“The most important thing to do if you find yourself in a hole is to stop digging.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
June 28, 2024
Fiat Lux
Featured Trade:
(THE NEW AI PLAY THAT YOU MIGHT WANT TO KNOW ABOUT)
(VRT)
This new artificial intelligence stock could be a keep.
As an insider, let me fill you in on the details.
Readers need to look at a company that is literally collaborating with Nvidia to position themselves closest to Nvidia’s business model.
Aligning themselves with the hottest stock in the best sub-sector in the industry that grows the fastest isn’t a bad idea.
That’s why readers should take a peek at Vertiv (VRT) shares which has gone absolutely ballistic over the past year.
VRT is a provider of coolant distribution infrastructure for data centers.
IT cooling challenges continue escalating as new server-accelerated compute technologies, machine learning, artificial intelligence, and high-performance computing drive higher heat densities in the data center environment. Liquid cooling is rapidly emerging as the technology for efficiently handling power-dense hot spots.
These massive data centers require significantly more electricity to operate.
That offers upside to industrials, utilities, and commodities, according to the firm.
GPUs need 2-2.5x more power than CPUs, and expected power usage for US data centers under construction is equivalent to more than 50% of the power currently used by US data centers.
Here is how Vertiv aids the technological revolution:
High-Density Power and Cooling Solutions: The ever-growing processing power of AI requires robust power and cooling infrastructure.
Vertiv's data center solutions are designed to handle the intense heat generated by AI workloads, ensuring optimal performance and preventing overheating.
Technical Partnerships: Vertiv actively collaborates with leading AI chipmakers like Nvidia. These partnerships ensure their solutions are specifically tailored to meet the unique power and cooling demands of cutting-edge AI hardware.
End-to-End Expertise: Vertiv doesn't just provide individual components. They offer comprehensive solutions that manage power delivery and heat rejection from the power grid all the way to the individual chip. This holistic approach streamlines AI infrastructure deployment and optimizes performance.
Their scalable solutions can adapt to the ever-increasing power and cooling needs of AI applications.
Organic orders increased by 60% compared to the same period last year and net sales reached $6.82 billion.
Operating profit for the quarter was $203 million, while adjusted operating profit stood at $249 million, reflecting a significant year-over-year growth of 42%.
The company also began returning cash to shareholders, repurchasing approximately 9.1 million shares at an average price of $66 per share.
Its strong performance is due to robust demand, particularly in AI-driven deployments and liquid cooling technologies, positioning VRT for continued growth and operational improvement in the evolving digital infrastructure landscape.
The necessity of power usage also makes these GPUs considerably hotter, putting pressure on firms such as VRT to improve cooling systems in data centers.
VRT shares have essentially gone up in a straight line in the past 1.5 years from $12 per share to $86.
That type of return has been entirely justified.
Moving forward, I believe the stock will behave in a similar fashion as the demand for its products grows strongly.
Under no scenario do I find a way that its cooling technology will go by the wayside.
In fact, they could have such a great product that it might fuel speculation of getting acquired which would fuel an even higher share price.
I am bullish VRT.
“The best customer service is if the customer doesn't need to call you, doesn't need to talk to you. It just works.” – Said Founder and CEO of Amazon Jeff Bezos
Mad Hedge Technology Letter
June 26, 2024
Fiat Lux
Featured Trade:
(FISKER BLOWS UP)
(FSRNQ), (NVDA), (TSLA)
Fisker (FSRNQ) is bankrupt and I can tell you that I am not surprised.
The sushi has hit the fan.
The non-Nvidia (NVDA) tech firms minus big tech are really having a tough time staying liquid and dare I might say profitable.
Many already knew Fisker was in trouble.
They also have a terrible car which doesn’t help its case.
If Tesla (TSLA) is having a hard time selling EVs then imagine what it is like for Fisker to sell an utter clunker.
FSRNQ’s car has been coined as the worst EV on the market by many prominent bloggers.
Fisker management told us they might run out of cash before 2024 is over.
Definitely not shareholders like to hear in an industry that is looking more like a race to zero than an industry able to price itself at a premium.
I believe many car executives are ruing the fact of the multi-decade knowledge transfer to the Chinese about building quality cars.
How do we take tabs of the situation at Fisker?
It only sells one car called the Fisker Ocean electric SUV. Last year, around 10,000 of the SUVs were made but only about half had been delivered to customers.
In a recent interview with Automotive News, the company’s founder and CEO Henrik Fisker admitted that the Ocean had quality problems. He blamed the issues on software from different suppliers that worked poorly together and said they were being addressed through updates.
Worldwide sales of plug-in vehicles could rise 21% this year, which represents a smaller rise than the 35% increase in 2023.
The company listed between $500 million and $1 billion of assets, and between $100 million and $500 million of liabilities, in its petition filed in Delaware. The filing protects Fisker from creditors while it works out a plan to repay them.
