition is less than 2%.
My understanding of the humanoids is that the software will take 10 years to figure out the nuances.
Roubini — known as Dr. Doom for his bleak economic forecasts — said human jobs will be lost to humanoids.
Instead, an LLM (large language model) learns about everything in the world, the entire internet follows your job or my job or anybody else's job in a few months, then learns everything that a construction worker, factory worker, or any other service worker can do, and then can replace them. And I think that it's going to be a revolution — it's going to affect blue-collar jobs like we've never, ever seen before.
The humanoid robot market could reach $7 trillion by 2050, Citi research recently found. Those robots — such as Tesla's (TSLA) Optimus — may be able to do everything from clean your home to fold your laundry. The robots could create job loss as routine tasks get automated.
There is a higher likelihood that this humanoid from Tesla will be used as staging to convince investors to buy more tech stocks.
Tech companies have a huge problem on their hands and there hasn’t been a lot of great brain activity to find a real solution.
Venture capitalists have been lamenting the lack of real innovation in tech products like Mark Andreesen and Peter Thiel.
The humanoid is here to get investors to buy more tech stocks in companies that aren’t innovating.
Tech companies are cutting staff to beat earnings and that isn’t a sign for top notch growth.
Investors need to separate the fluff from reality.
The reality is that big tech companies still make enormous amounts of profit, but have failed miserably in finding something new.
Apple CEO Tim Cook is still figuring out what to do next after selling iPhones to Chinese people.
The humanoid operating on AI software might give tech stocks an extra 6-month cushion before investors pull the rug.
Enjoy the bull market while it lasts. I executed a bullish trade in Dell which is part of the AI story.
AI stocks will go higher and humanoid stocks will too – not because they will make money, but because investors still buy the hype.
Mad Hedge Technology Letter
April 28, 2025
Fiat Lux
Featured Trade:
(GOOGLE GIVES US SOME GOOD NEWS)
(GOOGL), (NVDA)
I am not saying that Google’s (GOOGL) earnings report will save the market; the market isn’t just GOOGL.
However, the company demonstrated there is still some positive performance out there in the tech sector when many out there are having a hard time.
It is clear that we are about to embark on a journey where big tech actively pulls the levers of shareholder returns to get over the low bar of expectations.
It is true that Google has not innovated for years and is still relying on its cash cow called the Google search engine, to drive ad revenue.
At some point, there will be competition as proprietary technology becomes beatable.
Competition is prompting the company and its rivals to spend heavily on infrastructure, research, and talent. While Google benefits from AI startups spending on its cloud and business tools, it’s also racing to present an answer to popular conversational AI chatbots, which consumers are beginning to think of as an alternative to using Google Search.
Google’s beginning of the answer to that threat — its “AI Overviews” and “AI Mode” in search, in which summarized responses are drafted by generative AI and highlighted ahead of Google’s web links — have seen mixed success. Meanwhile, Google’s AI changes to search have decimated traffic to independent websites across the open web.
Google Cloud brought in an operating profit of $2.18 billion, indicating that Google may be nudging out more profits from Cloud even as sales slow.
The cloud unit is so far the clearest indicator of how the AI boom is contributing to the company’s sales, as startups that require more computing power for their work become customers. Though Google Cloud still lags in third place behind Amazon and Microsoft offerings, it’s one of Alphabet’s most important growth areas.
Alphabet’s board authorized a $70 billion share buyback and boosted its dividend by 5%, to 21 cents a share.
With Google’s search business still holding up at a tough time in global business, I must conclude that Google is doing better than expected.
I believe that we will see a consolidated trend in 2025 of big tech dipping into their huge cash reserves to give back returns to shareholders. Google increasing its dividend by 5% is just the beginning, and we expect bigger returns as we move to the latter part of the year.
There is nowhere to invest in innovation right now in technology, which is why management is quick to buy back stock.
If there is some great project out there, management is keeping it close to its vest.
The long-term problem is that when you fire all the Americans with high wages who secured the company’s success to this point, replacing Americans with cost-cutting employees from India won’t deliver the same amount of innovation as the past in a mature environment.
American tech is supposed to set the bar in innovation, and now they are no,t which is why China is rapidly catching up to Americans on all cutting-edge technology, whether it be EVs or chip manufacturing.
Google is no longer a growth company, and that hurts the stock price.
We could experience a bear market rally that could propel Google along, but that depends on the whims of global politics, which Google has no control over.
If you look at the risk/reward scenario, Google is worth a bullish trade after the wild pullback.
Mad Hedge Technology Letter
April 25, 2025
Fiat Lux
Featured Trade:
(THIS TECHNOLOGY IS A FLOP)
(META), (AAPL), (MSFT)
Meta (META) cutting staff in its virtual reality and augmented reality divisions means uncertainty about future products originating from these places.
The juice has not been worth the squeeze.
I think everyone remembers when Founder Mark Zuckerberg had those goofy metaverse commercials depicting him as an avatar when he debuted the company name change from Facebook to Meta.
Well, the metaverse project isn’t working, which is why he’s firing staff from those projects.
