Tech Letter Archives - Mad Hedge Fund Trader

AI Moves The Needle

Compassion for humanity – that’s all we need – this is the only trait corporate Americans need for bosses like him to employ humans over AI filmmaker Tyler Perry.

That’s all a tall order for corporate tech ($COMPQ) in Silicon Valley which usually prefers not to prioritize compassion for humanity over profits.

That’s bad news for tech workers and we got more confirmation of this trend with Tesla (TSLA) CEO Elon Musk cutting 600 white-collar corporate jobs from the Fremont, California office.

Elon is usually one to be on the forefront of the curve and he isn’t late with the firing means we are just in the first innings of it.

An interview with Tyler Perry led him down the rabbit hole of the future of AI and it wasn’t pretty if you are a W2 worker.

As it relates to implanting AI, the one irrefutable conclusion he could make was that human workers would lose out at the expense of the bosses who would gain.

Over the past four years, Tyler Perry had been planning an $800 million expansion of his studio in Atlanta, which would have added 12 soundstages to the 330-acre property.

Now, however, those ambitions are on hold — thanks to the rapid developments he’s seeing in the realm of artificial intelligence, including OpenAI’s text-to-video model Sora, which debuted on Feb. 15 and stunned observers with its cinematic video outputs.

His productions might not have to travel to locations or build sets with the assistance of technology.

His expansions are currently and indefinitely on hold because of the quick developments of AI.

He might not need to invest in anything at all except some AI additive technology.

Perry said the job losses in his industry could range from writers, actors, sound specialists, builders, designers, architects, and so on.

Human actors are on the chopping block and the only digestible content that will be saved from the bloodbath is live sports which is why premium content like the NFL, soccer World Cup, and Alabama college football fetch astronomical numbers to license these games.

None of that will be replaced by AI, but much of the best of the rest will and the hundreds and thousands of jobs will sink with them.

Perry also described a situation in which he used AI which kept him out of makeup for hours.

In post and on set, he was able to use this AI technology to avoid ever having to sit through hours of aging makeup.

The movie industry won’t need to negotiate with the actor's or writers' unions again, because they are dispensable.

What will happen in tech?

Google and Apple will build products but with much less staff involved.

Compensation expense is about to drop precipitously without warning.

Remember that the dive into AI won’t be a drip, but a waterfall because once one figures out a way to optimize the technology, everyone else follows suit.

The copycats come out of the woodwork and reverse engineering takes hold.

If you thought that Congress is responsible to save the workers then you’ll be waiting for a long time.

Tech executives have been lobbying Washington for a generation, and I believe they will take the side of management.

And in any case, if the government does get involved, they usually make regulations too onerous to hire humans making the situation worse.

What does this mean for tech stocks?

They go higher.

Expenses will take a meaningful dive, dividends and buybacks go up with more cash on hand, and tech stocks comprise an even larger percentage of the overall market.

We have sunny days ahead for the tech sector.

AI WILL HAVE A BIG IMPACT IN THE MOVIE INDUSTRY

May 17, 2024 - Quote of the Day

Tech Letter

“Never invest in a business you cannot understand.” – Said American Investor Warren Buffett

May 15, 2024

Tech Letter

Mad Hedge Technology Letter
May 15, 2024
Fiat Lux

Featured Trade:

(MEME MAYHEM)
(GME), (AMC), (NVDA), (SMCI)

Meme Mayhem

Tech Letter

GameStop (GME) and AMC (AMC) shares taking off like a bandit from a bank heist is highly advantageous for tech stocks.

Everyone who owns tech stocks maybe doesn’t know that but won’t complain when their shares go up.

This aggressive price action clearly signals to the rest of the stock market that monetary policy is way too loose.

Yes, and I am saying that at Fed Fund rate sitting at 5% today.

It’s a tough job to reign in the inflationary genie after it’s out of the bottle, and the liquidity sloshing around that overflows into a high inflation backdrop means that prices trend up.

That also goes for tech stocks.

Much of that liquidity has found its way into growth tech stocks like Nvidia (NVDA) and Super Micro Computers (SMCI).

It’s also found its way into marginal tech companies like Gamestop and meme movie cinema stock AMC.