While Fisker Ocean sport utility vehicle production started on schedule in November 2022, the first SUVs lacked basic features including cruise control. The California-based company told customers it would deploy capabilities it had promised them the following year, via over-the-air software updates.
Fisker produced 10,193 Oceans last year but delivered only 4,929 vehicles to customers.
Fisker follows a handful of other EV startups into bankruptcy, including Charge Enterprises, the installer of EV charging stations that filed for Chapter 11 protection in March. Other EV makers that have filed for bankruptcy include Lordstown Motors, Proterra and Electric Last Mile Solutions.
Anecdotally, EVs didn’t calculate properly how difficult it is to convince the 2nd wave of buyers.
For example, everyone in my family that will buy an EV has already bought one.
One Gen Z relative of mine swears he will never buy an EV because it doesn’t amount to more than a “toy car” with a battery that needs to be plugged in. He prefers a Ferrari or a Maserati where he can hear the engine roar. There is a high chance he will never be persuaded to buy an EV or if he does get persuaded, it will take 10-20 years for him to come around.
That is what EV makers face in bringing forward the next buyer.
Therefore, look at the bottom of the barrel EV production, they are all facing Chapter 11 and this is just the beginning.
Fisker’s share price peaked at around $30 per share in 2021 and now shares trade at $.02 per share. I would not buy the stock even at these levels.
Tesla’s halving of its share price also most likely means it is fairly priced for right now as we wait for a catalyst to send us either up or down.
The walls are closing in on the EV industry in the short-term and I advise readers to head to higher ground, let’s say the chip industry for a better crack at tech stocks.
“Only when the tide goes out do you discover who's been swimming naked.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
June 24, 2024
Fiat Lux
Featured Trade:
(E-COMMERCE PARTNERSHIPS WILL THRIVE)
(TGT), (SHOP), (WMT)
Target (TGT) is partnering with e-commerce specialist Shopify (SHOP) to expand its marketplace for third-party merchants.
This is a big deal so don’t diminish this news.
I honestly applaud this maneuver by Target, because it adds e-commerce footprint without paying a premium for it.
Everyone knows that everything is a total rip-off these days like adding an incremental addressable audience at a tech company.
Target has a lot to do to catch up with Amazon, but that’s the direction they should be headed in.
In the future, there is a highly likelihood that TGTs digital business will determine whether they succeed or fail as a tech company.
Everyone is going digital now. Adapt or die.
Shopify is a powerful back-end ecommerce foundation and integrating that with Target appears as a win-win decision moving forward.
We only need to look at competitor Walmart (WMT) which presides over a booming e-commerce business.
That is by decision as they launched a digital-first strategy and have made serious inroads into picking up e-commerce market share.
This partnership also on boards Target into a whole load of new products that they could only dream of selling and the process was rather painful.
Target Plus operates on an invite-only basis for merchants and currently offers more than 2 million items through more than 1,200 sellers.
Online marketplaces can also be launch pads for profitable advertising businesses, with merchants paying for prominent placement in front of shoppers.
Target more than doubled the number of sellers and products on its marketplace over the past year.
The company plans to maintain its invite-only model and continue vetting sellers on the platform.
Curating the selection — for example, allowing only one vendor to offer any given item — is a strategy that will let Target stand out.
Target’s partner, Shopify, makes software that helps vendors quickly set up online stores and process payments.
The company says it works with millions of merchants in about 175 countries. Globally, shoppers will spend $282 billion this year on stores managed with Shopify software. That’s more than double Target’s projected sales for the year.
We are at the late stage of the tech cycle that has been long in the tooth.
It’s not a shocker at this point for tech models to be petering out and management looking for that extra juice to kick-start revenue growth for however long the rest of the business cycle lasts.
Clearly, debt financing isn’t an option these days and I do believe this is a time when management showed their worth as conditions have been extraordinarily tight for the last 2 years.
There is also no guarantee that business conditions will reverse and go back into that pre-pandemic goldilocks phase.
The jury is still out but higher interest rates could be in the mix for the foreseeable future.
Therefore, it is clever by TGT and SHOP to strike up a partnership in which TGT expands their offerings and SHOP merchants get a crack at a new audience.
These opportunities are limited in fashion, but tech in 2024 isn’t about an unlimited addressable audience.
Tech in 2024 is more about efficiency and staying lean because the past 2 years have really been about cutting the bloat.
Target obviously has the more upside in this relationship and I expect them to add other partners that can move the needle.
TGTs share price has been flat for the past 6 months and migrating further into a digital strategy could be the formula to nudge that share price back into high gear.
The stock price is now at $150 per share and I do believe TGT has the chance to grind higher closer to $200 per share by year-end.
Mad Hedge Technology Letter
June 21, 2024
Fiat Lux
Featured Trade:
(CUPERTINO NEEDS A REBOOT)
(AAPL), (PYPL), (SQ)