Mad Hedge Technology Letter
April 11, 2025
Fiat Lux
Featured Trade:
(WALMART IS THE NEW TECH UNICORN)
(WMT), (AMZN)
Walmart’s (WMT) shares are up year to date and that is quite an achievement in the stock trading environment we are in.
This company is pretty much an e-commerce company in 2025, and its future is bright.
Walmart isn’t a traditional tech company, but it is turning into the closest competitor to Amazon.com (AMZN).
The company from Arkansas has pivoted hard to the e-commerce side of business pumping billions into developing its infrastructure.
Like many CEOs, management has understood for quite some time that the future is e-commerce and the delivery of products to people’s homes.
Walmart’s management saw this trend early and pounced on it and at one point during this year during the Trump rally, shares of WMT were up 60%.
That meant it was on track to have its best year since 1999 because the market came crashing down to reality. Back then, the retailer was building a bunch of superstores and making a bigger name for itself in Canada and Mexico.
Roughly 60% of Walmart’s business is groceries and consumers have relied on WMT to deliver competitive pricing during a high inflation environment. It’s improved its delivery and curbside pickup services, and that’s made it an attractive option.
WMT quickly has evolved into a digital package of services that is a worthy rival to Amazon.
The website, the app, and the annual membership have brought in new customers.
WMT has attracted the $100,000 per year household which they never did before and they will continue to deliver earnings to WMT as inflation and interest rates stay sky high.
Walmart has created an artificial intelligence (AI) agent for its merchants called Wally to help “get to the root cause of issues related to things like out of stocks or overstocks with more accuracy and speed.”
Walmart expanded its store-fulfilled delivery to reach 93% of U.S. households with same-day delivery, its chief financial officer said.
Sam’s Club ecommerce sales grew 24%, including triple-digit growth in club-fulfilled delivery.
Walmart Inc. announced 16% growth in its global online sales for its fiscal Q4 2025, which ended Jan. 31, 2025.
That’s about four times faster than the retailer’s overall Q4 revenue growth rate. Meanwhile, although Walmart didn’t specify its year-over-year ecommerce growth for the full 12-month period, Walmart said it grew revenue in that time frame.
Walmart’s fiscal 2025 marked the 10th consecutive year in which it grew its total annual revenue. Moreover, it has only had one year-over-year annual decrease — in 2016 — since at least its fiscal 2009.
Although, the recent short-term price action has been brutal to say the least, once all the bad news is priced into the stock, I do see the stock rallying to the upside.
Meanwhile, WMT becomes more and more like a tech company and pushes competitors like Amazon to raise its level of services to customers.
In the crush of higher inflation, WMT has delivered value to a higher income bracket in the United States and I believe that will continue as we me further into 2025 and 2026.
In the next few years, we will also see $200,000 per year salaried consumers grace the aisles and digital services of WMT to the benefits of the underlying stock.
Expect this type of showmanship to be the new normal as the U.S. government goes pedal to the medal hoping to extract better trade terms.
In the short term, expect wild swings in the prices of US tech stocks.
U.S. President Trump unilaterally raised the US tariff rate on China (FXI) to 125% and instituted a 90-day pause on steep 'reciprocal' tariffs.
The Nasdaq shot up by an intraday 10% - an unprecedented type of market reaction stemming from short-covering.
The entire tech index was heavily weighted for lower Nasdaq ($COMPQ) share prices and this one announcement torpedoed the short-term momentum to the downside.
2025 is presenting itself to be one of the hardest environments to trade in the last two decades plus as tech shares are the trajectory of them are reliant on the whims of an aggressive new federal government.
People are scared – scared more about the uncertainty this presents.
Uncertainty creates an environment to sell stock resulting in meaningful lower-tech shares.
Additionally, it is very obvious the federal government will target China and the way it does business to reign them in. They are the big fish.
Remember that China has a massive youth unemployment rate problem inching towards 30% and the Chinese Communist Party (CCP) knows they are playing with fire if Trump’s tariffs result in millions of new job layoffs.
Trump on Tuesday claimed that China, as well as other countries, are keen to negotiate. Those talks have reportedly begun with Japan and South Korea. But he has remained defiant as members of his own party and Wall Street billionaires start to push back.
On the negotiations front, both markets and trading partners still seem to be searching for what exactly Trump is seeking.
The president’s approach has prompted retaliation from China and caused other countries to draw up their own plans to hit American exports. As a result, economists have raised their expectations for a recession in the United States, and many now consider the odds to be a coin flip.
During the trade fight with China in Mr. Trump’s first term, U.S. agricultural exports plummeted after China imposed high retaliatory duties on soybean, corn, wheat, and other American imports, and the United States spent about $23 billion to support American farmers.