Capital wouldn’t be allocated this poorly into mediocre stocks if there was a tighter cap on liquidity which there isn’t.

It was only just the other week in which the US Central Bank slowed the pace of asset run off to their balance sheet which equated to yet another injection of quantitative easing for tech stocks.

What does that mean?

In the short-term, tech stocks are off to the races.

This is a side effect to the easy money policies resulting in 100% moves in AMC and GME.

It’s almost laughable but that is the world we live in.

The moves higher in both stocks, which have since been followed by several trading halts and subsequent paring of gains Tuesday, came after the reemergence of Keith Gill, also known as "Roaring Kitty," whose bull case on GameStop ignited the meme stock rally back in 2021.

Every bull market has its share of excess and mini bubbles, but this only becomes dangerous when it becomes widespread.

Even if interest in ‘meme’ stocks rebounds following a renewed surge in GameStop’s share price, it doesn’t mean that we are at the end of the tech sector’s Bull Run.

It does mean we are very late in the tech cycle, but honestly speaking, we have been late cycle since 2019.

It’s so late that tech companies now have to issue dividends to keep investors onboard.

They used not have to do that because they were growing so fast.

Sometimes tech stocks don’t sell themselves and this is a period when that is so.

The almost 5 year late cycle action has meant that tech stocks are a good bet in the short-run and the underpinnings to this rally has been fortified due to AI mania that has engulfed many of the best and brightest of tech.

Stocks like GME and AMC shouldn’t be experiencing 100% gains in days in this part of the late cycle, not because I don’t like these companies, but because their business models don’t support such price action.

Gamestop sells video games at the mall.

AMC has a failing movie theatre business.

My take from it is that the tech Bull Run is alive and well in the short-term and there is definitely enough capital to stage a summer tech rally.

Hold on to your hat cowboy!

May 13, 2024

Tech Letter

Mad Hedge Technology Letter
May 13, 2024
Fiat Lux

Featured Trade:

(BUY THE TOURIST PLATFORM TECH STOCK)
(ABNB), (EXPE)

Buy The Tourist Platform Tech Stock

Tech Letter

Any type of selloff in Airbnb (ABNB) shares will be short-lived as we approach the summer Olympics and European soccer summer tournament.

Global Events of a month-long will get people out of their homes and spending their cash.

These premium events will move the needle for Airbnb revenue-wise in Europe.

The heart of world travel is Western Europe so it’s convenient that these mega-events are in France and Germany and not in some backwater.

Better luck next time if you haven’t locked up your Airbnb in Germany or France by now.

Travelers even have the option to stay through September and enjoy the annual Oktoberfest in Bavaria.

There isn’t lodging to be found in Western Europe in the summer months and even though the economy is starting to weaken around the edges, we are still in for another summer of travel post-pandemic style.

Tourists are splurging like there is no tomorrow held up by the higher income bracket.

Italy is famous for hosting 8 million Americans per year and is otherwise known as Americans' favorite European destination.

That number is poised to balloon to 12 million by 2030 and that means revenue growth for Airbnb as Italian Airbnb’s are rampant everywhere you go in Italy.

As for the company, the business model has been doing great ever since CEO and Founder Brian Chesky put a tight leash on expenses after being caught wrongfooted during the pandemic.

The stock sold off on the earnings even with the nice beat and the Mad Hedge tech letter executed a call spread on the underlying shares.

Weak guidance has been a hallmark of this past earnings season as the economy softens.

Management needs a lower bar to jump over for later this year.

Revenue increased 18% year over year to $2.14 billion last quarter, ahead of the $2.06 billion consensus.

The surge in profit margins was due in part to a shift in the Easter holiday to the first quarter, strong interest income, and leverage from its revenue growth and cost discipline.

The stock is now down 13% from its year-to-date peak and at its lowest point in close to three months.

Airbnb competes with hotels and other types of overnight accommodations, but its closest competitors are other home-sharing platforms like Expedia's VRBO.

But Airbnb already dominates the home-sharing niche with a leading market share among those platforms, and the company appeared to strengthen its position in the first quarter. Revenue at Expedia (EXPE) increased 8% in the period, while its B2C division which includes VRBO was up just 3%.