The metaverse division has underdelivered and overpromised.
This lethal cocktail of failure is finally forcing management to cut off the fat from its body.
VR and AR are now losing billions of dollars per year, and as the business environment turns more pragmatic, these experimental projects are thrown out for good.
META said its Reality Labs unit recorded an operating loss of $4.97 billion while generating $1.1 billion in sales.
A nice quarterly performance of minus 3 billion dollars has forced management to make some tough decisions.
Now, the AR and VR divisions will be gutted.
Reality Labs is Meta’s unit that makes the Quest family of virtual-reality headsets and Ray-Ban Meta Smart Glasses.
Meta CEO Mark Zuckerberg kick-started his company’s VR endeavors in 2014 when it acquired the startup Oculus for $2 billion. Since then, Zuckerberg has characterized VR and AR as central to his plans to develop the futuristic digital world known as the metaverse, which he has said represents the next major computing platform.
Reality Labs has piled up an operating loss of more than $60 billion since 2020.
The losses cannot just be swept under the carpet.
Meta last week said it would invest between $60 billion and $65 billion in 2025 capital expenditures to expand its computing infrastructure related to artificial intelligence.
Even this AI infrastructure build-out is questionable at this point, as other big tech firms pull back from this type of investment.
Meta released its latest VR headset, the $299 Quest 3S, during its September Connect event and pitched the device as a way for people to watch movies, play games, and work out in VR.
Microsoft (MSFT) has lost at least $5 billion on HoloLens since the launch of the first model in 2016.
The Microsoft HoloLens is a mixed reality headset that allows users to overlay digital information onto the real world, creating a blended experience of physical and digital environments.
Microsoft’s withdrawal from the market for augmented and virtual reality hardware leaves competitors such as Apple and Meta with a less crowded field on which to compete.
Apple (AAPL) is another company that has bet on AR and VR.
In short, VR and AR have been money pits that suck up investment dollars, but deliver nothing in terms of profit.
Whether it is Meta, Apple, or Microsoft, they have all struck out at this technology and will need to embrace the reality that consumers don’t want Google-type technology on their face to interact with a screen.
AR and VR divisions should be buried in the graveyard of attempted technology that people aren’t interested in.
Back to the drawing board…
Mad Hedge Technology Letter
April 23, 2025
Fiat Lux
Featured Trade:
(TESLA HITS AN AIR POCKET)
(TSLA)
Tesla (TSLA) has problems and so do other tech firms at the start of 2025.
Saying that doesn’t give comfort even with a great bull market of 12 years.
The scary thing here is that many tech bulls might believe this is the end of the stock market party.
Moving forward, we will see many tech firms miss gross revenue and profitability.
Then there is the future forecast and I wouldn’t blame management on making excuses using the trade war which they can’t control.
Tesla missed their first quarter revenue target by nearly $2 billion.
Management has literally been in Washington DC getting into politics, and that has hurt Tesla’s stock.
Tesla’s stock almost halved to around $200 before catching a bid.
CEO and Founder Elon Musk said he will step back from his role with DOGE, staying involved part time.
He said he'll continue to spend a day or two a week on government matters, for as long as President Donald Trump wants him to.
Looking forward, a potential key revenue driver is the robo-taxi.
Tesla is set to debut this service in Austin this June, starting with "maybe 10 to 20 vehicles," Musk said.
Tesla also confirmed on the call that the initial launch will include remote human operators who can intervene if a vehicle becomes stuck or encounters an issue.
Musk said the goal is to bring the service to "many other cities in the US by the end of this year," predicting that "there will be millions of Teslas operating fully autonomously in the second half of next year."
Musk said that Tesla would be "the least affected car company" when it comes to tariffs.
"With respect to supply chain risk, something that Tesla has been working on for several years, is to localize supply chains," Musk said. "Tariffs are still tough on a company when margins are still low, but we do have localized supply chains in both America, Europe, and China, so that puts us in a stronger position than any of our competitors."
I do believe the low 200 level for the stock should hold as resistance for TSLA.
Much of the bad news, and there is a lot, is already priced into the stock.
It will be interesting to see if the brand recovers, because the product is deeply unpopular in California and Western Europe.
To be honest, while we wait on the robo-taxi to roll out, Musk saw an air pocket and we are hitting that with full turbulence.
That being said, if there was not a change of administration, there is no way he could make headway with the robo-taxi division.
Musk is waiting on the robo-taxi to save the day and the possibility that happens is better than 50%. In the meantime, I believe he will have a hard time moving sales of his standard EV. He has done a lot of damage by alienating half of his addressable audience.
I believe the stock slowly creeps higher, but in a volatile way.
As for Musk, I think he’ll be spending more time at his day job moving forward and that should help the stock just for that.
“People work better when they know what the goal is and why.” – Said Elon Musk
Mad Hedge Technology Letter
April 21, 2025
Fiat Lux
Featured Trade:
(DIFFICULTY OF DOING BUSINESS FOR CHIP COMPANIES)
(NVDA), (TSM), (HUAWEI)