The Retail Industry Leaders Association, which represents major companies like Walmart, Target, and Best Buy, said this could drive up prices for the American consumer.
In the short term, this should first alleviate the pressure on the U.S. dollar and the price hikes for tech products.
I would stay away from companies that have exposure to China like Tesla and Micron.
Gradually, we will see countries come to the table and if this gets through, even in diluted form, it would be considered a victory for US tech stocks.
Sure, the Federal Government could again jump back on its horse and go insane with the tariffs, but I do believe this pause highlights the fact that they aren’t willing to nuke the economy and tech sector just yet.
I also believe there is a roadmap to claim victory in all of this.
It starts with East Asian countries like Japan and South Korea which will take a “bad deal” in exchange for stability.
We have seen this a few times with Japan and I don’t believe they will reject America’s approach when Japan’s economy, society, and direction are even worse than Europe and America combined.
Once we get a little bit more settled and predictable, it should be a great buy-the-dip opportunity in tech shares.
Mad Hedge Technology Letter
April 7, 2025
Fiat Lux
Featured Trade:
(THE NEW NORMAL FOR SEARCH ENGINES)
(GOOGL), (TRIP)
Google (GOOGL) search has altered the way it does business by implementing AI in its headline search engine.
When an internet user searches through Google’s engine, Google’s “AI Overview” offers a short summary as the first result at the top of the page.
This is the new normal so get used to it.
The data they use for the AI Overview is scraped from third-party websites and that has meant many websites have suffered a massive hemorrhage of page views since 2024.
In some cases, independent websites have reported a reduction of up to 90% of website traffic on their own pages and many of these have gone out of business.
The traffic pullback has been felt across the web and has spanned topics — fashion and lifestyle, travel, DIY and home design, and cooking.
Some creators say Google has recently made so many changes to search, coinciding with its testing of AI-powered features and an effort to rid its results of AI-generated spam, that it has choked traffic to independent websites in favor of forums like Reddit and Quora, as well as larger media brands.
Other times, once-popular sites whose domains were sold and repurposed by clickbait farms have been highlighted by Google.
According to the data firm BrightEdge, the sites receiving the most referral traffic from AI Overviews are primarily big players, like TripAdvisor (TRIP), Wikipedia, Mayo Clinic, and Google’s own YouTube, rather than smaller publishers.
The power dynamic between Google and individual creators is so lopsided that many publishers have no leverage to even negotiate anything substantial.
At a stock level, this is great news for Google as they will be able to command a more reliable ad revenue model because internet users won’t need to migrate out of the Google ecosystem.
Many of the big tech platforms are designed as “wall gardens” – a one-stop shop for everything digital.
Smaller content creators relied on Google to help catalyze web traffic and those days are long gone.
Content creators should expect a 90% drop in traffic via Google.
This development is healthy for Google’s chances to stay in the AI competition.
No doubt, they are competing with X.com’s Grok AI and ChatGPT’s AI. That is no small feat.
Unfortunately, the smaller content creators will get elbowed out of the way.
Even Google Maps has integrated with Travelocity reviews lately.
Travelocity integrates with Google Maps to help users find hotels, motels, and inns on an easy-to-use map view, allowing them to plan their trips and share their itineraries.
I believe there will be a continuous reliance on priority bigger platforms for data partnerships precisely because they have the money to pay for it.
“AI Overview” will keep Google Search relevant for longer while increasing Google ad revenue, but it has an uphill battle to climb because I believe the quality of its AI still lags behind the leaders.
IT would make sense to start the dollar cost average into Google shares at $135 per share and $120.
Mad Hedge Technology Letter
April 4, 2025
Fiat Lux
Featured Trade:
(TECH STOCKS HURTING)
($COMPQ)
That was quick.
The Global Trade War has gone ballistic in a short amount of time and, tech stocks haven’t had time to digest this type of news.
Today’s sell-off at the time of this writing is over 5% intraday and around 10% over the past 5 days.
It is bad for everyone and accelerates an era of deglobalization that is picking up around the world.
China has hit back at new U.S. tariffs with sweeping levies of its own on American products, sharply escalating the trade war between the world's two biggest economies.
China's finance ministry said on Friday a 34% tariff will be imposed on all U.S. imports after the U.S. did the same to China.
Remember that many tech products are produced in China which is why the price of iPhones is only $1,000.
If iPhones are to be produced in the U.S., I expect a price of around $4,000 per iPhone.
The truth of the matter is that the U.S. onshoring manufacturing won’t make prices lower for average Americans.
Escalating trade rules between your biggest trading partners is a high-risk high-reward strategy.
It could easily backfire for the United States whose government also promises lower prices on tech devices and groceries.
In the short term, I don’t understand how lower consumer tech prices are on the table. There is no path to achieve that. In almost every model I play out, prices will go higher for almost everything.