Competitors have been unable to overcome the powerful network effect present on Airbnb's platform, allowing it to continue growing its lead.

The shareholder returns program is beefing up.

The company continues to return capital to shareholders, buying back $750 million in stock last quarter. With $2.5 billion in total share repurchases over the past year,

Airbnb has reduced its shares outstanding by nearly 3% over that period. While 3% might not sound like much, this strategy compounds over time, and Airbnb should be able to increase buybacks as profits grow.

Additionally, the company is benefiting from higher interest rates as it's on track to generate close to $1 billion in interest income this year, giving it a significant boost on the bottom line.

I’m betting on an uptick in shareholder interest in the short term at these price levels.

I was a little uncomfortable chasing it higher from $170, but $150 is more reasonable and I do believe the Fed pivot tailwinds could catapult us into profits with this trade.

May 13, 2024 - Quote of the Day

Tech Letter

“He does not possess wealth; it possesses him.” – Said Benjamin Franklin

May 10, 2024

Tech Letter

Mad Hedge Technology Letter
May 10, 2024
Fiat Lux

Featured Trade:

(CHINESE TARIFFS AT THE FOREFRONT)
(EV)

Chinese Tariffs At The Forefront

Tech Letter

Tariffs on Chinese EVs skyrocketing by 400% are just another example of the federal government getting in the way once again as the current administration limps to the November starting line.

These levies are directed at everything central to producing EVs like the battery and the car itself.

I understand that the point is to protect EV companies at home, but tariffs don’t work and in almost every case, the end price to consumers rises painfully.

It’s not any better over the Atlantic so this frees us China to innovate and get ahead with government support.

The Chinese are playing the long game.

This review of Chinese tariffs was triggered by the administration before it, and it just smacks of inefficiency to me. It only took 4 years to finish the review as infighting took hold and the glacial pace finally ended with a decision.

In fact, Biden's $7.5 billion investment in EV charging has only produced 7 stations in two years, per Washington Post.

Where did the rest of the money go?

My guess is carrying out a raft of economic surveys isn’t cheap when there are no guard rails in price setting.

Maybe the thousands of consultants giving their 2 cents to keep that bureaucratic machine humming in Washington made a dent with another few billion invoices.

I’ll at least give it to the White House that they were able to produce 7 and not 1 or 2.

A billion dollars per EV charger is not good enough in 2024 while the Chinese forge ahead with their technological prowess.

The Chinese tariff rate on electric vehicles is expected to quadruple from roughly 25% to 100% plus an additional 2.5% duty would apply to all automobiles imported into the US.

The EU launched an EV subsidy investigation in October that may lead to additional tariffs by July as well.

The tariffs would likely have little immediate impact on Chinese firms since its world-beating EV manufacturers have steered clear of the US market due to tariffs.

Its solar companies mostly export to the US from third countries to avoid curbs, with US firms seeking higher tariffs on that trade, too.

The move comes after Biden last month proposed new 25% tariffs on Chinese steel and aluminum.

Protecting the American EV sub-sector feels like a situation in which China is outcompeting American EV companies and the government is directly reacting to that in an emotional way.

My guess is that it won’t work.

China will be able to circumnavigate these tariffs easily. It’s impossible to put the genie back in the bottle once it is out.

The only way American EVs will find a solution is to innovate itself away from the competition and that will be tough with the level of interruption by the Federal government.

Sooner or later, these better-made Chinese cars will find themselves in Europe and America on a grand scale.

If the government would get out of the way, tech companies would be forced to innovate or die.

A main strategy of stopping the Chinese from selling to you is a wack-a-mole strategy and the products will eventually arrive,

I am strongly bearish the American EV sub-sector at this point.

This is another tech sub-sector that has turned stale, similar to the streaming sub-sector where I just took profits in a bearish Roku trade.

Why doesn’t the admin go after the Chinese unrealized profits while they’re conjuring up some more tariffs? I wouldn’t put it past them.

May 8, 2024

Tech Letter

Mad Hedge Technology Letter
May 8, 2024
Fiat Lux

Featured Trade:

(THE TECH STOCK HAS MORE ROOM TO RUN)
(ANDREESSEN HOROWITZ)