Mad Hedge Technology Letter
April 14, 2025
Fiat Lux
Featured Trade:
(BIG TECH ANXIOUS FOR CLARITY)
(MSFT), (AAPL), ($COMPQ)
At this pace, nobody knows what the government policies will look like, and if this doesn’t change, the uncertainty will bleed into lower tech stocks ($COMPQ).
Tech has had a hard short-term run, and the unstable backdrop will lead to investors pausing on big tech stock purchases.
Tech businesses are also reigning in their investment spend, waiting to see what happens.
Microsoft (MSFT) has already made announcements on pausing its AI database build out and that has really chilled momentum in the wider AI trade.
If this electronics exemption announced Friday night is true, it represents an important temporary win for Apple (AAPL) and other China-dependent technology giants.
News reports that producing the iPhone in America could cause the price of a new iPhone to double send shockwaves throughout the investment community.
The federal government might have to pull back their aggressive policies when factoring in surging yield in interest rates and a short-term collapse of the dollar.
The president said these products are simply moving to a different tariff "bucket," telling reporters that a separate rate for semiconductor tariffs will be announced over this week.
Trump added that his goal is to "uncomplicate" things by moving production to the US but that companies will have a say.
Either way, the fact remains that Trump has offered at least a temporary boost to companies with close links to China, and investors are responding by sending stocks of directly impacted companies like Apple and Dell (DELL) higher this morning.
These technology companies' goods are still subject to 20% blanket tariffs on China over fentanyl and likely face legacy sector-specific tariffs from Trump 1.0 and the Biden era, but they are now able to sidestep the lion's share of the 145% rate that is now in place for other goods.
The move is also a significant walk back of Trump's overall tariff plans, with electronics representing the top exports from China to the US.
This weekend's move means the overall effective tariff rate on US imports is now 22% — down from 27% just last week.
The smaller the tech company is, the bigger they are impacted with this whipsawing strategy of threatening all your trading partners.
Larger companies certainly have more options than small businesses to dodge the tariffs due to their worldwide networks and political relationships.
Apple, as one example, also gained attention in recent days for reportedly chartering cargo flights to move as many as 1.5 million iPhones to the United States from India quickly to get ahead of tariffs there.
Tech shares are pricing in nothing positive emerging in the short-term.
Management doesn’t want to get burned by moving in one direction, only to see a product get wiped out due to high costs.
It is hard to change the issue of how the U.S. relocated the supply chain to cheaper foreign countries.
The consensus of higher prices comes after Americans have been dealing with uncontrollable inflation since 2020.
The extra price increase preceding Trump’s tariff crusade has consumers in a hole.
Even compared to 2024, I don’t see where the incremental dollar comes into the tech sector when margins are being squeezed in real time.
At best, we could experience a bear market or choppy sideways price action to reflect a tougher environment for doing tech businesses, whether it is streaming, software, hardware of EVs.
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 $200,000 per year salaried consumers grace the aisles and digital services of WMT to the benefits of the underlying stock.
“Innovation distinguishes between a leader and a follower.” – Said Steve Jobs
Expect this type of showmanship to be the new normal as the U.S. government goes pedal to the medal hoping to extract better trade terms.
In the short term, expect wild swings in the prices of US tech stocks.
U.S. President Trump unilaterally raised the US tariff rate on China (FXI) to 125% and instituted a 90-day pause on steep 'reciprocal' tariffs.
The Nasdaq shot up by an intraday 10% - an unprecedented type of market reaction stemming from short-covering.
The entire tech index was heavily weighted for lower Nasdaq ($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)