This will be difficult for tech firms to pass on the costs to the end consumer. The consumer will simply not buy, kind of like a silent protest.
China's commerce ministry said it is adding 16 U.S. entities to an export control list, banning them from acquiring Chinese products designated as dual-use, for civilian and military purposes.
China’s economy is weakening and it will be fascinating to see what this does to the Chinese tech sector. The only guarantee is that Chinese factory workers who make American products face losing jobs in mass quantities.
Uncertainty is what the market hates and politics is delivering us a big dose of it.
In the short term, I see more volatility with governments escalating the fight further and getting entrenched in some of their positions.
Clearly, countries in Europe and China see the way they do business as normal, and having such a relative tax advantage has always helped foreign companies compete in the U.S.
The strategy is so good that American companies also began offshoring work to cheaper countries.
Almost every tech company publicly traded on the markets has the bulk of employees stationed outside of America.
At the same time, big tech companies are automating jobs and really shrinking their balance sheet to endure the turmoil.
Workers have lost negotiating leverage, and tech companies, in many cases, require 5 days per week in-office work.
What does this mean for tech?
Nothing good in the short-term.
Revenue targets will get slashed.
American jobs will be aggressively cut.
Management will force less workers to do more work for less pay while middle managers will get fired.
Expectations of less revenue have become more normalized in management circles in Silicon Valley.
Tariffs causing the cost of living to explode will mean less money on the table for tech.
For the time being, this will negatively impact the price of tech stocks. Brace yourself.
“The only way to do great work is to love what you do.” – Said Apple Co-Founder Steve Jobs
Mad Hedge Technology Letter
April 2, 2025
Fiat Lux
Featured Trade:
(THE TRUTH ABOUT TESLA THE BUSINESS MODEL)
(TSLA), (DOGE)
It is becoming more than obvious that Elon Musk’s venture into politics is hurting his business as Tesla dishes us some bad results from the latest quarter.
The amount of global deliveries failed to meet the mark and demand has been sapped for a variety of reasons.
Before getting more into it, I must say that European and American EV makers face an existential test against the Chinese and this challenge isn’t a decade or 2 off – it is right here and right now.
China has used its technological prowess to quickly rise up through the value-added supply chain and they now make a smartphone almost as high quality as an iPhone but for just a fraction of the price.
If we extrapolate this concept further out in terms of directional trajectory, the Chinese will most likely reproduce a similar outcome in aviation, humanoid robots, AI, semiconductor chips, automation and every leading tech sub-sector.
Musk certainly knows this which is why he is pivoting to robo-taxis and humanoid projects that are making headway, but not ready for commercial use.
The pie shrinking and the Chinese grabbing larger pieces of it is why Tesla only reported a paltry 336,681 deliveries versus 390,342 estimated.
This marks the worst quarter for deliveries since the second quarter of 2022.
The refreshed Model Y went on sale globally in March, which could be a reason for depressed demand for its top-selling vehicle.
Tesla sales have been stalling across most of its global territories. Earlier this week, Tesla registration data in key European regions fell in March, another sign that sales are continuing to slide in one of its key markets as Tesla's brand has also taken a backseat to Elon Musk’s political foray.
In France, only 3,157 Tesla EVs were registered, down 36.8% from a year ago. Norway saw only 2,211 registrations, down 63.9%. Sweden’s tally of 911 was only down 1%.
Tesla’s registrations are a close proxy for sales, which the company only reports quarterly and does not break out by region.
Another worrying trend that I must bring up is the rapid increase in political violence against Tesla products which is quickly muddying the prestigious brand.
Consumers simply won’t feel safe to buy or drive around in a Tesla if there is a good chance it will get blown up or vandalized.
It would be a good idea for Tesla if Musk clarified his role in running the Department of Government Efficiency (DOGE) and balancing his duties with Tesla.
Even if he does clarify his position, then it could all be for naught with politics quickly dissolving into a zero-sum game in almost every G20 country.
If we step back and look at the broader picture, it appears as if Tesla and Musk have run up to the extreme limit of his personal and political success in the short-term.
Any further meaningful progress will mean Musk “breaks the wall” and radically pivots into something new that will be the catalyst for another leg up in Tesla shares. He will also need federal government cooperation to do this which he didn’t have in the last administration.
Unfortunately, that transition process could become acutely painful for Tesla the business model in the short-term, and any trader looking for a quick mini-dip buy should avoid Tesla for now.
For long-term investors, this is a stock that hasn’t factored in robo-taxi or humanoid technology, and if anyone gets to deploy these two technologies, it will be Tesla and nobody else.
The risks to innovation can be sometimes existential while sting in the short-term, and Musk is finding that out in all its glory.
In the short-term, put on your seatbelt for heightened volatility, and long-term, buy and hold Tesla.
